DRAFT DATED 9/29/2003
INTELLI-CHECK, INC.
1,000,000 Shares of Common Stock
(Par Value $.001 Per Share)
FORM OF UNDERWRITING AGREEMENT
New York, New York
October ___ , 2003
The Shemano Group, Inc.
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Ladies and Gentlemen:
Intelli-Check, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to The Shemano Group, Inc. (the "Underwriter") one
million (1,000,000) shares (the "Firm Shares") of Common Stock of the Company,
par value $.001 per share (the "Common Stock"), in accordance with the terms and
conditions set forth in this Underwriting Agreement (the "Agreement"). In
addition, the Company has granted to the Underwriter an option to purchase up to
an additional one hundred fifty thousand (150,000) shares (the "Option Shares")
of Common Stock, as provided in Section 2(b) hereof, for the purpose of covering
over-allotments. The term "Shares" used herein shall mean the Firm Shares and,
if to the extent such option is exercised, the Option Shares, collectively. It
is understood that the Underwriter proposes to offer the Shares to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement (as hereinafter defined) after the Registration Statement
becomes effective.
The Company will also issue and sell to the Underwriter, for
its own account and the accounts of its designees for an aggregate price of One
Hundred Dollars ($100.00), Warrants (the "Underwriter's Warrants") to purchase
up to an aggregate of one hundred thousand (100,000) shares of Common Stock (the
"Warrant Shares") at an exercise price of $_____ per share [120% of the offering
price of the Shares], which sale will be consummated in accordance with the
terms and conditions of the Underwriter's Warrant substantially in the form of
Exhibit ___ to the Registration Statement.
The Company hereby confirms its agreements with the
Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The conditions for use of a registration statement on Form
S-2 have been satisfied with respect to the Company, the transactions
contemplated herein and in the Registration Statement (defined below). A
Registration Statement on Form S-2 (File No. 333-108043) including a preliminary
form of Prospectus (the "Registration Statement"), relating to the offering of
the Shares, the Underwriter's Warrants and the Warrant Shares (all of which
collectively are referred to as the "Securities") has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") promulgated
pursuant to the Act, and said Registration Statement has been filed with the
Commission under the Act. One or more amendments to said Registration Statement
has or have, as the case may be, been similarly prepared and filed with the
Commission covering the registration of the Securities under the Act including
the related preliminary prospectus or preliminary prospectuses (each thereof
being herein called a "Preliminary Prospectus"). Each Preliminary Prospectus was
endorsed with the legend required by Regulation S-K and, if applicable, Rule
430A of the Rules and Regulations. The Company has prepared and will file on or
prior to the effective date of said Registration Statement an additional
amendment thereto, which will include the final Prospectus. The Company will
not, so long as any portion of the Underwriter's Warrants remains outstanding
and exercisable, file any amendment to the Registration Statement or any
amendment or supplement to the Preliminary Prospectus or the Prospectus (as
those terms are defined below) unless the Company has given reasonable and prior
notice thereof to the Underwriter and Underwriter's Counsel (as such term is
defined below) and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to and
means said Registration Statement, including any documents incorporated by
reference therein, all exhibits, financial statements and schedules and the
Prospectus included therein, as finally amended and revised on or prior to the
effective date (the "Effective Date") of said Registration Statement. The term
"Preliminary Prospectus" refers to and means any prospectus filed with the
Commission and included in said Registration Statement before it becomes
effective, and the term "Prospectus" refers to and means the Prospectus included
in the Registration Statement, except that (i) if the prospectus first filed by
the Company pursuant to Rule 424(b) of the Rules and Regulations shall differ
from the Prospectus, the term "Prospectus" shall refer to the prospectus filed
pursuant to Rule 424 (b) and (ii) if the Registration Statement is amended or
such Prospectus is supplemented after the Effective Date and prior to the Option
Closing Date (as defined in Section 2), then the terms "Registration Statement"
and "Prospectus" shall include such documents as so amended or supplemented. The
terms used herein shall have the same meaning as in the Prospectus unless the
context hereof otherwise requires. All references to the Registration Statement,
the Preliminary Prospectus and the Prospectus include all documents incorporated
therein by reference ("Incorporated Documents"). If the Company files a Rule
462(b) Registration Statement, then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. As used herein, "Material Adverse Effect" refers to and
means an effect which, singularly or in the aggregate, would result in any
material adverse change in, or would materially adversely affect, the business
operations, condition (financial or otherwise), or the earnings, income,
stockholders' equity, net worth, business affairs, position, business prospects,
value, operation, properties, business, or results of operations of the Company
or which questions the validity of the capital stock of the Company or which
would prevent consummation of the transactions contemplated hereby.
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(b) Neither the Commission nor, to the best of the Company's
knowledge after due investigation, any state regulatory authority has issued an
order preventing or suspending the use of any Preliminary Prospectus nor has the
Commission or any such authority instituted or, to the best of the Company's
knowledge, threatened to institute any proceedings with respect to such an
order.
(c) The Company and the transactions contemplated by this
Agreement meet the requirements of using Form S-2 under the Act. The
Registration Statement when it becomes effective, the Prospectus (and any
amendments or supplements thereto) when it is filed with the Commission pursuant
to Rule 424(b), and both documents as of the First Closing Date and the Option
Closing Date referred to below, will contain all statements which are required
to be stated therein in accordance with the Act and the Rules and Regulations
and will conform in all material respects to the requirements of the Act and the
Rules and Regulations, and at such times neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, except that the
representations and warranties in this Section 1(c) do not apply to statements
or omissions made in the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished in writing to the Company in
connection with the Registration Statement or Prospectus or any amendment or
supplement thereto by the Underwriter, expressly for use therein.
(d) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with the
requirements of the 1934 Act (as hereinafter defined) and the rules and
regulations thereunder, any further Incorporated Documents so filed will, when
they are filed, conform in all material respects with the requirements of the
1934 Act and the Rules and Regulations thereunder; no such document when it was
filed (or, if an amendment with respect to any such document was filed, when
such amendment was filed), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; and no such further document, when it is filed,
will contain an untrue statement of a material fact or will omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(e) The Company has been duly incorporated and is now, and at
the Closing Dates will be, validly existing and in good standing as a
corporation under the laws of the State of Delaware, and has (i) an authorized
and outstanding capitalization and indebtedness as set forth in the Registration
Statement at the respective dates referred to therein and (ii) full power and
authority, corporate and other, to own or lease, as the case may be, its
properties, whether tangible or intangible, and conduct its business as
presently conducted and as described in, or contemplated by, the Registration
Statement and to execute, deliver and perform this Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
hereby and thereby, except as set forth in the Incorporated Documents. The
Company is duly qualified to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of the business transacted
by it or the character or location of its properties, in each case taken as a
whole, makes such qualification necessary, except where the failure to so
qualify would not have a material adverse effect upon the financial condition,
results of operations, business or properties of the Company, taken as a
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whole. The Company holds, or will hold by the First Closing Date, all licenses,
certificates and permits from state, federal or other regulatory authorities
necessary for the conduct of its business as presently conducted and as
described in or contemplated by the Registration Statement, except where failure
to have such licenses, certificates and permits would not have a Material
Adverse Effect, and is in material compliance with all laws and regulations and
all orders and decrees applicable to it or to such business or assets, and,
except as set forth in the Incorporated Documents, there are no proceedings
pending or, to the knowledge of the Company, threatened, seeking to cancel,
terminate or limit such licenses, approvals or permits. The Company does not
own, directly or indirectly, any capital stock of or other equity interest in
any corporation, partnership or other legal entity whatsoever.
(f) The Company holds, or will hold by the First Closing Date,
all licenses, certificates and permits from state, federal or other regulatory
authorities which are material for the conduct of its business as presently
conducted and as described in the Registration Statement and the Prospectus,
except where failure to hold such licenses, certificates and permits would not
have a Material Adverse Effect, and is in material compliance with all laws and
regulations and all orders and decrees applicable to it or to such business or
assets, except where failure in compliance would not have a Material Adverse
Effect, and there are no proceedings pending or, to the knowledge of the
Company, threatened, seeking to cancel, terminate or limit such licenses,
approvals or permits which would have a Material Adverse Effect.
(g) The financial statements of the Company, including the
schedules and related notes, if any, filed as part of the Registration Statement
and included in the Prospectus, are complete, correct and present fairly the
financial position of the Company as of the dates thereof and the results of
operations and changes in financial position of the Company for the respective
periods indicated therein. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as otherwise stated in the Registration
Statement and the Prospectus, and all adjustments necessary for a fair
presentation of results for such periods have been made. The financial and
statistical information and data included or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are presented fairly and have been compiled on a basis consistent with
that of the financial statements included or incorporated by reference in the
Registration Statement and the Prospectus and the books and records of the
Company.
(h) To the knowledge of the Company, the accounting firm of
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included or incorporated by reference in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), are independent public
accountants within the meaning of the Act and the Rules and Regulations.
(i) Subsequent to the Company's latest audited financial
statements, except as disclosed in by the Registration Statement and Prospectus,
(i) the Company has not incurred any material liability or obligation, direct or
contingent, or entered into any material transactions whether or not incurred in
the ordinary course of business; (ii) the Company has not
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sustained any material loss or interference with its business from fire, storm,
explosion, flood or other casualty (whether or not such loss is insured
against), or from any labor dispute or court or governmental action, order or
decree; (iii) since the respective dates as of which information is given in the
Registration Statement and Prospectus, there have not been, and through and
including the First Closing Date reference to below, there will not be, any
changes in the capital stock, except for Common Stock issued pursuant to
outstanding options, rights and warrants, or any material increases in the
long-term debt or other securities of the Company or any material adverse change
in the condition (financial or other), business, operations, income, net worth
or properties of the Company; and (iv) the Company has not paid or declared any
dividend or other distribution on its Common Stock or its other securities or
redeemed or repurchased any of its Common Stock or other securities.
(j) This Agreement and compliance by the Company with the
terms hereof, has been duly and validly authorized by all necessary corporate
action and has been duly executed and delivered by the Company and constitutes
the valid and binding obligations of the Company enforceable in accordance with
its terms, except to the extent enforceability may be limited by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and, to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought. The Underwriter's Warrant Agreement and
compliance by the Company with the terms thereof, have been duly and validly
authorized by all necessary corporate action and upon execution and delivery
will be duly executed and delivered by the Company and will constitute the valid
and binding obligations of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought. The Company is not presently in violation of
or in default under this Agreement or the Underwriter's Warrant Agreement and
the execution, delivery and performance by the Company of this Agreement and the
Underwriter's Warrant Agreement and the consummation of the transactions herein
and therein contemplated, will not, with or without the giving of notice or the
lapse of time or both, (i) result in a breach of or constitute default under any
of the terms, conditions or provisions of the certificate of incorporation or
by-laws, each as amended, of the Company; (ii) result in a breach of or conflict
with any of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or the creation or imposition of any
lien, security interest, charge or encumbrance upon any property or asset of the
Company pursuant to any material note, indenture, mortgage, deed of trust,
contract, commitment or other material agreement or instrument to which the
Company is a party or by which the Company or any of its respective properties
or assets may be bound or affected; (iii) violate any existing law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality, agency, body or court, domestic or foreign, having jurisdiction
over the Company or any of its properties or businesses, except where such
violation would not have a Material Adverse Effect; or (iv) have any effect on
any permit, certification, registration, approval, consent, order license,
franchise or other authorization (collectively, the "Permits") necessary for the
Company to own or lease and operate its properties and to conduct its business
or the ability to make use thereof, except where any effect on such Permits
would not result in a Material Adverse Effect.
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(k) To the best of the Company's knowledge, no Permits of any
government or governmental instrumentality, agency, body or court other than
under the Act, the blue sky or securities laws of any state or the rules of the
National Association of Securities Dealers, Inc. ("NASD") (regarding approval of
underwriting compensation) and The American Stock Exchange LLC ("AMEX")
(regarding listing of the Common Stock) are required (i) for the valid
authorization, issuance, sale and delivery of the Shares to the Underwriter, and
(ii) the consummation by the Company of the transactions contemplated by this
Agreement or the Underwriter's Warrant Agreement.
(l) Except as disclosed in the Prospectus there is neither
pending nor, to the best of the Company's knowledge after due investigation,
threatened, against the Company any claim, action, suit, or proceeding at law or
in equity, arbitration (or circumstances that may give rise to the same),
investigation or inquiry to which the Company or any of its respective officers,
directors or stockholders is a party or involving the Company's properties or
businesses before or by any court, arbitration tribunal or governmental
instrumentality, agency, or body, which, if determined adversely to the Company,
would individually or in the aggregate result in a Material Adverse Effect; nor
are there any such actions, suits or proceedings against the Company related to
consumer protection, distribution, rental and sales, or environmental matters or
matters related to discrimination on the basis of age, sex, religion or race;
and no labor disturbance by the employees of the Company exists or to the
knowledge of the Company is threatened which might be expected to result in a
Material Adverse Effect.
(m) There is no contract or other document which is required
by the Act or by the Rules and Regulations to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which has not been so described or filed as required.
(n) The Company does not own any real property. The Company
has good title to all of its personal property (tangible and intangible) and
assets, including any licenses, trademarks and copyrights, described in the
Registration Statement as owned by it, free and clear of all security interests,
liens, charges, mortgages, encumbrances and restrictions other than as described
in the Registration Statement and Prospectus. The leases, subleases and licenses
under which the Company is entitled to lease, hold or use any real or personal
property are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made or proposed
to be made by the Company. The Company has not received notice of any violation
of any applicable law, ordinance, regulation, order or requirement relating to
its owned or leased properties. The Company owns or leases all such properties
as are necessary to its operations as now conducted.
(o) The Company has filed with the appropriate federal, state
and local governmental agencies, and all appropriate foreign countries and
political subdivisions thereof, all tax returns, including franchise tax
returns, which are required to be filed through the date hereof or has duly
obtained extensions of time for the filing thereof and has paid all taxes shown
on such returns and all assessments received by it to the extent that the same
have become due; and the provisions for income taxes payable, if any, shown on
the financial statements included or incorporated by reference in the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of
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such consolidated financial statements. The Company has not executed or filed
with any taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income taxes and is not a party to
any pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company which if determined
adversely might have a Material Adverse Effect.
(p) The Company maintains insurance, which is in full force
and effect, relating to the conduct of its business, and is described on
Appendix A attached hereto. The Company is not aware of any facts or
circumstances which would require it to notify its insurers of any claim of
which notice has not been made or will not be made in a timely manner. To the
best knowledge of the Company, there are no facts or circumstances under any
existing insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any existing valid claim of the Company under such
policy or bond.
(q) The Company owns or otherwise possesses adequate,
enforceable and unrestricted rights to use all patents, patent rights,
inventions, trademarks, service marks, trade names and copyrights, rights, trade
secrets, confidential information, processes and formulations (including all
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), inventions, designs, works of authorship, computer
programs and technical data and information used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively, the
"Intangibles") and the Company does not have reason to believe that it has
infringed nor is infringing upon the rights of others with respect to the
Intangibles. The Company has not received any notice of conflict with the
asserted rights of others with respect to the Intangibles which could, singly or
in the aggregate, materially adversely affect its business as presently
conducted or the prospects, financial condition or results of operations of the
Company, and the Company knows of no basis therefor. Except as described in the
Prospectus, the Company is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, the Intangibles with respect to the use thereof or in
connection with the conduct of its business or otherwise. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all its Intangibles in all material aspects.
(r) Neither the Company nor any of its affiliates has incurred
any liability for, nor is there is any outstanding claim for services in the
nature of, a finder's fee or similar fee in connection with the transactions
herein contemplated.
(s) No officer or director of the Company, or any affiliate
(as such term is defined in Rule 405 promulgated under the Rules and
Regulations) of any such officer or director, has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to constitute or which has constituted or which might reasonably be
expected to cause or result in the stabilization of the price of the Common
Stock or a violation of Regulation M of the Rules and Regulations or in a
manipulation of the price of any security issued by the Company.
(t) Except as disclosed in or contemplated by the Prospectus,
no officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined
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in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing
persons or entities has or has had during the past three years, either directly
or indirectly, (i) an interest in any person or entity which (A) furnishes or
sells products which are furnished or sold or are proposed to be furnished or
sold by the Company, or (B) purchases from or sells or furnishes to the Company
any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. There are no existing agreements, arrangements, or transactions,
between or among the Company and any officer, director of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities
which are required to be described in the Registration Statement and which are
not so described.
(u) The minute books of the Company have been made available
to the Underwriter and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(v) No labor problem exists with any of the Company's
employees or is imminent, nor is the Company aware of any bankruptcy, labor
disturbance or other event affecting any of its principal suppliers or
customers, which could materially adversely affect the condition, financial or
otherwise, prospects, business or results of operation of the Company.
(w) The Securities and the other securities of the Company
conform to all statements in relation thereto in the Registration Statement; the
authorized, issued and outstanding shares of Common Stock are set forth in the
Prospectus under the caption "Description of Capital Stock"; the outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable; the outstanding options and warrants to purchase
Common Stock have been duly authorized and validly issued and constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms; the holders of the outstanding Common Stock are not subject to
personal liability for obligations of the Company solely by reason of being
stockholders; and none of such outstanding shares of Common Stock or warrants or
options to purchase Common Stock were issued in violation of the pre-emptive
rights of any stockholder of the Company. The offers and sales of the
outstanding Common Stock and outstanding options and warrants to purchase Common
Stock which were issued or granted since the Company's initial public offering
of its securities, were at all relevant times either registered under the Act
and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. Except as set forth in the Registration Statement and
Prospectus, on the Effective Date and on the Closing Dates there will be no
outstanding options or warrants for the purchase of, or other outstanding rights
to purchase or acquire, Common Stock or securities convertible or exchangeable
into Common Stock. Except as set forth in the Prospectus, no holder of any
securities of the Company has any rights, "demand", "piggyback" or otherwise to
have such securities registered under the Act.
(x) The issuance and sale of the Shares have been duly
authorized and, upon delivery against payment therefor as contemplated by this
Agreement, the Shares will be validly issued, fully paid and non-assessable, and
the holders thereof will not be subject to personal liability solely by reason
of being such holders. The Shares will not be subject to pre-emptive rights of
any stockholder of the Company.
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(y) The issuance and sale of the Underwriter's Warrants has
been duly authorized and when issued and delivered in accordance with the terms
hereof and the Underwriter's Warrant Agreement, shall constitute the valid and
binding obligations of the Company enforceable in accordance with their terms.
The issuance and sale of the Warrant Shares have been duly authorized, and, when
duly delivered against payment therefor as contemplated by the Underwriter's
Warrants Agreement, such Warrant Shares will be validly issued, fully paid and
non-assessable, and will conform to the description thereof contained or
incorporated by reference in the Registration Statement and the Prospectus.
Holders of Warrant Shares issuable upon the exercise of the Underwriter's
Warrants will not be subject to personal liability solely by reason of being
such holders. Neither the Underwriter's Warrants nor the Warrant Shares issuable
upon exercise thereof will be subject to pre-emptive rights of any stockholder
of the Company. The Company has reserved a sufficient number of shares of Common
Stock from its authorized but unissued Common Stock for issuance upon exercise
of the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(z) Neither the Company nor any officer, director or other
agent of the Company has, acting on behalf of the Company, at any time (i) made
any contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, Federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law or (iii) made any payment of
funds of the Company or received or retained any funds in violation of any law,
rule or regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Prospectus. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(aa) The Company is not an "Investment Company" or a company
"controlled" by an "investment Company," within the meaning of the Investment
Company Act of 1940, as amended.
(bb) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of any person or persons
controlling, controlled by or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement or in the Company's Annual Report on Form 10-K/A included as an
appendix to the Prospectus or pursuant to outstanding options, rights and
warrants.
(cc) The employment agreements between the Company and its
officers, employees and consultants which have been filed as exhibits to or
described in the Registration Statement or any of the Incorporated Documents are
binding and enforceable obligations upon the respective parties thereto in
accordance with their terms, except to the extent enforceability may be limited
by any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought. Prior to the
Effective Date, the Company shall furnish to the Underwriter copies of all
consulting and non-competition agreements between the Company and its officers,
employees and consultants.
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(dd) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(ee) There are no voting or other stockholder agreements
between the Company and any stockholders of the Company or between or by and
among any stockholders of the Company.
(ff) The Company registered its Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act").
The Company has filed an additional listing application with respect to its
Common Stock with the AMEX and such listing application has been accepted by the
AMEX, subject to official notice of issuance.
(gg) The Company believes it is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company, by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the Company's best
knowledge, threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, is imminent.
(hh) The Shares have been approved for listing on the AMEX.
(ii) The Company has provided to Blank Rome LLP, counsel to
the Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information requested by such
counsel's Corporate Review Memorandum dated ________, 2003.
(jj) Except as would not, individually or in the aggregate,
result in a Material Adverse Effect (i) the Company and its subsidiaries are in
compliance with all federal, state, local, or foreign law or regulation relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened releases
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum, and petroleum products (collectively, the "Materials of
Environmental Concern"), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Materials of Environmental Concern (collectively, the "Environmental Laws"),
which includes, but is not limited to, compliance with any permits or other
governmental authorizations required for the operation of the business of the
Company or its subsidiaries under applicable Environmental Laws, or compliance
with the
-10-
terms and conditions thereof, and neither the Company nor any of its
subsidiaries has received any written communication, whether from a governmental
authority, citizens group, employee, or otherwise, that alleges that the Company
or any of its subsidiaries is in violation of any Environmental Law; (ii) there
is no claim, action, or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries, attorneys' fees,
or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries, now or in
the past (collectively, the "Environmental Claims"), pending or threatened
against the Company or any of its subsidiaries or any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law; and (iii) there
are no past or present actions, activities, circumstances, conditions, events,
or incidents, including, without limitation, the release, emission, discharge,
presence, or disposal of any Material of Environmental Concern, that reasonably
could result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either contractually
or by operation of law. The Company is not currently aware that it will be
required to make future material capital expenditures to comply with
Environmental Laws.
(kk) The Company is in compliance with (i) all applicable
provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the rules and regulations
promulgated there under, and (ii) all listing standards and rules promulgated by
AMEX.
(ll) The Company is and has been doing business in material
compliance with all authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, and local laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit or relating to any noncompliance with
any federal, state, or local laws, rules and regulations, which, singularly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.
(mm) The Company has not relied upon the Underwriter or
Underwriter's Counsel for any legal, tax or accounting advice in connection with
the offering and sale of the Shares other than with respect to the NASD and the
blue sky laws.
(nn) Any certificate signed by an officer of the Company in
his capacity as such and delivered to the Underwriter or Underwriter's Counsel
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
2. Purchase, Delivery and Sale of the Shares and the Underwriter's
Warrants.
(a) Subject to the terms and conditions of this Agreement, and
on the basis of the representations, warranties, and agreements herein
contained, the Company hereby agrees to sell the Firm Shares to the Underwriter,
and the Underwriter hereby agrees to purchase the
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Firm Shares from the Company at a purchase price of $____ per share, less an
underwriting discount of 8% of the offering price of each Share sold by the
Underwriter. On the First Closing Date, as hereinafter defined, definitive
certificates in negotiable form for the Firm Shares will be delivered by the
Company to the Underwriter or an electronic "fast" transfer of the Firm Shares
from the Company's Transfer Agent (as defined herein) to Depository Trust
Company ("DTC") will be made against payment of the purchase price by the
Underwriter by wire transfer or certified or official bank check or checks in
New York Clearing House funds, at the Underwriter's Option, payable to the order
of the Company. Delivery of the Firm Shares (either by regular way or a fast
transfer) against payment therefor shall take place at the offices of the
Underwriter, at 10:00 a.m., local New York Time, on the third business day
following the Effective Date (the fourth business day following the Effective
Date in the event that trading of the Firm Shares commences on the day following
the Effective Date) or at such other location, time and date as the Underwriter
and the Company may agree in writing, such time and date of payment and delivery
for the Firm Shares being herein called the "First Closing Date."
(b) Subject to the terms and conditions of this Agreement, and
on the basis of the representations, warranties and agreements contained herein,
for the purposes of covering any over allotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Prospectus, the
Underwriter is hereby granted an option to purchase all or any portion of the
Option Shares from the Company. The purchase price to be paid for the Option
Shares will be the same price per Option Share as the price per Firm Share set
forth in Section 2(a) hereof, less the 8% underwriting discount. The option
granted hereby may be exercised by the Underwriter as to all or any portion of
the Option Shares at any time within 45 days after the Effective Date. The
Underwriter will not be under any obligation to purchase any Option Shares prior
to the exercise of such option.
The option granted hereby may be exercised by the Underwriter by
giving oral notice to the Company, which must be confirmed by a letter or
facsimile setting forth the number of Option Shares to be purchased, the date
and time for delivery of and payment for the Option Shares to be purchased and
stating that the Option Shares referred to therein are to be used for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First Closing Date, the
date set forth therein for such delivery and payment will not be earlier than
either two full business days thereafter or the First Closing Date, whichever
occurs later. If such notice is given on or after the First Closing Date, the
date set forth therein for such delivery and payment will not be earlier than
two full business days thereafter. In either event, the date so set forth will
not be more than 15 full business days after the date of such notice. The date
and time set forth in such notice is herein called the "Option Closing Date."
Upon exercise of such option, through the Underwriter's delivery of the
aforementioned notice, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in this Section
2(b) hereof, the Underwriter will become obligated to purchase, the number of
Option Shares specified in such notice.
Payment for any Option Shares purchased will be made to the Company
by wire transfer or certified or official bank check or checks payable to its
order in New York Clearing House funds, and delivery of the Option Shares
(either by regular way or a fast transfer) against payment therefor shall take
place at the offices of the Underwriter, at 10:00 a.m., local New York Time, on
the Option Closing Date.
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The obligation of the Underwriter to purchase and pay for any of the
Option Shares is subject to (i) the accuracy and completeness of and compliance
in all material respects with the representations and warranties of the Company
contained herein (as of the date hereof and as of the Option Closing Date), (ii)
the accuracy and completeness of the statements of the Company or its officers
made in any certificate or other document to be delivered by the Company
pursuant to this Agreement, (iii) the performance in all material respects by
the Company of its obligations hereunder, to the satisfaction by the Company of
the conditions, as of the date hereof and as of the Option Closing Date, set
forth in this Section 2(b), and (iv) to the delivery to the Underwriter of
opinions, certificates and letters dated the Option Closing Date substantially
similar in scope to those specified in Section 8 hereof, but with each reference
to "Firm Shares" and "First Closing Date" to be, respectively, to the Option
Shares and the Option Closing Date.
(c) The Company will make the certificates for the Shares to
be purchased by the Underwriter hereunder available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, Continental Stock Transfer & Trust Company,
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, not less than one full business day
prior to the First Closing Date and the Option Closing Date, as the case may be
(both of which are collectively referred to herein as the "Closing Dates"). The
certificates representing the shares shall be in such names and denominations as
the Underwriter may request at least two full business days prior to the
respective Closing Dates. In the event that the Underwriter determines to
utilize the DTC, the parties will use their best efforts to make the offering of
the Shares DTC eligible and to comply with the procedures thereof.
(d) On the First Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees,
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees") for an aggregate purchase price of One Hundred Dollars ($100.00).
The Underwriter's Warrants shall represent an option to purchase up to an
aggregate of one hundred thousand (100,000) shares of Common Stock (the "Warrant
Shares") at an exercise price of $_____ per share [120% of the offering price of
the Shares]. The Underwriter's Warrants will be restricted from sale, transfer,
assignment or hypothecation, pursuant to NASD Corporate Finance Rule 2710, for a
period of one (1) year from the Effective Date, except to the Underwriter's
Designees. The Underwriter's Warrants shall be in the form of, and in accordance
with, the provisions of the Form of Underwriter's Warrant attached as an exhibit
to the Registration Statement. Payment for the Underwriter's Warrants will be
made to the Company by check or checks payable to its order on the First Closing
Date against delivery of the certificates representing the Underwriter's
Warrants. The certificates representing the Underwriter's Warrants will be in
such denominations and such names as the Underwriter may request prior to the
First Closing Date.
The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in any Preliminary Prospectus or in the final
Prospectus relating to the Shares proposed to be filed by the Company (insofar
as such information relates to the Underwriter) as heretofore filed and as
presently proposed to be amended constitutes the only information furnished by
the Underwriter to the Company for inclusion therein, and the Underwriter
represents and warrants to the Company that the statements made therein are
correct and do not include any untrue statement of
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a material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3. Public Offering by Underwriter. The Underwriter agrees to cause
the Shares to be offered to the public initially at the price and under the
terms set forth in the Prospectus as soon as, on or after the effective date of
this Agreement, the Underwriter deems advisable, but no more than five (5) full
business days after such effective date. The Underwriter shall have the right,
but not the obligation, to form a syndicate of co-underwriters and/or selected
dealers who will assist the Underwriter in the offering and the Underwriter may
allow such concessions and discounts upon sales to other dealers as set forth in
the Prospectus. The Underwriter agrees to notify the Company in writing when the
offering is first made and when it is completed. After the First Closing Date,
the public offering price, the concessions and the reallowance may be changed by
the Underwriter.
4. Agreements of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and will not
at any time, whether before or after the Effective Date, file any amendment or
supplement to the Registration Statement, that: (i) has not been previously
submitted to (at a reasonable time prior to the proposed filing thereof), and
approved by, the Underwriter or Underwriter's Counsel, (ii) the Underwriter or
Underwriter's Counsel shall have reasonably objected to in writing as not being
in compliance with the Act or the Rules and Regulations or (iii) is not in
compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter of: (i) the
effectiveness of the Registration Statement or any amendment or supplement
thereto promptly after the Company shall have received notice thereof, (ii) the
receipt of any comments of the Commission with respect thereto, (iii) the
effectiveness of the Registration Statement or any post-effective amendment
thereto incorporating such Commission comments promptly after the Company shall
have received notice thereof or (iv) the filing of any supplement to the
Prospectus.
(c) The Company will advise the Underwriter promptly of any
request of the Commission for an amendment or supplement to the Registration
Statement or the Prospectus, or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, or of any judgment, order, injunction or decree
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or of the institution of any proceedings for any of such purposes,
of which it has knowledge, and will use its best efforts to prevent the issuance
of any stop order, and, if issued, to obtain as promptly as possible the lifting
thereof.
(d) If at any time when a Prospectus relating to the
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of Company Counsel or
Underwriter's Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to
-14-
comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriter's Counsel, and the Company will furnish to the
Underwriter copies of such amendment or supplement as soon as available and in
such quantities as the Underwriter may reasonably request.
(e) Within the time during which the Prospectus is required to
be delivered under the Act, or pursuant to the undertakings of the Company in
the Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the Act, the Rules and Regulations, the 1934
Act or the rules and regulations of the Commission promulgated under the 1934
Act, each as now or hereafter amended or supplemented, and by any order of the
Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Shares.
(f) The Company will furnish to the Underwriter, without
charge, a signed copy of the Registration Statement and of any amendment or
supplement thereto which has been filed prior to the date of this Agreement,
together with one (1) copy of each exhibit filed therewith, and five (5)
conformed copies of such Registration Statement and as many amendments thereto
(unsigned and exclusive of exhibits) as the Underwriter may reasonably request.
The signed copies of the Registration Statement so furnished to the Underwriter
will include signed copies of any and all consents and reports of the
independent public auditors as to the financial statements included in the
Registration Statement and Prospectus, and signed copies of any and all consents
and certificates of any other person whose profession gives authority to
statements made by them and who are named in the Registration Statement or
Prospectus as having prepared, certified or reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without
charge, (i) prior to the Effective Date, copies of each Preliminary Prospectus
filed with the Commission bearing the statements required by Item 501 of
Regulation S-K of the Rules and Regulations; (ii) on and from time to time after
the Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be one thousand (1,000) copies, unless otherwise mutually agreed by
the parties. The Company has consented and hereby consents to the use of each
Preliminary Prospectus for the purposes permitted by the Act and the Rules and
Regulations. The Company authorizes the Underwriter and dealers to use the
Prospectus in connection with the sale of the Shares and the Warrant Shares, for
such period, as, in the opinion of Underwriter's Counsel, delivery of the
Prospectus is required to comply with the applicable provisions of the Act and
the Rules and Regulations.
(h) The Company will take such action as may be necessary to
qualify the Shares for offer and sale under the blue sky or securities laws of
such states or other jurisdictions as is required and as the Underwriter or
Underwriter's Counsel may designate (provided that such states or jurisdictions
do not require the Company to qualify as a foreign corporation or to file a
general consent to service of process) and to continue such qualifications in
effect so long as may be required for the purposes of the distribution of the
Shares. In each state or jurisdiction where the Company shall qualify the Shares
as above provided, the Company will prepare and file such statements or reports
as may be required by the laws of such state or jurisdiction, and the
-15-
Underwriter shall, upon the written request of the Company, supply the Company
with all information known to the Underwriter and required to be included in
such statements or reports.
(i) During the period of two years from the Effective Date,
the Company, at its expense, shall furnish the Underwriter with (i) copies of
each annual report of the Company; (ii) as soon as practicable and in any event
not later than ninety (90) days after the end of the Company's fiscal year, or
by such earlier date as may be required under the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or
the rules and regulations promulgated there under, a financial report of the
Company, which shall include a balance sheet as of the end of such fiscal year,
a statement of operations, a statement of stockholders' equity (deficit) and a
statement of cash flows covering such fiscal year, together with notes thereto,
such report being in reasonable detail and audited by independent public
auditors; (iii) for each fiscal quarter of the Company other than the last
fiscal quarter in any fiscal year, as soon as practicable and in any event not
later than forty-five (45) days after the end of each fiscal quarter, or by such
earlier date as may be required under the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or the
rules and regulations promulgated there under, a financial report of the
Company, which shall include an unaudited balance sheet as of the end of such
fiscal quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E4 received or filed by the Company from time to time; (v) a copy of each
report or document, including, without limitation, reports on Form 8-K, 10-K (or
10-KSB), 10-Q or 10-QSB and exhibits thereto, filed or furnished by the Company
to the Commission or any securities exchange on the date each such report or
document is so filed or furnished; (vi) such additional information concerning
the business and financial condition of the Company as the Underwriter may from
time to time reasonably request; (vii) quarterly stockholder lists prepared by
the Company's Transfer Agent; and (viii) weekly DTC reports.
(j) For a period of three (3) years from the First Closing
Date, the Company shall retain a reputable independent public accounting firm
that routinely represents public companies as the Company's independent public
accountants, and shall not change such accountants without the Underwriter's
prior consent, which consent shall not be unreasonably withheld. For a period of
five years from the First Closing Date, the Company shall promptly submit to the
Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.
(k) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders in accordance with Section 11 (a) of
the Act an earnings statement of the Company meeting the requirements of Rule
158(a) under the Act covering a period of at least 12 months beginning after the
Effective Date, and advise the Underwriter that such statement has been so made
available.
-16-
(l) The Company will apply the net proceeds ("Proceeds") it
realizes from the sale of the Shares in the manner set forth under the caption
"Use of Proceeds" in the Prospectus. Except as set forth in the Prospectus and
as may be consented to by the Underwriter, no portion of Proceeds will be used
to repay any indebtedness, other than trade payables in the ordinary course of
business.
(m) The Company, on the First Closing Date, will sell to the
Underwriter the Underwriter's Warrants (to be divided in such amounts as
determined by the Underwriter) according to the terms specified in Section 2(d)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriter's
Warrants. (n) For a period of two (2) years from the Effective Date, the Company
agrees that it will maintain insurance in full force and effect of the covering
such risk as is reasonably adequate for the conduct of its business.
(o) During the course of the distribution of the Shares, the
Company will not take, directly or indirectly, any action designed to or which
might, in the future, reasonably be expected to cause or result in stabilization
or manipulation of the price of the Shares. During this so-called "quiet
period," in which delivery of a Prospectus is required, if applicable, the
Company will not issue press releases or engage in any other publicity without
the Underwriter's prior consent and approval, unless otherwise required under
Regulation FD.
(p) The Company will use its best efforts, at its cost and
expense, to take all necessary and appropriate action to maintain the listing of
the Shares on the AMEX or on the NASDAQ system and maintain such listing for as
long as the Shares are qualified.
(q) [The Company shall, as of the date hereof, have filed an
application for listing in Standard & Poor's Corporation Records Service
(including annual report information) or in NASDAQ's Industrial Manual and shall
use its best efforts to have the Company listed in such Records Service or such
Manual and shall maintain such listing for a period of five (5) years from the
Effective Date.]
(r) The Company will use its best efforts to maintain its
registration under the 1934 Act in effect for a period of five (5) years from
the Effective Date.
(s) [Intentionally left blank.]
(t) On the Closing Dates, all transfer or other taxes (other
than income taxes) which are required to be paid in connection with the sale and
transfer of the Shares will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.
(u) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock,
-17-
funded debt (other than regular repayments of principal and interest on existing
indebtedness) or other securities of the Company, any adverse change in the
condition (financial or other), business, operations, prospects, income, net
worth or properties, including any loss or damage to the properties of the
Company (whether or not such loss is insured against), which could adversely
affect the condition (financial or other), business, operations, prospects,
income, net worth or properties of the Company; and (iii) the Company shall not
have paid or declared any dividend or other distribution on its Common Stock or
its other securities or redeemed or repurchased any of its Common Stock or other
securities.
(v) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(w) For a period of three (3) years, management of the Company
shall provide the Board of Directors, on an annual basis, with an internal
budget for the next fiscal year, which budget must be approved by the Board of
Directors; the first of such budgets shall be provided to the Underwriter for
the fiscal year 2004, and shall be provided to the Underwriter no later than
March 31, 2004.
(x) No Proceeds from the sale of the Shares will be used to
pay outstanding loans from officers, directors or stockholders or to pay any
accrued salaries or bonuses to any current or former employees or consultants or
any affiliates thereof or to pay off any other outstanding debt, other than
current trade payables which arose in the ordinary course of business, without
the prior written consent of the Underwriter.
(y) The Company agrees that for so long as the Common Stock is
registered under the 1934 Act, the Company will hold an annual meeting of
stockholders for the election of directors and will provide the Company's
stockholders with the audited financial statements of the Company as of the end
of the fiscal year just completed prior thereto. Such financial statements shall
be those required by applicable rules under the 1934 Act and shall be included
in an annual report pursuant to the requirements thereof.
(z) The Company shall provide the Underwriter, at the First
Closing Date and at least annually thereafter, until the earlier of such time as
the Common Stock is listed on the New York Stock Exchange or American Stock
Exchange or quoted on NASDAQ/NMS or five years after the First Closing Date,
with a list setting forth those states in which the Common Stock may be traded
in non-issuer transactions under the blue sky laws of the 50 states.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act
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(each an "Underwriter Indemnified Party") against any losses, claims, damages,
expenses or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorney's fees), to which the Underwriter or
any Underwriter Indemnified Party may become subject, under the Act or
otherwise, but only as to such losses, claims, damages, expenses or liabilities
(or any actions in respect thereof) that arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendments or supplements thereto, or that arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case (i) to
the extent that any such loss, claim, damages, expense or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information furnished to the Company by
the Underwriter specifically for use in the preparation thereof; (ii) if the
Underwriter failed to deliver a Prospectus to the claimant seeking damages from
the Company or (iii) if a material misstatement or omission was corrected by the
Company in an amended or supplemented Prospectus that was provided to the
Underwriter and the Underwriter failed to deliver such amended or supplemented
Prospectus to the claimant seeking damages from the Company. The information set
forth on the cover page concerning the Underwriter and under the caption
"Underwriting" or otherwise specifically relating to the Underwriter in the
Registration Statement shall be deemed to have been furnished to the Company by
the Underwriter for purposes hereof. This indemnity will be in addition to any
liability that the Company may otherwise have.
(b) The Underwriter agrees that it will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act (each a "Company Indemnified Party"), against any losses, claims,
damages, expenses or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorney's fees), to which the
Company or any Company Indemnified Party may become subject under the Act or
otherwise, but only as to such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) that arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendments or supplements thereto, or that arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus or the Prospectus or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof, provided, however, that the obligation of the Underwriter
to indemnify the Company or any Company Indemnified Party shall be limited in
amount to the net proceeds received by the Company from the Underwriter. The
information set forth on the cover page concerning the Underwriter and under the
caption "Underwriting" or otherwise specifically relating to the Underwriter in
the Registration Statement shall be deemed to have been furnished to the Company
by the Underwriter for purposes hereof. This indemnity will be in addition to
any liability that the
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Underwriter may otherwise have.
(c) Promptly after receipt by the Underwriter, any Underwriter
Indemnified Party, the Company or any Company Indemnified Party (each an
"Indemnified Party") under this Section 5 of notice of the commencement of any
action, such Indemnified Party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 5, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any Indemnified Party otherwise than solely pursuant to
this Section 5. In case any such action is brought against any Indemnified
Party, who notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may choose, jointly with any other indemnifying party similarly notified,
reasonably assume the defense thereof. Subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Party under this Section 5 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall have a default judgment entered against it or shall
settle such action without the consent of the Indemnified Party. The Indemnified
Party shall have the right to employ one separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the Indemnified Party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party,
(ii) the named parties to such action (including any impleaded parties) include
both the indemnified and the indemnifying party and the Indemnified Party shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Indemnified Party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Indemnified Party, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Indemnified Party,
which firm shall be designated in writing by the Indemnified Party), or (iii)
the professional competence of the counsel to be employed by the indemnifying
party is not reasonably acceptable to the Indemnified Party. No settlement of
any action against an Indemnified Party shall be made without the prior written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld. The indemnifying party shall not be liable to indemnify the
Indemnified Party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which consent
shall not be unreasonably withheld.
6. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes a
claim for indemnification pursuant to Section 5 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or denial of the last right of
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 5 provide for
indemnification in such case, or (ii) contribution under the Act
-20-
may be required on the part of the Underwriter, then the Company and the
Underwriter shall contribute to the aggregate losses, claims, damages, expenses
or liabilities to which they may be subject (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions such that the Underwriter shall be
responsible in the aggregate for that portion of such losses, claims, damages,
expenses or liabilities determined by multiplying the total amount of such
losses, claims, damages, expenses or liabilities by the difference between the
public offering price of the Shares and the purchase price of the Shares to such
Underwriter and dividing the product by the public offering price of the Shares,
and the Company shall be responsible for that portion of such losses, claims,
damages or liabilities determined by multiplying the total amount of such
losses, claims, damages or liabilities by the purchase price of the Shares to
the Underwriter and dividing the product thereof by the public offering price of
the Shares. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. As used in this Section 6, the term "Underwriter" includes
any person who controls the Underwriter within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this Section 6 is not
permitted by law, then the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the fullest
extent permitted by law. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect to which a claim for contribution may be made against another
party or parties under this Section 6, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
Section 6, or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
7. Survival of Agreements, etc. All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Shares, for a period of two (2)
years from the date hereof, except that, if a party hereto has actual knowledge
at the time of the Closing Dates of facts which would constitute a breach of the
representations and warranties contained herein, such breaches shall be waived
by such party if such party consummates the transactions contemplated by this
Agreement. If the Company fails to perform any of its obligations hereunder, the
Underwriter shall have the right to compel specific performance.
8. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder will be subject (as of the date of this Agreement and as
of the Closing Dates) to the accuracy of and compliance in all material respects
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company or its officers
-21-
made pursuant hereto, to the performance in all material respects by the Company
of its obligation hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m., New York City time, on the date following execution of
this Agreement, or at such later time or on such later date as shall be
consented to in writing by the Underwriter; prior to the Closing Dates no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or be
pending or, to the knowledge of the Company or the Underwriter, contemplated or
threatened by the Commission; and any request by the Commission for additional
information to be included in the Registration Statement or the Prospectus or
otherwise shall have been complied with to the satisfaction of Underwriter's
Counsel, and qualification under the securities laws of such states as the
Underwriter may designate of the issue and sale of the Shares upon the terms and
conditions herein set forth or contemplated and containing no provision
unacceptable to the Underwriter shall have been secured; and no stop order shall
be in effect denying or suspending effectiveness of such qualifications, nor
shall any stop order proceedings with respect thereto be instituted or pending
or threatened under such laws. If the Company has elected to rely upon Rule 430A
of the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the First Closing Date the Company shall
have provided evidence satisfactory to the Underwriter of such timely filing, or
a post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations.
(b) No amendment or supplement to the Registration Statement,
any Preliminary Prospectus or the Prospectus, which the Underwriter or
Underwriter's Counsel shall have objected to or which was not in compliance with
the Act or the Rules and Regulations, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to
the Company, prior to the respective Closing Dates, that the Registration
Statement or the Prospectus, or any amendments or supplements thereto, contains
an untrue statement of fact which, in the reasonable opinion of Underwriter's
Counsel, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(d) The Underwriter shall have received from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
LLP, two signed certificates or letters, one dated and delivered on the
Effective Date and one dated and delivered on the First Closing Date, in form
and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of the Registration Statement is
required insofar as it relates to them;
(ii) the financial statements included in the Registration
-22-
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
Registration Statements on Form S-2 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
stockholders, the Board of Directors and any committees of the Board of
Directors of the Company, as set forth in the minute books of the Company, and
other specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to believe
that:
(A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there has been any decreases in net current assets or any net assets
change in the Common Stock or other securities of the Company (except as
specifically disclosed in such certificates or letters), any decreases in
stockholders' equity or working capital or any increases in net current
liabilities, net liabilities or long-term debt in each case as compared with
amounts shown in such financial statements; and any decrease in revenues or in
the total or per share amounts of income before extraordinary items or net
income or loss, or any other material change in each case as compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will or may occur.
(B) the unaudited interim financial statements of the
Company, if any, appearing in the Registration Statement and the Prospectus, do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus;
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
If the letter from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP shall disclose any change in
the condition (financial or otherwise), earnings, operations, business, or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in the sole judgment of
-23-
the Underwriter, is material and adverse and that makes it, in the sole judgment
of the Underwriter, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus, then this condition in
this Section 8(d) shall be deemed not satisfied, and the Underwriter may
terminate this Agreement in accordance with the termination provisions set forth
in Section 10 hereof.
(e) At the time this Agreement is executed and at each of the
Closing Dates, the Underwriter shall have received from Loeb & Loeb LLP, counsel
for the Company ("Company Counsel"), a signed opinion, reasonably satisfactory
to the Underwriter's Counsel, dated as of the date hereof or the Closing Date,
as applicable, the form of which is attached hereto as Exhibit A ("Form of Legal
Opinion of Company Counsel").
(f) At the time this Agreement is executed and at each of the
Closing Dates, the Underwriter shall have received from ▇▇▇▇▇▇▇, Del Deo, Dolan,
Griffinger & ▇▇▇▇▇▇▇▇▇, IP counsel for the Company ("Company IP Counsel"), a
signed opinion, reasonably satisfactory to the Underwriter's Counsel, dated as
of the date hereof or the Closing Date, as applicable, the form of which is
attached hereto as Exhibit B ("Form of Legal Opinion of Company IP Counsel").
(g) The Underwriter shall have received a certificate, dated
and delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company certifying that:
(i) The Company and such officers have complied with all the
agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not contain any untrue statement
of a material fact, and since the Effective Date there has occurred no event
required to be set forth in the amended or supplemented Prospectus which has not
been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 1 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements and
obligations herein contained as of the date thereof.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent (other than in the ordinary
course of business), or entered into any material transactions and there has not
been
-24-
any change in the Common Stock (except for issuances of Common Stock pursuant to
outstanding options, rights and warrants) or funded debt of the Company or any
Material Adverse Effect, except for such changes as are contemplated by, or
disclosed in the Prospectus.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of the
Shares.
(viii) No action, suit or proceeding, at law or in equity,
which may (A) result in the imposition of damages or penalties against, or
payments by, the Company in excess of $50,000 or (B) adversely affect the
operation of the Company's business shall be pending or, to the knowledge of
such officers, threatened against the Company, or affecting any of its
properties, before or by any commission, board or other administrative agency,
except as otherwise set forth in the Registration Statement.
(ix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall not have lost any significant customers or been advised that it
may lose any such significant customers.
(x) The Company is in compliance in all material respects
with (i) all applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the
rules and regulations promulgated thereunder, and (ii) all listing standards and
rules promulgated by AMEX.
(h) On the First Closing Date, the Company shall not be a
party to, or be involved in, any arbitration, litigation (except as set forth in
the Registration Statement) or governmental proceeding, which is then pending,
or, to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(i) Subsequent to the respective date as of which information
is given in the Registration Statement and the Prospectus, the Company shall not
have sustained any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, and no other event has occurred, which, in
the sole judgment of the Underwriter materially adversely affects the business
of the Company.
(j) All of the certificates representing the Shares shall have
been tendered for delivery in accordance with the terms and provisions of this
Agreement.
(k) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed, in all material
-25-
respects, all its obligations due to be performed prior thereto; (ii) the
Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and conform in all
material respects to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the date as of which
information is given, no material adverse change in the condition, business,
operations, properties, business prospects, securities, long-term or short-term
debt or general affairs of the Company from that set forth in the Registration
Statement or the Prospectus, except changes which the Registration Statement and
the Prospectus indicate will occur after the Effective Date and prior to such
Closing Date, and the Company shall not have incurred any material liabilities
or obligations, direct or contingent, or entered into any material transaction,
contract or agreement not in the ordinary course of business other than as
referred to in the Registration Statement and the Prospectus; and (iv) except as
set forth in the Prospectus, no action, suit or proceeding, at law or in equity,
shall be pending or threatened against the Company which might be required to be
set forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might materially adversely affect the condition,
business, operations, properties, prospects or general affairs of the Company.
(l) The NASD shall have indicated that it has no objections to
the proposed underwriting arrangements pertaining to the sale of the Shares by
the Underwriter.
(m) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(n) The Company meets the current and any existing criteria
for inclusion of the Shares on AMEX.
(o) All proceedings taken at or prior to the Closing Date or
the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in this Section 8 hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.
(p) In the Underwriter's opinion: (i) no material adverse change in the
-26-
conditions or obligations of the Company or its present or proposed business and
affairs shall have occurred; and (ii) no market conditions or other factors have
occurred which might render the offer and sale of the Shares herein contemplated
unadvisable.
(q) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Shares will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to the
satisfaction of Underwriter's Counsel.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of Company Counsel, in form and
substance reasonably satisfactory to the Underwriter Counsel, which opinion
shall be substantially the same in scope and substance as the opinions furnished
to the Underwriter by such counsel at the date hereof and at First Closing Date
pursuant to Section 8 (e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer and
the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to Underwriter's Counsel, substantially the same in scope
and substance as the certificates furnished to the Underwriter at the First
Closing Date pursuant to Section 8 (g).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter in form and substance
satisfactory to the Underwriter from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, dated the Option
Closing Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 8(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
three business days prior to the Option Closing Date which would require any
change in said certificate or letter if it were required to be dated the Option
Closing Date.
(v) All actions taken at or prior to the Option Closing Date
in connection with the sale and transfer of the Option Shares shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
Underwriter's Counsel, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and Underwriter's
Counsel may reasonably request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(vi) The Company shall have issued the Underwriter's
Warrants.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably
-27-
satisfactory to the Underwriter and to Underwriter's
Counsel.
Any certificate signed by an officer of the Company delivered to the
Underwriters or to Underwriter's Counsel, will be deemed a representation and
warranty by the Company to the Underwriter as to the statements made therein.
9. Effective Date. This Agreement will become effective no
later than 10:00 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this Agreement will
become effective at such later time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company or by
release of any of the Shares for sale to the public or by any other action
constituting a commencement of the public offering. For the purposes of this
Section 9, the Shares will be deemed to be so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by the Underwriter of telegrams offering the Shares for sale to
securities dealers, whichever may occur first. The term "business day" shall
mean a calendar day other than a Saturday, Sunday or holiday. Notwithstanding
anything herein to the contrary, the provisions of this Section and of Sections
5, 6, 10 and 11 hereof will, however, be effective upon the execution of this
Agreement.
10. Termination. This Agreement may be terminated by the
Underwriter, in its absolute discretion, by notice to the Company (i) at any
time before this Agreement becomes effective in accordance with Section 9
hereof; (ii) if, prior to the First Closing Date or the Option Closing Date, as
the case may be, the Company shall have failed to perform or refused to fully
comply with any of the provisions of this Agreement on its part to be performed
prior thereto, or if any of the agreements, conditions, covenants,
representations or warranties of the Company herein contained are not correct or
have not been performed or fulfilled within the times specified; (iii) trading
in securities generally on the New York Stock Exchange or the American Stock
Exchange will have been suspended; (iv) limited or minimum prices will have been
established on either such Exchange or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD; (v) a
banking moratorium will have been declared either by federal or New York State
authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, will be established by either of such Exchanges, by the Commission
by any other federal or state agency, by action of the Congress or by Executive
Order; (vii) the Company will have sustained a material loss, whether or not
insured, by reason of fire, flood, accident or other calamity; (viii) any action
has been taken by the Government of the United States or any department or
agency thereof which, in the sole judgment of the Underwriter, has had a
material adverse effect upon the general market for securities; (ix) if, prior
to the First Closing Date or the Option Closing Date, as the case may be, a
there shall have occurred the outbreak of any war or any other event or calamity
which, in the sole judgment of the Underwriter, materially disrupts the
financial markets of the United States; (x) if, prior to the First Closing Date
or the Option Closing Date, as the case may be, the general market for
securities or political, legal or financial conditions should deteriorate so
materially from that in effect on the date of this Agreement that, in the sole
judgment of the Underwriter, it becomes impracticable for the Underwriter to
commence or proceed with the public offering of the Shares and with the payment
for or acceptance thereof; (xi) if trading of any securities of the Company
shall have been suspended, halted or delisted on any exchange or in any
over-the-counter market or by the Commission; or (xii) if, prior to the First
Closing Date or the Option Closing Date, as the
-28-
case may be, any materially adverse change shall have occurred in the sole
judgment of the Underwriter, since the date as of which information is given in
the Registration Statement and the Prospectus, in the financial condition,
business, prospects, operations, properties or obligations of the Company.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Section 5, 6, 7 and 11
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. Expenses and Compensation.
(a) Expenses. Whether or not the offering is consummated, the
Company will pay all costs and expenses incident to the issuance, offer, sale
and delivery of the Shares, and the performance of the obligations of the
Company hereunder, including without limiting the generality of the foregoing,
(i) the preparation, printing, filing, and copying of the Registration
Statement, Prospectus, this Agreement and other underwriting documents, if any,
and any drafts, amendments or supplements thereto, including the cost of all
copies thereof supplied to the Underwriter in such quantities as reasonably
requested by the Underwriter and the costs of mailing Prospectuses, and any
amendments or supplements thereto, to offerees and purchasers of the Shares;
(ii) the printing, engraving, issuance and delivery of certificates representing
the Shares, including any transfer or other taxes payable thereon; (iii) all
filing fees, attorneys' fees, and expenses incurred by the Company or the
Underwriter in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Shares for offer and sale under the state securities or blue sky laws, and, if
requested by the Underwriter, preparing and printing a "Blue Sky Survey" or
other memorandum, and any supplements thereto, advising the Underwriter of such
qualifications, registrations and exemptions, (iv) the filing fees incident to,
and the fees and expenses of Underwriter's Counsel in connection with, the
NASD's review and approval of the Underwriter's participation in the offering
and distribution of the Shares; (v) all reasonable fees and expenses of the
Company's counsel and accountants; (vi) all NASD filing fees in connection with
the offering; (vii) all costs and expenses of any listing of the Shares on the
AMEX, NASDAQ or any other stock exchange or in Standard and Poor's Corporation
Reports or any other securities manuals; (viii) all costs and expenses of four
(4) bound volumes provided to the Underwriter of all documents, paper exhibits,
correspondence and records forming the materials included in the offering; (ix)
the cost of "tombstone" advertisements to be placed in one or more daily or
weekly periodicals as the Underwriter may request (up to a maximum of $15,000);
(x) [intentionally left blank]; (xi) all costs and expenses incident to the
travel and accommodation of the Company's employees on the "road show"; and
(xii) all other costs and expenses incurred or to be incurred by the Company in
connection with the transactions contemplated by this Agreement. The obligations
of the Company under this subsection (a) shall survive any termination or
cancellation of this Agreement.
(b) Underwriting Compensation. In addition to the Company's
responsibility for payment of the foregoing expenses, the Company shall pay the
Underwriter for its expenses on a non-accountable basis in the amount equal to
two and one-half percent (2 1/2 %) of the gross proceeds of the offering
(including in such amount the proceeds from the exercise of the Underwriter's
over-allotment option), of which $30,000 has been paid and the balance of which
shall be paid at the First Closing Date and any Option Closing Date, as
applicable. In the event the offering for any reason is not closed or is
withdrawn, the Underwriter shall retain so much of the
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amounts received from the Company equal to its actual accountable expenses and
reimburse the Company for the remainder, if any. In addition to the foregoing,
in the event the offering for any reason is not closed, and provided the
Underwriter was willing to proceed with the offering, the Company shall promptly
reimburse the Underwriter in full for its actual out-of-pocket expenses
(including, without limitation, the fees and disbursements of Underwriter's
Counsel) up to the aggregate sum of One Hundred Twenty Thousand Dollars
($120,000), less the amounts previously paid to the Underwriter.
(c) The Underwriter shall determine in which states or
jurisdictions the Shares shall be registered or qualified for sale. Immediately
prior to the Effective Date, Company Counsel shall advise the Underwriter in
writing of all states in which the offering has been registered or qualified for
sale or has been canceled, withdrawn or denied and the number of Shares
registered or qualified for sale in each such state. The Company shall be
responsible for the cost of state registration or qualification, including the
filing fees (which filing fees are payable to Underwriter's Counsel in advance
of such filings) and the legal fees and disbursements of Underwriter's Counsel
in connection with obtaining such registration or qualification.
12. Notices. Any notice hereunder shall be in writing, unless
otherwise expressly provided herein, and if to the respective persons indicated,
will be sufficient if sent by certified mail, return receipt requested, postage
prepaid, by overnight delivery, by hand delivery, or by facsimile if confirmed,
and addressed as respectively indicated, or to such other address as will be
indicated by a written notice similarly given, to the following persons:
If to the Underwriter to:
The Shemano Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman
with a copy to:
Blank Rome LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
If to the Company to:
Intelli-Check, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Chairman & CEO
with a copy to:
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Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Notice shall be deemed delivered upon receipt.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control any of the Underwriter within
the meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the Shares from the Underwriter
will be deemed a successor or assign solely because of such purchase.
14. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and warrants to the
Underwriter that it has not paid any compensation for services as a finder in
connection with any prior financing of the Company during the twelve-month
period immediately preceding the date hereof and that no person is entitled,
directly or indirectly, to compensation for services as a finder in connection
with the proposed transactions. The Company further represents and warrants that
no person holds a right of first refusal or similar right in connection with the
proposed offering, and the Company hereby agrees to indemnify and hold harmless
the Underwriter, its respective officers, directors, agents and each person, if
any, who controls such Underwriter within the meaning of Section 15 of the Act,
from and against any loss, liability, claim, damage or expense whatsoever
arising out of a claim by an alleged finder or alleged holder of a right of
first refusal or similar right in connection with the proposed offering, insofar
as such loss, liability, claim, damage or expense arises out of any action or
alleged action of the Company.
(b) The Underwriter hereby represents and warrants to the
Company that no person is entitled, directly or indirectly, to compensation for
services as a finder in connection with the proposed transactions contemplated
by this Agreement; and the Underwriter hereby agrees to indemnify and hold
harmless the Company, its officers, directors and agents, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder in connection with the proposed offering, insofar as such
loss, liability, claim, damage or expense arises out of any action or alleged
action of the Underwriter.
15. Applicable Law. This Agreement shall be a deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with
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the laws of said state applicable to contracts made and to be performed entirely
within such State. The Company (i) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection which the Company may have now or hereafter to the venue of any
such suit, action or proceeding, and (iii) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York and the
United States District Court for the Southern District of New York in any such
suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
16. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
17. Counterparts. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
18. Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
19. Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders and the singular shall include the plural, and vice versa.
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If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the spaces provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
among us.
Very truly yours,
INTELLI-CHECK, INC.
By: ________________________
Name:
Title:
Confirmed and accepted on the
day and year first above written.
THE SHEMANO GROUP, INC.
By:
--------------------------------
Name:
Title:
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APPENDIX A
INSURANCE POLICIES
[to be provided by Company]
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