PHOENIX PRESCHOOL HOLDINGS, INC.
UNDERWRITING AGREEMENT
New York, New York
Dated: , 1997
Briarwood Investment Counsel
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Duke & Co., Inc.
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Gentlemen:
The undersigned, PHOENIX PRESCHOOL HOLDINGS, INC., a Delaware
corporation (the "Company"), proposes to issue and sell to Duke & Co., Inc.
("Duke") and Briarwood Investment Counsel ("Briarwood") (Duke and Briarwood are
collectively referred to as "Underwriters") pursuant to this Underwriting
Agreement ("Agreement"), an aggregate of 1,275,000 shares of Common Stock, par
value $0.10 per share, of the Company (the "Common Stock"). Additionally, each
of the warrantholders of the Company named in Schedule A hereto (the "Selling
Warrantholders"), acting severally and not jointly, proposes to sell to you the
respective number of warrants set forth opposite the Selling Warrantholders'
names on Schedule A for an aggregate of 1,275,000 Redeemable Common Stock
Purchase Warrants (the "Warrants"). The Warrants are each exercisable to
purchase one share of Common Stock, at any time commencing two years from the
date on which the Registration Statement (as defined in Section 1(a) hereof),
shall have become or been declared effective (the "Effective Date"), and ending
on the fifth anniversary of the Effective Date. The Warrant exercise price,
subject to adjustment as described in the agreement providing for the Warrants
(the "Warrant Agreement"), shall be $5.10 per share, subject to adjustment as
described in the Warrant Agreement.
The shares of Common Stock and the Warrants will be separately
transferable immediately upon issuance. Commencing two years after the Effective
Date, with the prior consent of the Underwriters, the Warrants are subject to
redemption by the Company at $0.05 per Warrant, provided that (a) prior notice
of not less than 30 days is given to the holders of the Warrants (the
"Warrantholders"), and (b) the closing sale price per share of Common Stock, if
traded on The NASDAQ Stock Market, or the last sale price per share of Common
Stock, if traded on a national exchange, for the 20 consecutive trading days
ending on the third day prior to the date on which notice of redemption is
given, has been at least $7.00.
In addition, the Company proposes to grant to the Underwriters
the Over-Allotment Option (as defined in Section 2(c) hereof) to purchase all or
any part of 191,250 additional shares of Common Stock and/or 191,250 Warrants,
and to issue to you the Underwriters' Warrant (as defined in Section 11 hereof)
to purchase certain further additional shares of Common Stock and Warrants.
The 1,275,000 shares of Common Stock to be sold by the
Company, together with the aggregate of 191,250 additional shares of Common
Stock that are the subject of the Over-allotment Option, are herein collectively
called the "Shares." The the Shares and the Warrants, the additional Warrants
subject to the Over-Allotment Option and the Warrants issuable upon exercise of
the Underwriters' Warrant), the shares of Common Stock issuable upon exercise of
the Warrants and the shares of Common Stock issuable upon exercise of the
Underwriters' Warrant, are herein collectively called the "Securities." The term
"Underwriter's Counsel" shall mean the firm of Gersten, Savage, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇▇, LLP, counsel to the Underwriter, and the term "Company Counsel"
shall mean the firm of Blank Rome ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the Company.
Unless the context otherwise requires, all references herein to a "Section"
shall mean the appropriate Section of this Agreement.
You have advised the Company and the Selling Warrantholders
that you desire to purchase the Shares and the Warrants as herein provided. The
Company and the Selling Warrantholders confirm the agreements made by them with
respect to the purchase of the Shares and Warrants by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING WARRANTHOLDERS. The Company represents and warrants to, and agrees with,
the Underwriters that:
(a) Registration Statement; Prospectus; A
registration statement (File No. 333-31407) on Form SB-2 relating to the public
offering of the Securities (the "Offering"), including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933 (the "Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder (the "Rules and
Regulations"), and has been filed with the Commission under the Act. As used
herein, the term "Preliminary Prospectus" shall mean
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each prospectus filed pursuant to Rule 430 or Rule 424(a) of the Rules and
Regulations. The Preliminary Prospectus bore the legend required by Item 501 of
Regulation S-B under the Act and the Rules and Regulations. Such registration
statement (including all financial statements, schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are herein respectively called the "Registration Statement" and the
"Prospectus," except that (i) if the prospectus filed by the Company pursuant to
Rule 424(b) or Rule 430A of the Rules and Regulations shall differ from such
final prospectus as then amended, then the term "Prospectus" shall instead mean
the prospectus first filed pursuant to said Rule 424(b) or Rule 430A, and (ii)
if such registration statement is amended or such prospectus is amended or
supplemented after the effective date of such registration statement and prior
to the Option Closing Date (as defined in Section 2(c) hereof), then (unless the
context necessarily requires otherwise) the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include such prospectus as so amended or supplemented, as the case may be.
As used herein, the term "Subsidiary" shall mean Phoenix Preschool Education
Centers, Inc.
(b) Contents of Registration Statement. On the
Effective Date, and at all times subsequent thereto for so long as the delivery
of a prospectus is required in connection with the offering or sale of any of
the Securities, (i) the Registration Statement and the Prospectus shall in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus
shall include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary or make statements
therein in light of the circumstances in which they were made, not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," the information on the
cover page of the Prospectus regarding the underwriting arrangements and the
identity of the Underwriters' Counsel under the caption "LEGAL MATTERS," which
information the Underwriters hereby represent and warrant to the Company are
true and correct in all material respects and does not omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances in which they were made, not misleading,
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Registration Statement and Prospectus, as the
case may be.
Except for the registration rights granted under the
Underwriters' Warrant, or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company, have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
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(c) Organization, Standing, Etc. The Company is duly
incorporated and validly exists as a corporation in good standing under the laws
of its jurisdiction of incorporation, with full power and corporate authority to
own its properties and conduct its business as described in the Prospectus, and
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the nature of its business or
the character or location of its properties requires such qualification, except
where failure so to qualify will not have a material adverse effect on the
business, properties or financial condition of the Company, as the case may be.
(d) Capitalization. The authorized, issued and
outstanding capital stock of the Company as of the date of the Prospectus is as
set forth in the Prospectus under the caption "CAPITALIZATION". The shares of
Common Stock issued and outstanding on the Effective Date have been duly
authorized, validly issued and are fully paid and non-assessable. No options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company or the Subsidiary have been granted or entered into
by the Company or the Subsidiary, except as expressly described in the
Prospectus. The Securities conform to all statements relating thereto contained
in the Registration Statement or the Prospectus.
(e) Securities. The Securities conform, or will
conform when issued, in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. The
Securities have been duly authorized and, when issued and delivered against
payment therefor pursuant to this Agreement, the Warrant Agreement or the
Underwriters' Warrant, as the case may be, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. Neither the filing of the Registration Statement
nor the offering or sale of any of the Securities as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any securities of the Company,
except as described in the Registration Statement.
(f) Authority, Etc. This Agreement, the Warrant
Agreement, the Underwriters' Warrant, and the Financial Consulting Agreement (as
hereinafter defined), have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution of this Agreement and such
other agreements by the other party or parties hereto and thereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms. The Company has full right, power and
lawful authority to authorize, issue and sell the Securities and the
Underwriters' Warrant on the terms and conditions set forth herein. All
consents, approvals, authorizations and orders of any court or governmental
authority which are required in connection with the authorization, execution and
delivery of such agreements, the authorization, issue and sale of the Securities
and the Underwriters' Warrant, and the consummation of the transactions
contemplated hereby have been obtained.
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(g) No Conflict. Except as described in the
Prospectus, neither the Company nor the Subsidiary is in violation, breach or
default of or under, and consummation of the transactions hereby contemplated
and fulfillment of the terms of this Agreement will not conflict with or result
in a breach of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance pursuant to the terms of, any contract, indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
may be bound or to which any of the property or assets of the Company or the
Subsidiary are subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or the By-laws of the Company, or
the certificate of incorporation or by-laws of the Subsidiary, or any statute or
any order, rule or regulation applicable to the Company or the Subsidiary, or of
any court or of any regulatory authority or other governmental body having
jurisdiction over the Company or the Subsidiary.
(h) Assets. Subject to the qualifications stated in
the Prospectus: (i) the Company and the Subsidiary, as the case may be, has good
and marketable title to all properties and assets described in the Prospectus as
owned by it, including without limitation intellectual property, free and clear
of all liens, charges, encumbrances or restrictions, except such as do not
materially affect the value of such properties or assets and do not interfere
with the use made or proposed to be made of such assets or properties by the
Company or the Subsidiary or are not materially significant or important in
relation to the business of the Company or the Subsidiary, as the case may be;
(ii) all of the material leases and subleases under which the Company or the
Subsidiary is the lessor or sublessor of properties or assets or under which the
Company or the Subsidiary hold properties or assets as lessee or sublessee, as
described in the Prospectus, are in full force and effect and, except as
described in the Prospectus, neither the Company nor the Subsidiary is in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by any party
adverse to the rights of the Company or the Subsidiary as lessor, sublessor,
lessee or sublessee under any such lease or sublease, or affecting or
questioning the right of the Company or the Subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease,
except as described or referred to in the Prospectus; and (iii) the Company and
the Subsidiary, as the case may be, owns or leases all such assets and
properties, described in the Prospectus, as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
The outstanding debt, the property and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
(i) Independent Accountants. BDO ▇▇▇▇▇▇▇ ▇▇, who have
given their report on certain financial statements filed or to be filed with the
Commission as a part of the Registration Statement, and which are included in
the Prospectus, are with respect to the Company, independent public accountants
as required by the Act and the Rules and Regulations.
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(j) Financial Statements. The consolidated financial
statements, together with related notes, set forth in the Registration Statement
and the Prospectus present fairly the consolidated financial position, results
of operations, changes in stockholders' equity and cash flows of the Company and
the Subsidiary on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Such
financial statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the entire period involved, except to the extent disclosed therein.
The Summary Financial Data and Selected Financial Data included in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been prepared on a basis consistent with that of the financial
statements included in the Registration Statement and the Prospectus.
(k) No Material Change. Except as otherwise set forth
in the Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company nor
the Subsidiary has: (i) incurred any liability or obligation, direct or
contingent, or entered into any transaction, which is material to its business;
(ii) effected or experienced any change in its capital stock or incurred any
long-term debt; (iii) issued any options, warrants or other rights to acquire
its capital stock; (iv) declared, paid or made any dividend or distribution of
any kind on its capital stock; or (v) effected or experienced any adverse
change, or development involving a prospective adverse change, in its financial
position, net worth, results of operations, business or business prospects,
assets or properties or key personnel.
(l) Litigation. Except as set forth in the
Prospectus, there is not now pending nor, to the knowledge of the Company,
threatened, any action, suit or proceeding (including any related to
environmental matters or discrimination on the basis of age, sex, religion or
race), whether or not in the ordinary course of business, to which the Company
or the Subsidiary is a party or its business or property is subject, before or
by any court or governmental authority, which, if determined adversely to the
Company, would have a material adverse effect on the financial position, net
worth, or results of operations, business or business prospects, assets or
property of the Company or the Subsidiary; and no labor disputes involving the
employees of the Company or the Subsidiary exist which would affect materially
adversely the business, property, financial position or results of operations of
the Company or the Subsidiary.
(m) Employee and Independent Contractor Matters. The
Company and the Subsidiary have generally enjoyed satisfactory employer/employee
relationships with their respective employees and are in compliance in all
material respects with all Federal, state and local laws and regulations,
including but not limited to, applicable tax laws and regulations, respecting
the employment of their respective employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. To the knowledge
of the Company or the Subsidiary, there are no pending or threatened
investigations involving the Company or the Subsidiary by the U.S. Department of
Labor or corresponding foreign agency, or any other governmental agency
responsible for the enforcement of such Federal, state or local laws and
regulations. To the knowledge of the Company or the Subsidiary, there are no
unfair labor
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practice charges or complaints against the Company or the Subsidiary pending
before the National Labor Relations Board or corresponding foreign agency or any
strikes, picketing, boycotts, disputes, slowdowns or stoppages pending or
threatened against or involving the Company or the Subsidiary, or any
predecessor entity, and none has occurred. No representation question exists
respecting the employees of the Company or the Subsidiary. No collective
bargaining agreements or modifications thereof are currently in effect or being
negotiated by the Company or the Subsidiary and their respective employees. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or the Subsidiary.
Neither the Company nor the Subsidiary: (i) maintain
nor have maintained, sponsored or contributed to any program or arrangement that
is an "employee pension benefit plan," an "employee welfare benefit plan" or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), except for the Stock Option Plan described in the Prospectus;
(ii) presently maintain or contribute nor at any time in the past, have they
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA; or (iii) has ever completely or partially withdrawn from a
"multi-employer plan."
The Company and the Subsidiary have generally enjoyed
satisfactory relationships with their respective independent contractors and are
in compliance in all material respects with all federal, state and local laws
and regulations, including but not limited to applicable tax laws and
regulations, respecting the engagement of their respective independent
contractors.
(n) No Unlawful Prospectuses. The Company has not
distributed any prospectus or other offering material in connection with the
Offering contemplated herein, other than any Preliminary Prospectus, the
Prospectus or other material permitted by the Act and the Rules and Regulations.
(o) Taxes. Except as disclosed in the Prospectus, the
Company and the Subsidiary have filed all necessary federal, state, local and
foreign income and franchise tax returns and has paid all taxes shown as due
thereon on or before the date such taxes are due to be paid; and there is no tax
deficiency which has been or, to the knowledge of the Company, might be asserted
against the Company or the Subsidiary.
(p) Licenses, Etc. The Company and the Subsidiary
have in effect all necessary licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property, as described in the Prospectus, and is in all
material respects in compliance therewith. To the knowledge of the Company, none
of the activities or business of the Company or the Subsidiary is in violation
of, or would cause the Company or the Subsidiary to violate, any law, rule,
regulation or order of the United States, any country, state, county or
locality, the violation of which would have a material adverse effect upon the
financial position, net worth, results of operations, business or business
prospects, assets or property of the Company or the Subsidiary.
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(q) No Prohibited Payments. Neither the Company, the
Subsidiary, nor, to the knowledge of the Company or the Subsidiary, any of their
respective employees or officers or directors, agents or any other person acting
on behalf of the Company or the Subsidiary has, directly or indirectly,
contributed or agreed to contribute any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer, supplier, or official
or governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or foreign) or
other person who was, is, or may be in a position to help or hinder the business
of the Company or the Subsidiary (or assist it in connection with any actual or
proposed transaction) which (i) could reasonably be expected to subject the
Company or the Subsidiary to any material damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in the
past, could reasonably be expected to have had a materially adverse effect on
the assets, business or operations of the Company or the Subsidiary as reflected
in any of the financial statements contained in the Prospectus, or (iii) if not
continued in the future, could reasonably be expected to materially adversely
affect the assets, business, operations or prospects of the Company or the
Subsidiary. 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.
(r) Transfer Taxes. On the Closing Dates (as defined
in Section 2(d) hereof), all transfer and other taxes (including franchise,
capital stock and other taxes, other than income taxes, imposed by any
jurisdiction), if any, which are required to be paid in connection with the sale
and transfer of the Units to the Underwriter hereunder shall have been fully
paid or provided for by the Company, and all laws imposing such taxes shall have
been fully complied with.
(s) Exhibits. All contracts and other documents of
the Company or the Subsidiary described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement, have been
described in the Registration Statement or the Prospectus or filed with the
Commission, as required under the Rules and Regulations.
(t) Shareholder Agreements, Registration Rights.
Except as described in the Prospectus, no security holder of the Company has any
rights with respect to the purchase, sale or registration of any Securities, and
all registration rights with respect to the Offering have been waived.
(u) No Stabilization or Manipulation. Neither the
Company nor, to the Company's knowledge, any of its officers or directors or any
of its employees or stockholders, have taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, under the Exchange Act or
otherwise, the stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.
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(v) No Finders. Except as described in the
Prospectus, to the knowledge of the Company or the Subsidiary, there are no
claims, payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
commitments, payments or issuances of securities with respect to the Company
that may affect the Underwriter's compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(w) Lock-up Agreements. The Company has obtained from
each director, officer and existing stockholder of the Company (the "Existing
Shareholders"), a Lock-Up Agreement (as defined in Section 3(r) hereof) in the
form previously delivered.
(x) No Adverse Effect of Transaction Contemplated
Hereby. Neither the completion of the Offering nor any of the transactions
contemplated herein or in the Prospectus, including but not limited to the
issuance of any of the Securities, will result in a "change of control" or the
loss of, or have any adverse effect on, the maintenance in good standing of the
Company's licenses.
(aa) Each of the Selling Warrantholders, severally
and not jointly, represents and warrants to, and agrees with, the Underwriters
as of the date hereof, each of subparagraphs (a) through (x), inclusive, of
Section 1 and as follows:
(i) The execution and delivery of this
Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach by such Selling Warrantholder of, or
constitute a default by such Selling Warrantholder under, any material
indenture, deed or trust, contract or other agreement or instrument or any
decree, judgment or order to wich such Selling Warrantholder is a party or by
which such Selling Warrantholder may be bound.
(ii) Such Selling Warrantholder has and will
have, at the First Closing Date, good and marketable title to the Warrants to be
sold by such Selling Warrantholder hereunder, free and clear of any pledge,
lien, security interest, encumbrance, claim or equity, created by or arising
through the Selling Warrantholder other than pursuant to this Agreement; such
Selling Warrantholder has full right, power and authority to sell, transfer and
deliver the Warrants to be sold by such Selling Warrantholder hereunder; and
upon delivery of the Warrants to be sold by such Selling Warrantholder hereunder
and payment of the purchase price therefor as herein contemplated, the
Underwriters will receive good and marketable title to the Warrants purchased by
it from such Selling Warrantholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equity.
(iii) Such Selling Warrantholder has duly
executed and delivered in the form heretofore furnished to the Underwriters, a
power of attorney and custody agreement (the "Power of Attorney and Custody
Agreement") with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Phoenix Preschool Holdings, Inc., as the
attorney-in-fact and the custodian (the "Attorney-in-Fact" and the
9
"Custodian", respectively); the Attorney-in-Fact is authorized to execute and
deliver this Agreement and the certificates referred to in Section 4(j) or that
may be required pursuant to Section 4(f) on behalf of such Selling
Warrantholder, to authorize the delivery of the Warrants to be sold by such
Selling Warrantholder hereunder, to duly endorse (in blank or otherwise) the
warrant certificate or warrant certificates representing such Warrants, to
accept payment therefor, and otherwise to act on behalf of such payment
therefor, and otherwise to act on behalf of such Seller in connection with this
Agreement.
(iv) All authorizations, approvals and
consents necessary for the execution and delivery by such Selling Warrantholder
of the Power of Attorney and Custody Agreement, the execution and delivery by or
on behalf of such Selling Warrantholder of this Agreement, and the sale and
delivery of the Warrants to be sold by such Selling Warrantholder hereunder and
thereunder (other than, at the time of the execution hereof, the issuance of the
order of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws), have been obtained and are in full force and effect; and such Selling
Warrantholder has the full right, power and authority to enter into this
Agreement and the Power of Attorney and Custody Agreement and to sell, transfer
and deliver the Warrants to be sold by such Selling Warrantholder hereunder.
(v) Such Selling Warrantholder has not taken
and will not take, directly or indirectly, any action which is designed to or
which constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security or the Company to
facilitate the sale or exercise of the Warrants.
(vi) Certificates in negotiable form for all
Warrants to be sold by such Selling Warrantholder thereunder have been placed in
custody with the Custodian by or for the benefit of such Selling Warrantholder
for the purposes or effecting delivery by such Selling Warrantholder hereunder.
2. PURCHASE, DELIVERY AND SALE OF SHARES AND WARRANTS
(a) Purchase Prices for the Shares and the Warrants.
The Shares and the Warrants shall be sold to and purchased by the Underwriters
at the purchase prices of $3.825 per Share and $.1125 per Warrant (that being
the public offering prices of $4.25 per Share and $.125 per Warrant less an
underwriting discount of 10 percent) (the "Purchase Price").
(b) Firm Securities.
(i) Subject to the terms and conditions of
this Agreement, and on the basis of the representations, warranties and
agreements herein contained the Company and the Selling Warrantholders agree to
issue and sell to the Underwriters and the Underwriters, agree to buy from the
Company and the Selling Warrantholders at the Purchase Price (the "Firm
Securities").
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(ii) Delivery of the Firm Securities against
payment therefor shall take place at the offices of Briarwood Investment Counsel
(or at such other place as may be designated by agreement between you and the
Company) at 10:00 a.m., New York Time, on _____, 1997, or at such later time and
date, not later than five business days after the Effective Date, as you may
designate (such time and date of payment and delivery for the Firm Securities
being herein called the "First Closing Date"). Time shall be of the essence and
delivery of the Firm Securities at the time and place specified in this Section
2(b)(ii) is a further condition to the obligations of the Underwriters
hereunder.
(c) Option Securities.
(i) In addition, subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, the Company hereby grants to the
Underwriters an option (the "Over-Allotment Option"), to purchase from the
Company all or any part of an aggregate of an additional 191,250 Shares and
191,250 Warrants at the Purchase Price (the "Option Securities").
(ii) The Over-Allotment Option may be
exercised by the Underwriters, in whole or in part, within forty-five days after
the Effective Date, upon written notice by the Underwriters to the Company
advising it of the number of Option Securities as to which the Over-Allotment
Option is being exercised, the names and denominations in which the certificates
for the Shares and the Warrants are to be registered, and the time and date when
such certificates are to be delivered. Such time and date shall be determined by
you but shall not be less than two nor more than ten business days after
exercise of the Over-Allotment Option, nor in any event prior to the First
Closing Date (such time and date being herein called the "Option Closing Date").
Delivery of the Option Securities against payment therefor shall take place at
Briarwood Investment Counsel offices. Time shall be of the essence and delivery
at the time and place specified in this Section 2(c)(ii) is a further condition
to the obligations of the Underwriters hereunder.
(iii) The Over-Allotment may be exercised
only to cover over-allotments in the sale by the Underwriters of Firm
Securities.
(d) Delivery of Certificates; Payment.
(i) The Company and the Selling
Warrantholders shall make the certificates for the Shares and the Warrants to be
purchased hereunder available to you for checking at least two full business
days prior to the First Closing Date or the Option Closing Date (each, a
"Closing Date"), as the case may be. The certificates shall be in such names and
denominations as you may request at least two business days prior to the
relevant Closing Date. Time shall be of the essence and the availability of the
certificates at the time and place specified in this Section 2(d)(i) is a
further condition to the obligations of the Underwriters hereunder.
11
(ii) On the First Closing Date the Company
and the Selling Warrantholders shall deliver to you for the account of the
Underwriters definitive engraved certificates in negotiable form representing
all of the Shares and the Warrants to be sold by the Company and the Selling
Warrantholders, against payment of the Purchase Price therefor by you for the
several accounts of the Underwriters, by certified or bank cashier's checks
payable in New York Clearing House funds to the order of the Company and each of
the Selling Warrantholders.
(iii) In addition, if and to the extent that
the Underwriters exercise the Over-Allotment Option, then on the Option Closing
Date the Company shall deliver to you for the accounts of the Underwriters or
its designees definitive engraved certificates in negotiable form representing
the Shares and the Warrants comprising the Option Securities to be sold by the
Company, against payment of the Purchase Price therefor by the Underwriters for
the account of the Underwriters or its designees, by certified or bank cashier's
checks payable in next day funds to the order of the Company.
(iv) It is understood that the Underwriters
propose to offer the Shares and Warrants to be purchased hereunder to the
public, upon the terms and conditions set forth in the Registration Statement,
after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
(a) Registration.
(i) The Company shall use its best efforts
to cause the Registration Statement to become effective and, upon notification
from the Commission that the Registration Statement has become effective, shall
so advise you and shall not at any time, whether before or after the Effective
Date, file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy, or to which you or Underwriter's Counsel shall have
objected in writing, or which is not in compliance with the Act and the Rules
and Regulations.
(ii) Promptly after you or the Company shall
have been advised thereof, you shall advise the Company or the Company shall
advise you, as the case may be, and confirm such advice in writing, of (A) the
receipt of any comments of the Commission, (B) the effectiveness of any
post-effective amendment to the Registration Statement, (C) the filing of any
supplement to the Prospectus or any amended Prospectus, (D) any request made by
the Commission for amendment of the Registration Statement or amendment or
supplementing of the Prospectus, or for additional information with respect
thereto, or (E) the issuance by the Commission or any state or regulatory body
of any stop order or other order denying or suspending the effectiveness of the
Registration Statement, or preventing or suspending the use of any Preliminary
Prospectus, or suspending the qualification of the Securities for offering in
any jurisdiction, or otherwise preventing or impairing the Offering, or the
institution or threat of any
12
proceeding for any of such purposes. The Company and you shall not acquiesce in
such order or proceeding, and shall instead actively defend such order or
proceeding, unless the Company and you agree in writing to such acquiescence.
(iii) The Company has caused to be delivered
to you copies of each Preliminary Prospectus, and the Company has consented and
hereby consents to the use of such copies for the purposes permitted by the Act.
The Company authorizes the Underwriters and selected dealers to use the
Prospectus in connection with the sale of the Shares and Warrants for such
period as in the opinion of Underwriters' Counsel the use thereof is required to
comply with the applicable provisions of the Act and the Rules and Regulations.
In case of the happening, at any time within such period as a prospectus is
required under the Act to be delivered in connection with sales by an
underwriter or dealer, of any event of which the Company has knowledge and which
materially affects the Company or the Securities, or which in the opinion of
Company Counsel or of Underwriters' Counsel should be set forth in an amendment
to the Registration Statement or an amendment or supplement to the Prospectus in
order to make the statement made therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Shares and/or Warrants, or in case it shall be necessary to
amend or supplement the Prospectus to comply with the Act or the Rules and
Regulations, the Company shall notify you promptly and forthwith prepare and
furnish to the Underwriters copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
shall not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of each such amendment to the Registration Statement,
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in the case that the
Underwriters are required, in connection with the sale of the Shares and
Warrants, to deliver a prospectus nine months or more after the Effective Date,
the Company shall upon your request and at the expense of the Underwriters,
amend the Registration Statement and amend or supplement the Prospectus, or file
a new registration statement, if necessary, and furnish the Underwriters with
reasonable quantities of prospectuses complying with section 10(a)(3) of the
Act.
(iv) The Company will deliver to you at or
before the First Closing Date two signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto. The Company will deliver to or upon your order, from time to
time until the Effective Date as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriters may from time to time
reasonably request.
13
(v) The Company shall comply with the Act,
the Rules and Regulations, and the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated thereunder in
connection with the offering and issuance of the Securities in all material
respects.
(b) Blue Sky. The Company shall, at its own expense,
use its best efforts to qualify or register the Securities for sale (or obtain
an exemption from registration) under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such applications and furnish
such information to Underwriters' Counsel as may be required for that purpose,
and shall comply with such laws; provided, however, that the Company shall not
be required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Shares and
Warrants. The Company shall bear all of the expense of such qualifications and
registrations, including without limitation the legal fees and disbursements of
Underwriters' Counsel, which fees, exclusive of disbursements, shall equal
$35,000 (unless otherwise agreed). After each Closing Date the Company shall, at
its own expense, from time to time prepare and file such statements and reports
as may be required to continue each such qualification (or maintain such
exemption from registration) in effect for so long a period as required by law,
regulation or administrative policy in connection with the offering of the
Securities.
(c) Exchange Act Registration. The Company shall at
its own expense, prepare and file with the Commission a registration statement
(on Form 8-A or Form 10) under section 12 of the Exchange Act, and shall use its
best efforts to cause such registration statement to be declared effective by
the Commission on an accelerated basis on the Effective Date and maintained in
effect for at least five years from the Effective Date.
(d) Prospectus Copies. The Company shall deliver to
you on or before the First Closing Date a copy of the Registration Statement
including all financial statements, schedules and exhibits filed therewith, and
of all amendments thereto. The Company shall deliver to or on the order of the
Underwriters, from time to time until the Effective Date, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(e) Amendments and Supplements. The Company shall,
promptly upon your request, prepare and file with the Commission any amendments
to the Registration Statement, and any amendments or supplements to the
Preliminary Prospectus or the Prospectus, and take any other action which in the
reasonable opinion of Underwriters' Counsel and Company Counsel may be
reasonably necessary or advisable in connection with the distribution of the
Shares and Warrants, and shall use its best efforts to cause the same to become
effective as promptly as possible.
14
(f) Certain Market Practices. The Company has not
taken, and shall not take, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, or which has constituted,
the stabilization or manipulation of the price of the Securities to facilitate
the sale or resale thereof.
(g) Certain Representations. Neither the Company nor
any representative of the Company has made or shall make any written or oral
representation in connection with the Offering and sale of the Securities or the
Underwriters' Warrant which is not contained in the Prospectus, which is
otherwise inconsistent with or in contravention of anything contained in the
Prospectus, or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations promulgated under the
Exchange Act.
(h) Continuing Registration of Warrants and
Underlying Common Stock. For so long as any Warrant is outstanding, the Company
shall, at its own expense: (i) use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or new registration
statements relating to the Warrants and the Common Stock underlying the Warrants
to become effective in compliance with the Act and without any lapse of time
between the effectiveness of the Registration Statement and of any such
post-effective amendment or new registration statement; provided, however, that
the Company shall have no obligation to maintain the effectiveness of such
Registration Statement or file a new Registration Statement, or to keep
available a prospectus at any time at which such registration or prospectus is
not then required; (ii) cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant; (iii) furnish to the
Underwriters and dealers as many copies of each such Prospectus as the
Underwriters or dealers may reasonably request; and (iv) maintain the "blue sky"
qualification or registration of the Warrants and the Common Stock underlying
the Warrants, or have a currently available exemption therefrom, in each
jurisdiction in which the Securities were so qualified or registered for
purposes of the Offering.
(i) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Shares substantially for the purposes set forth in
the Prospectus under the caption "USE OF PROCEEDS," and shall file such reports
with the Commission with respect to the sale of the Shares and the application
of the proceeds therefrom as may be required pursuant to Rule 463 of the Rules
and Regulations.
(j) Twelve Months' Earnings Statement. The Company
shall make generally available to its security holders and deliver to you as
soon as it is practicable so to do, but in no event later than ninety days after
the end of twelve months after the close of its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the Effective Date, which shall
satisfy the requirements of section 11(a) of the Act.
(k) NASDAQ Exchange Listings, Etc. The Company shall
immediately make all filings required to seek approval for the quotation of the
Securities on the NASDAQ
15
SmallCap Market ("NASDAQ") and shall use its best efforts to effect and maintain
such approval for at least five years from the Effective Date. Within 10 days
after the Effective Date, the Company shall also use its best efforts to list
itself, on an expedited basis, in ▇▇▇▇▇'▇ OTC Industrial Manual, Standard and
Poor's Corporation Descriptions or other recognized securities manuals
acceptable to the Underwriters and shall use its best efforts to cause such
listing to be maintained for five years from the Effective Date.
(l) Board of Directors. For a period of three (3)
years after the Fist Closing Date, the Company shall nominate and use its best
efforts to engage a designee of the Underwriters as a nonvoting advisor to the
Company's Board of Directors (the "Advisor") or, in lieu thereof, to designate
an individual for election as a director, in which case the Company shall use
its best efforts to have such individual elected as a director. The designee may
be a director, officer, partner, employee or affiliate of an Underwriter, and
the Underwriters shall designate such person in writing to the Board. In the
event the Underwriters shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve, the Company
shall notify the Underwriters of each meeting of the Board. An individual, if
any, designated by the Underwriters shall receive all notices and other
correspondence and communications sent by the Company to members of the Board.
Such Advisor shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings including, but not limited to, food,
lodging, and transportation. In addition, such Advisor shall be entitled to the
same compensation as the Company gives to other non-employee directors for
acting in such capacity. The Company further agrees that, during said three (3)
year period, it shall schedule no less than four (4) formal and "in person"
meetings of its Board of Directors in each such year at which meetings such
Advisor shall be permitted to attend as set forth herein; said meetings shall be
held quarterly each year and thirty (30) days advance notice of such meetings
shall be given to the Advisor. Further, during such three (3) year period, the
Company shall give notice to the Underwriters with respect to any proposed
acquisitions, mergers, reorganizations or other similar transactions involving a
purchase price in excess of $200,000, at the time a letter of intent is entered
into for such transaction.
The Company agrees to indemnify and hold harmless the
Underwriters and the Advisor against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible, to include the
Advisor as an insured under such policy.
(m) Periodic Reports. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the Exchange Act, the
Company shall, at its own expense, hold an annual meeting of stockholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, and furnish to its stockholders an annual report (including financial
statements audited by certified public accountants) in reasonable detail. In
addition, during the
16
period ending three years from the date hereof, the Company shall, at its own
expense, furnish to you: (i) following the release of such information to the
public, a balance sheet of the Company and the Subsidiary as at the end of such
fiscal year, together with statements of income, stockholders' equity and cash
flows of the Company and the Subsidiary as at the end of such fiscal year, all
in reasonable detail and accompanied by a copy of the certificate or report
thereon of certified public accountants; (ii) as soon as they are available, a
copy of all reports (financial or otherwise) distributed to security holders;
(iii) as soon as they are available, a copy of all non-confidential reports and
financial statements furnished to or filed with the Commission; and (iv) such
other non-confidential information as you may from time to time reasonably
request. The financial statements referred to herein shall be on a consolidated
basis to the extent the accounts of the Company and the Subsidiary are
consolidated in reports furnished to its stockholders generally.
(n) Form S-8 Registrations. For a period of two years
following the First Closing Date, the Company shall not, without the
Underwriters' prior written consent, register or otherwise facilitate the
registration of any of its securities issuable upon the exercise of options,
warrants or other rights, whether by means of a Registration Statement on Form
S-8 or otherwise.
(o) Future Sales. For a period of two years following
the First Closing Date, the Company shall not, without the Underwriters' prior
written consent, sell or otherwise dispose of any securities of the Company,
including but not limited to the issuance of any Common Stock, and the granting
of any options or warrants excluding options to employees, directors and
officers under the Company's Stock Option Plans. Notwithstanding the foregoing,
the Company may at any time issue shares of Common Stock pursuant to the
exercise of the Warrants or options under the Company's Stock Option Plans, the
Underwriters' Warrant, the Warrants underlying the Underwriters' Warrant, and
options, warrants or conversion rights issued and outstanding on the Effective
Date and described in the Prospectus.
(p) Regulation S Sales. For a period of two years
following the First Closing Date, the Company shall not issue or sell any
securities pursuant to Regulation S of the Rules and Regulations under the Act,
without Underwriters' prior written consent.
(q) Agreements with Stockholders, Directors and
Officers. The Company shall cause each of the Company's existing stockholders,
directors and officers to enter into written agreements with the Underwriters
(the "Lock-up Agreements") prior to the Effective Date, that, for a period of
twenty-four months from the Effective Date, they will not, without the consent
of the Underwriters, (i) publicly sell any securities of the Company owned
directly or indirectly by them or owned beneficially by them (as defined in the
Exchange Act), or (ii) otherwise sell, or transfer such securities unless the
transferee agrees in writing to be bound by an identical lock-up.
(r) Warrant Solicitation. Upon the exercise of any
Warrants on or after
17
the first anniversary of the Effective Date, the Company shall pay to the
Underwriters a commission of eight (8%) percent of the aggregate exercise price
of such Warrants, a portion of which may be reallowed by the Underwriters to the
dealer who solicited the exercise (which may also be you), if: (i) the market
price of the Common Stock is greater than the exercise price of the Warrant on
the date of exercise; (ii) the exercise of the Warrant was solicited by a member
of the NASD; (iii) the Warrant is not held in a discretionary account; (iv) the
disclosure of the compensation arrangements has been made in documents provided
to customers, both as part of the Offering and at the time of exercise; and (v)
the solicitation of the Warrant was not in violation of Regulation M promulgated
under the Exchange Act. No commission shall be paid to you on any Warrant
exercise prior to the first anniversary of the Effective Date, or on any Warrant
exercised at any time without solicitation by Underwriters or a soliciting
dealer.
(s) Available Shares. The Company shall reserve and
at all times keep available that maximum number of it authorized but unissued
shares of Common Stock which are issuable upon exercise of options pursuant to
the Company's Stock Option Plan, the Warrants, the Underwriters' Warrant, and
the Warrants issuable upon exercise of the Underwriters' Warrant, in each case
taking into account the anti-dilution provisions thereof.
(t) Financial Consulting Agreement. On the First
Closing Date and simultaneously with the delivery of the Firm Securities, the
Company shall execute and deliver to the Underwriters an agreement with the
Underwriters, or its representative, in the form previously delivered to the
Company by the Underwriters, regarding the services of the Underwriters or its
representative a financial consultant to the Company (the "Financial Consulting
Agreement"), for a twenty-four month period commencing as of the date hereof at
a fee equal to $4,166 per month which shall be paid in its entirety on the First
Closing Date.
(u) Management. On each Closing Date, the Chief
Executive Officer of the Company shall be ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. Prior to the
Effective Date, the Company shall have obtained "key-employee" life insurance
coverage in the amount of $1,000,000 on ▇▇. ▇▇▇▇▇▇▇. Prior to the Effective
Date, the Company shall have entered into an employment agreement with ▇▇.
▇▇▇▇▇▇▇ as set forth in the Registration Statement.
(v) Stock Transfer Sheets. The Company shall instruct
its Transfer Agent (as defined in Section 4(h) hereto) to deliver to you copies
of all advice sheets showing the daily transfer of the outstanding shares of
Common Stock and Warrants sold by the Company in the public offering and shall,
at its own expense, furnish you weekly for the first six weeks following the
First Closing Date and monthly thereafter during the period ending three years
following the First Closing Date with Depository Trust Company stock transfer
sheets.
(w) Public Relations. Prior to the Effective Date the
Company shall have retained a public relations firm reasonably acceptable to
you, and shall continue to retain such firm, or an alternate firm reasonably
acceptable to the Underwriters, for a period of twelve (12) months.
18
(x) Additional Representations. The Company shall
engage the Underwriters' Counsel to provide the Underwriter, at the First
Closing Date and quarterly thereafter, until such time as the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange or quoted
on NASDAQ National Market System, with an opinion, setting forth those states in
which the Common Stock may be traded in non-issuer transactions under the blue
sky laws of the fifty states. The Company shall pay the Underwriters' Counsel a
one-time fee of $12,500 at the First Closing Date for such opinions.
(aa) Bound Volumes. Within a reasonable time after
the First Closing Date, the Company shall deliver to you, at the Company's
expense, five bound volumes in form and content acceptable to the Underwriters,
containing the Registration Statement and all exhibits filed therewith and all
amendments thereto, and all other agreements, correspondence, filings,
certificates and other documents filed and/or delivered in connection with the
Offering.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Shares and Warrants which you have
agreed to purchase hereunder are subject to the accuracy (as of the date hereof
and as of each Closing Date) of and compliance with the representations and
warranties of the Company and the Selling Warrantholders contained herein, the
performance by the Company and the Selling Warrantholders of all of their
respective obligations hereunder and the following further conditions:
(a) Effective Registration Statement; No Stop Order.
The Registration Statement shall have become effective and you shall have
received notice thereof not later than 6:00 p.m., New York time, on the date of
this Agreement, or at such later time or on such later date as to which you may
agree in writing. In addition, on each Closing Date (i) no stop order denying or
suspending the effectiveness of the Registration Statement shall be in effect,
and no proceedings for that or any similar purpose shall have been instituted or
shall be pending or, to your knowledge or to the knowledge of the Company, shall
be contemplated by the Commission, and (ii) all requests on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel.
(b) Opinion of Company Counsel. On the First Closing
Date, you shall have received the opinion, dated as of the First Closing Date,
of Company Counsel, in form and substance satisfactory to the Underwriters'
Counsel, substantially to the effect that:
(i) the Company and the Subsidiary have been
duly incorporated and validly exist as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
full corporate power and authority to own their properties and conduct
their business as described in the Prospectus, and are duly qualified
or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the nature
19
of their business or the character or location of their properties
requires such qualification, except where failure to so qualify will
not have a material adverse effect on the business, properties or
financial condition of the Company and the Subsidiary taken as a
whole.
(ii) (A) the authorized capitalization of
the Company as of the date of the Prospectus was as is set forth in the
Prospectus under the caption "CAPITALIZATION", except as disclosed in
the Registration Statement under the heading "As Adjusted"; (B) all of
the shares of Common Stock now outstanding have been duly authorized
and validly issued, are fully paid and non-assessable, conform in all
material respects to the description thereof contained in the
Prospectus and to, the best knowledge of such counsel have not been
issued in violation of any statutory preemptive rights and, except as
described in the Prospectus and restrictions applicable to registered
securities under federal and state laws, are not subject to any
restrictions upon the voting or transfer thereof; (C) all of the Shares
and all of the Warrants have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided
herein, shall be validly issued, fully paid and non-assessable, shall
not have been issued in violation of any statutory preemptive rights;
(D) to the best knowledge of such counsel the stockholders of the
Company do not have any preemptive rights or other rights to subscribe
for or purchase, and except for the transfer restrictions imposed by
Rule 144 of the Rules and Regulations promulgated under the Act or
contained in the Lock-up Agreements executed with the Underwriters,
there are no restrictions upon the voting or transfer of, any of the
Securities; (E) the Shares and the Warrants, the Warrant Agreement and
the Underwriters' Warrant conform in all material respects to the
respective descriptions thereof contained in the Prospectus; (F) the
issuance by the Company of all of its outstanding securities has been
made in compliance with, or under an exemption from, the Act and
applicable state securities laws; (G) a sufficient number of shares of
Common Stock has been reserved, for all times when any of the Warrants
(including the Warrants issuable upon exercise of the Underwriters'
Warrant) are outstanding, for issuance upon exercise of all of the
Warrants; and (H) to the best knowledge of such counsel, neither the
filing of the Registration Statement nor the offering or sale of the
Shares and Warrants as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
effectively waived or satisfied or described in the Prospectus, for or
relating to the registration of any securities of the Company;
(iii) the certificates evidencing the Shares
and the Warrants have been duly authorized by the Board of Directors
and complies with all applicable legal requirements under Delaware
General Corporation Law; and the Warrants are exercisable for shares of
Common Stock in accordance with the terms
20
of the Warrants and at the prices therein provided for;
(iv) this Agreement, the Warrant Agreement,
the Underwriters' Warrant, and the Financial Consulting Agreement have
been duly and validly authorized, executed and delivered by the Company
and (assuming due execution and delivery thereof by the Underwriters
and/or Continental Stock Transfer & Trust Company, as the case may be)
all of such agreements are, or when duly executed shall be, the valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms (except as enforceability may be
limited bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, receivership, conservatorship, or other similar laws,
regulations or procedures of general applicability now or hereafter in
effect relating to or affecting creditors, or other obligees' rights,
generally, (b) Federal or state securities laws to the extent that
rights to indemnification and contribution under such agreements may be
unenforceable thereunder, and (c) general equity principles and to the
discretion of the court, regardless of whether such enforceability is
considered in a proceeding in equity or at law); provided, however,
that no opinion need to be expressed as to the enforceability of the
indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the knowledge of such counsel, other
than as described in the Prospectus (A) there is no pending, threatened
or contemplated legal or governmental proceeding affecting the Company
or the Subsidiary which is reasonably likely to materially and
adversely affect the business, property, financial condition or results
of operations of the Company or the Subsidiary taken as a whole, or
which questions the validity of the Offering, the Securities, this
Agreement, the Warrant Agreement, the Underwriters' Warrant, or the
Financial Consulting Agreement or of any action taken or to be taken by
the Company pursuant thereto; and (B) there is no legal or governmental
regulatory proceeding required to be described or referred to in the
Registration Statement which is not so described or referred to;
(vi) to the knowledge of such counsel, (A)
the Company is not in violation of or default under this Agreement, the
Warrant Agreement, the Underwriters' Warrant, or the Financial
Consulting Agreement; and (B) to the knowledge of such counsel, the
execution and delivery hereof and thereof and consummation of the
transactions herein or therein contemplated shall not result in a
material violation of, or constitute a default under, the Certificate
of Incorporation or By-laws of the Company or the certificate of
incorporation or by-laws of the Subsidiary, or any material obligation,
agreement, covenant of condition contained in any bond, debenture, note
or other evidence of indebtedness, or in any material contract,
indenture, mortgage, loan agreement, lease, joint
21
venture or other agreement or instrument to which the Company or the
Subsidiary is a party or by which the assets of the Company or the
Subsidiary are bound and which is attached as an exhibit to the
Registration Statement, or any material order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality
or court applicable to the Company or the Subsidiary (other than state
securities or blue sky laws as to which we express no opinion);
(vii) to the knowledge of such counsel, (a)
the Company and the Subsidiary have obtained, or are in the process of
obtaining, all licenses, necessary to the conduct of its business as
described in the Prospectus, except where the failure to obtain such
licenses would not have a material adverse effect on the financial
condition, business or properties of the Company, and (b) such obtained
licenses, are in full force and effect, except where the failure to
obtain such licenses would not have a material adverse effect on the
financial condition, business or properties of the Company;
(viii) the Registration Statement has become
effective under the Act, and to the knowledge of such counsel, no stop
order denying or suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that or any similar
purpose have been instituted or are pending before or threatened by the
Commission;
(ix) the Registration Statement and the
Prospectus (except for the financial statements, notes thereto and
other financial tables, financial information and statistical data
contained therein, as to which counsel need not express an opinion)
comply as to form in all material respects with the Act and the Rules
and Regulations;
(x) all descriptions contained in the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, of material contracts and other documents are
accurate and fairly present the information required to be described,
and such counsel is familiar with all contracts and other documents
referred to in the Registration Statement and the Prospectus, and any
such amendment or supplement, or filed as exhibits to the Registration
Statement and, to the knowledge of such counsel, no contract or other
documents of a character required to be summarized or described therein
or to be filed as an exhibit thereto is not so summarized, described or
filed.
(xi) except for registration under the Act
and registration or qualification of the Securities under applicable
state or foreign securities or blue sky laws the clearance of such
offering by the NASD, the listing of the stock on NASDAQ, the Boston
Stock Exchange, no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with: (A) the
22
authorization, issuance, sale, transfer or delivery of the Securities
by the Company in accordance with this Agreement; (B) the execution,
delivery and performance of this Agreement by the Company; (C) the
issuance of the Underwriters' Warrant in accordance with this
Agreement or the Securities issuable upon exercise thereof;
Such opinion shall also state that Company Counsel's examination of the
Registration Statement and its discussions with the Company and its independent
auditors did not disclose any information which gives Company Counsel reason to
believe that the Registration Statement (other than the financial statements,
notes thereto, financial tables and schedules and other financial and
statistical information and information regarding the underwriter as to which
counsel need not express an opinion) at the time it became effective contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (other than the schedules, financial
statements and other financial and statistical information as to which no view
is expressed) at the time it became effective contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. In addition,
such opinion shall also cover such matters incident to the transactions
contemplated hereby as you or Underwriters' Counsel shall reasonably request. In
rendering such opinion, Company Counsel may rely as to matters of fact upon
certificates of officers of the Company, and of public officials, and may rely
as to all matters of law other than the law of the United States and the General
Corporation Law of the State of Delaware upon opinions of counsel satisfactory
to you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled so to rely.
(c) Corporate Proceedings. All corporate proceedings
and other legal matters relating to this Agreement, the Registration Statement,
the Prospectus and other related matters shall be reasonably satisfactory to
Underwriters' Counsel.
(d) Comfort Letter. Prior to the Effective Date, and
again on and as of the First Closing Date, you shall have received a letter from
BDO ▇▇▇▇▇▇▇ ▇▇, certified public accountants for the Company, satisfactory in
form and substance to the Underwriters' Counsel.
(e) Bring Down. 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 such Closing
Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such Closing Date;
(ii) the Registration Statement and the Prospectus shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations, and shall in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or which they were made, not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change in the business, property,
condition (financial or otherwise), results
23
of operations, earnings, capital stock, or long-term or short-term debt of the
Company from that set forth in the Registration Statement and the Prospectus,
except changes which the Registration Statement and Prospectus indicate might
occur after the Effective Date, and the Company shall not have incurred any
material liabilities nor entered into any material agreement other than as
referred to in the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding 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 would materially adversely affect the business,
property, financial condition, results of operations of the Company and the
subsidiary taken as a whole.
(f) Transfer and Warrant Agent. On or before the
Effective Date, the Company shall have appointed Continental Stock Transfer &
Trust Company (or other agent mutually acceptable to the Company and the
Underwriters), as its transfer agent and warrant agent ("Transfer Agent") to
transfer all of the Shares and Warrants issued and sold by the Company and sold
by the Selling Warrantholders in the Offering, as well as to transfer other
shares of the Common Stock outstanding from time to time.
(g) NASD Approval of Underwriters' Compensation. By
the Effective Date, the Underwriters shall have received clearance from the NASD
as to the amount of compensation allowable or payable to the Underwriters, as
described in the Registration Statement.
(h) Certain Further Matters. On each Closing Date,
Underwriters' Counsel shall have been furnished with all such other documents
and certificates as they may reasonably request for the purpose of enabling them
to render their legal opinion to the Underwriters and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the fulfillment of any
of the conditions, herein contained.
(i) All proceedings taken in connection with
the authorization, issuance or sale of the Securities, as herein contemplated
shall be reasonably satisfactory in form and substance to the Underwriters and
to Underwriters' Counsel;
(ii) On each Closing Date there shall have
been duly tendered to you for your account the appropriate number of Securities;
(iii) No order suspending the sale of the
Securities in any jurisdiction designated by you pursuant to Section 3(b) hereof
shall have been issued on either Closing Date, and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Underwriters or
the Company, shall be contemplated;
(iv) On or prior to the First Closing Date,
the Underwriters' Warrant, the Warrant Agreement and the Financial Consulting
Agreement shall have been
24
executed and delivered by the Company, and the Lock-Up Agreements shall have
been executed and delivered by all of the Company's officers, directors and
existing stockholders, to the Underwriters.
(i) Additional Conditions. Upon exercise of
the Over-Allotment Option, the Underwriters' obligations to purchase and pay for
the Option Securities shall be subject (as of the date hereof and as of the
Option Closing Date) to the following conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order denying or suspending the
effectiveness thereof shall have been issued, and no proceedings for that or any
similar purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the Commission for
additional information shall have been complied with to the satisfaction of
Underwriters' Counsel.
(ii) On the Option Closing Date there shall
have been delivered to you the signed opinion of Company Counsel, dated as of
the Option Closing Date, in form and substance satisfactory to Underwriters'
Counsel, which opinion shall be substantially the same in scope and substance as
the opinion furnished to you on the First Closing Date pursuant to Section 4(b),
except that such opinion, where appropriate, shall cover the Option Securities
rather than the Firm Securities. If the First Closing Date is the same as the
Option Closing Date, such opinions may be combined.
(iii) All proceedings taken at or prior to
the Option Closing Date in connection with the sale and issuance of the Option
Securities shall be satisfactory in form and substance to you, and you and
Underwriters' Counsel shall have been furnished with all such documents,
certificates and opinions as you 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.
(iv) On the Option Closing Date there shall
have been delivered you a letter in form and substance satisfactory to the
Underwriters from BDO ▇▇▇▇▇▇▇ ▇▇, dated the Option Closing Date addressed to
you, confirming the information in their letter referred to in Section 4(f) as
of the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the ending
date of their review referred to in such letter to a date not more than five
banking days prior to the Option Closing Date which would require any change in
such letter if it were required to be dated the Option Closing Date.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the
statements made therein. If any of the conditions herein
25
provided for in this Section shall not have been completely fulfilled as of the
date indicated, this Agreement and all obligations of the Underwriters under
this Agreement may be canceled at, or at any time prior to, each Closing Date by
your notifying the Company of such cancellation in writing or by telecopy at or
prior to the applicable Closing Date. Any such cancellation shall be without
liability of any Underwriters to the Company, except as otherwise provided
herein.
(j) At the First Closing Date the Underwriters shall
have received a certificate of the Attorney-in-Fact for each of the Selling
Warrantholders, dated as of te First Closing Date, to the effect that (i) the
representations and warranties of each Selling Warrantholder contained in
Section 1(aa) are true and correct with the same force and effect as though
expressly made at and as of the First Closing Date and (ii) each Selling
Warrantholder has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied hereunder at or prior to the First Closing
Date. The Attorney-in-Fact shall be entitled to rely upon certificates of the
Selling Warrantholders in giving its certificate. Such certificate shall be
required at the Option Closing Date, as of the date thereof, in the event the
First Closing Date and the Option Closing Date are on separate dates.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company and the Selling Warrantholders to sell and deliver
the Shares and Warrants are subject to the following conditions:
(a) Effective Registration Statement. The
Registration Statement shall have become effective not later than 6:00 p.m. New
York Time, on the date of this Agreement, or at such later time or on such later
date as the Company and you may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no
stop order denying or suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission.
(c) Payment for Shares and Warrants. On the
applicable Closing Date, you shall have made payment, for the several accounts
of the Underwriters, of the aggregate Purchase Price for the Shares and Warrants
then being purchased by certified or bank cashier's checks payable in next day
funds to the order of the Company and the Selling Warrantholders.
If the conditions to the obligations of the Company and the Selling
Warrantholders provided by this Section 5 have been fulfilled on the First
Closing Date but are not fulfilled after the First Closing Date and prior to the
Option Closing Date, then only the obligation of the Company to sell and deliver
the Option Securities upon exercise of the Over-Allotment Option shall be
affected.
6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this
Agreement, the
26
term "Liabilities" shall mean any and all losses, claims, damages and
liabilities, and actions and proceedings in respect thereof (including without
limitation all reasonable costs of defense and investigation and all attorneys'
fees) including without limitation those asserted by any party to this Agreement
against any other party to this Agreement. The Company and the Selling
Warrantholders hereby indemnify and holds harmless the Underwriters and each
person, if any, who controls the Underwriters within the meaning of the Act,
from and against all Liabilities, joint or several, to which the Underwriters or
such controlling person may become subject, under the Act or otherwise, insofar
as such Liabilities arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of any material fact, in light of the circumstances in
which it was made, contained in (A) the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or (B) any "blue sky" application or other document executed
by the Company specifically for that purpose, or based upon written information
furnished by the Company, filed in any state or other jurisdiction in order to
qualify any or all of the Securities under the securities laws thereof (any such
application, document or information being herein called a "Blue Sky
Application"); or (ii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which it was made,
not misleading; provided, however, that the Company shall not be liable in any
such case to the extent, but only to the extent, that any such Liabilities arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission (x) made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment thereto, or the Prospectus or any such Preliminary Prospectus, or
any such amendment or supplement thereto, or any such Blue Sky Application or
(y) corrected by the final Prospectus and the failure of the Underwriters to
deliver the final Prospectus or comply with the state and federal securities
laws applicable to it. The foregoing indemnity shall be in addition to any other
liability which the Company may otherwise have.
(b) Indemnification by Underwriters. The Underwriters
hereby 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
have signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act, and the Selling Warrantholders from
and against all Liabilities to which the Company or any such director, nominee,
officer or controlling person and/or the Selling Warrantholders may become
subject under the Act or otherwise, insofar as such Liabilities arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
or the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, or (ii) 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, in each case to the extent, but only to the extent, that
any such Liabilities arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
27
Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the Company through you,
by or on behalf of such Underwriters, specifically for use in the preparation
thereof. In no event shall the Underwriters be liable under this Section 6(b)
for any amount in excess of the compensation received by the Underwriters, in
the form of underwriting discounts or otherwise, pursuant to this Agreement or
any other agreement contemplated hereby. The foregoing indemnity shall be in
addition to any other liability which the Underwriters may otherwise have.
(c) Procedure. Promptly after receipt by an
indemnified party under this Section 6 of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, notify in writing the
indemnifying party of the commencement thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 6 unless the rights
of the indemnifying party have been prejudiced by such omission or delay. In
case any such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions hereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
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,
however, 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, or (ii) the named
parties to any such action (including any impleaded parties) include both such
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party
or that the indemnified and indemnifying party have conflicting interests which
would make it inappropriate for the same counsel to represent both of them (in
which case the indemnifying party shall into 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 not, 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 for the reasonable fees and expenses of more than one separate firm of
attorneys). No settlement of any action against an indemnified party shall be
made without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnified
party.
28
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (a) any indemnified party makes
claims for indemnification pursuant to Section 6 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 the 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 6 provide for indemnification in
such case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such proportion
that the Underwriters are responsible in the aggregate for the portion of such
Liabilities represented by the percentage that the underwriting discount per
Share and Warrant appearing on the cover page of the Prospectus bears to the
public Offering price per Share and Warrant appearing thereon, and the Company
shall be responsible for the remaining portion; provided, however, that if such
allocation is not permitted by applicable law, then the relative fault of the
Company and the Selling Warrantholders, and the Underwriters in connection with
the statements or omissions which resulted in such Liabilities and other
relevant equitable considerations shall also be considered. The relative fault
shall be determined by reference to, among other things, whether in the case of
an untrue statement of material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company and
the Selling Warrantholders, or the Underwriters, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Selling Warrantholders
and the Underwriters agree that it would not be just and equitable if the
respective obligations of the Company and the Selling Warrantholders, and the
Underwriters to contribute pursuant to this Section 7 were to be determined by
pro rata or per capita allocation of the aggregate Liabilities or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 7. Moreover, the contribution
of the Underwriters shall not be in excess of the cash compensation received by
the Underwriters, in the form of underwriting discounts or otherwise, pursuant
to this agreement or any other agreement contemplated hereby. 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. As used in this Section 7, the term "Company"
shall include any officer, director or person who controls the Company within
the meaning of section 15 of the Act. If the full amount of the contribution
specified in this Section 7 is not permitted by law, then each indemnified party
and each person who controls an indemnified party shall be entitled to
contribution from each indemnifying party to the full extent permitted by law.
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 Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
29
8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this
Agreement becomes effective or the sale of the Units to the Underwriter is
consummated, the Company shall pay all reasonable out-of-pocket costs and
expense incident to the issuance, offering, sale and delivery of the Units and
the performance of its obligations under this Agreement, including without
limitation: (i) all fees and expenses of the Company's legal counsel and
accountants; (ii) all costs and expenses incident to the preparation, printing,
filing and distribution of the Registration Statement (including the financial
statements contained therein and all exhibits and amendments thereto), each
Preliminary Prospectus and the Prospectus, each as amended or supplemented, this
Agreement and the other underwriting documents, as well as the other agreements
and documents referred to herein and the Blue Sky Memorandum; each in such
quantities as you shall deem necessary; (iii) all fees of NASD required in
connection with the filing required by NASD to be made by the Underwriter with
respect to the Offering; (iv) all reasonable expenses, including fees (but not
in excess of the amount set forth in Section 3(b)) and disbursements of
Underwriter's Counsel in connection with the qualification of the Securities
under the "blue sky" laws which you shall designate; (v) all costs and expenses
of printing the respective certificates representing the Shares and the
Warrants; (vi) the expense of placing one or more "tombstone" advertisements or
promotional materials as directed by you (provided, however, that the aggregate
amount thereof shall not exceed $10,000) and of offering memorabilia; (vii) all
costs and expenses of the Company and its employees (but not of the Underwriter
or its employees) associated with due diligence meetings and presentations
(including the payment for road show conference centers); (viii) all costs and
expenses associated with the preparation of a seven to ten minute professional
video presentation concerning the Company, its products and its management for
broker due diligence purposes not to exceed $5,000; (ix) any and all taxes
(including without limitation any transfer, franchise, capital stock or other
tax imposed by any jurisdiction) on sales of the Units to the Underwriter
hereunder; and (x) all costs and expenses incident to the furnishing of any
amended Prospectus or any supplement to be attached to the Prospectus as
required by Sections 3(a) and 3(d), except as otherwise provided by said
Sections. In addition, the Company shall engage Underwriter's Counsel to provide
the Underwriter, at the Closing and quarterly thereafter, until such time as the
Common Stock is listed on the New York Stock Exchange or the American Stock
Exchange or quoted on NASDAQ/NMS, with a memorandum, setting forth those states
in which the Common Stock and the Warrants may be traded in non-issuer
transactions under the blue sky laws of the 50 states. The Company shall pay
such counsel a one-time fee of $12,500 at the Closing for such opinions.
(b) Underwriters' Expense Allowance. In addition to
the expenses described in Section 8(a), the Company shall on the First Closing
Date pay to the Underwriters a non-accountable expense allowance, which shall
include fees of Underwriters' Counsel, exclusive of the fees referred to in
Section 3(b), of $140,043.75 (that being an amount equal to three percent (3%)
of the gross proceeds received upon sale of the Firm Securities less $27,300
paid to the previous Underwriter). In the event that the Offering is not
consummated the Underwriters and will only be reimbursed for their actual
accountable out-of-pocket expenses.
30
In the event that the Over-Allotment Option is exercised, then the Company
shall, on the Option Closing Date, pay to the Underwriters, based on the number
of Option Securities to be sold by the Company, an additional amount equal to
three percent (3%) of the gross proceeds received upon sale of any of the Option
Securities, in the amount of $25,101.56 if the Over-Allotment Option is
exercised in full.
(c) No Finders. No person is entitled either directly
or indirectly to compensation from the Company, the Underwriters or any other
person for services as a finder in connection with the Offering, and the Company
hereby indemnifies and holds harmless the Underwriters, and the Underwriters
hereby indemnify and hold harmless the Company from and against all Liabilities,
joint or several, to which the indemnified party may become subject insofar as
such Liabilities arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective upon
its execution, except that you may, at your option, delay its effectiveness
until 10:00 a.m., New York time, on the first full business day following the
Effective Date, or at such earlier time after the Effective Date as you in your
discretion shall first commence the initial public offering by the Underwriters
of any of the Shares and Warrants. The time of the initial public offering shall
mean the time of release by you of the first newspaper advertisement which is
subsequently published with respect to the Shares and Warrants, or the time when
the Shares and Warrants are first generally offered by you to dealers by letter
or telegram, whichever shall first occur. This Agreement may be terminated by
you at any time before it becomes effective as provided above, except that the
provisions of Sections 3(x), 6, 7, 8, 12, 13, 14 and 15 shall remain in effect
notwithstanding such termination.
10. TERMINATION.
(a) Grounds for Termination.
(i) This Agreement, except for Sections
3(x), 6, 7, 8, 12, 13, 14 and 15, may be terminated at any time prior to the
First Closing Date, and the Over-Allotment Option, if exercised, may be canceled
at any time prior to the Option Closing Date, by you if in your sole judgment it
is impracticable to offer for sale or to enforce contracts made by you for the
resale of the Shares and Warrants agreed to be purchased hereunder, by reason
of: (A) the Company having sustained a material loss, whether or not insured, by
reason of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (B) trading in
securities on the New York Stock Exchange or the American Stock Exchange having
been suspended or limited; (C) material governmental restrictions having been
imposed on trading in securities generally which are not in force and effect on
the date hereof; (D) a banking moratorium having been declared by federal or New
York State authorities; (E) an outbreak or
31
significant escalation of major international hostilities or other national or
international calamity having occurred; (F) the passage by the Congress of the
United States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by you to have a material adverse
impact on the business, financial condition or financial statements of the
Company; (G) any material adverse change in the financial or securities markets
beyond normal fluctuations in the United States having occurred since the date
of this Agreement; or (H) any material adverse change having occurred, since the
respective dates for which information is given in the Registration Statement
and Prospectus, in the earnings, business, prospects or condition (financial or
otherwise) of the Company, whether or not arising in the ordinary course of
business.
(ii) The Underwriters shall have the right,
in their sole discretion, to terminate this Agreement, including without
limitation, the obligation to purchase the Firm Securities and the obligation to
purchase the Option Securities after the exercise of the Over-Allotment Option,
by notice given to the Company prior to delivery and payment for all the Firm
Securities or the Option Securities, as the case may be, if any of the
conditions enumerated in Section 4 are not either fulfilled or waived by the
Underwriters on or before any Closing Date.
(iii) Anything herein to the contrary
notwithstanding, if this Agreement shall not be carried out within the time
specified herein, or any extensions thereof granted by the Underwriters, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied then,
in addition to the obligations assumed by the Company pursuant to Section 8(a)
hereof, the Underwriters shall provide the Company with, and the Company shall
pay, a statement of the Underwriters' accountable expenses.
(b) Notification. If you elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided by
this Section 10 or by Section 9, you shall promptly notify the Company by
telephone or telegram, confirmed by letter.
11. Underwriters' Warrant. On the First Closing Date, the
Company shall issue and sell to you, for $10.00, and upon the terms and
conditions set forth in the form of Underwriters' Warrant filed as an exhibit to
the Registration Statement, an option entitling you to purchase 127,500 Shares
and/or 127,500 Warrants at an exercise price equal to 120% of the initial public
offering price per Share and per Warrant exercisable for a period of four years
commencing one year from the Effective Date (the "Underwriters' Warrant"). The
Underwriters' Warrant grant to the holders thereof certain "piggyback"
registration rights for a period of seven years, and demand registration rights
for a period of four years, commencing one year from the Effective Date with
respect to the registration under the Securities Act of the Securities issuable
upon exercise thereof. In the event of conflict in the terms of this Agreement
and the Underwriters' Warrant, the terms and conditions of the Underwriters'
Warrant shall control.
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12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company, the Selling Warrantholders and
the Underwriters set forth in Sections 3, 6, 7 and 8 of this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of any other party, and shall survive delivery of and payment for the
Units and the termination of this Agreement. The Company and the Selling
Warrantholders hereby indemnify and hold harmless the Underwriters from and
against all Liabilities, joint or several, to which the Underwriters may become
subject insofar as such Liabilities arise out of or are based upon the breach or
failure of any of the provisions of Sections 3, 6, 7 and 8.
13. NOTICES. All communications hereunder shall be in writing
and, except as otherwise expressly provided herein, if sent to you, shall be
mailed, delivered or telegraphed and confirmed to you at Briarwood Investment
Counsel, ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, with a copy sent to
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., Gersten, Savage, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇; or if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed to it at Phoenix Preschool
Education Centers, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, with a copy sent to ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Blank Rome ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
14. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the Underwriters, the Company, the Selling Warrantholders and, to the
extent expressed, any person controlling the Company or the Underwriter, as the
case may be, and the directors of the Company, nominees for directors of the
Company (if any) named in the Prospectus, officers of the Company who have
signed the Registration Statement, and their respective executors,
administrators, successors and assigns; and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such, from the Underwriter of the
Shares and Warrants.
15. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
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16. ENTIRE AGREEMENT. This Agreement, the Underwriters'
Warrant, and the Financial Consulting Agreement contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
thereof.
17. COUNTERPARTS. This Agreement may be executed in two or
more counterpart copies, each of which shall be deemed and an original but all
of which together shall constitute one and the same instrument.
[Signature on following page]
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If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the Company, the Selling Warrantholders and the
Underwriter in accordance with its terms.
Very truly yours,
PHOENIX PRESCHOOL HOLDINGS, INC.
By: ______________________________
Name:
Title:
THE SELLING WARRANTHOLDERS
By:_________________________________________
As Attorney-in-Fact, acting on behalf of
each of the Selling Warrantholders named
in Schedule A hereto
Accepted as of the date
first above written:
New York, New York
DUKE & CO., INC.
By: ___________________________________
Name:
Title:
BRIARWOOD INVESTMENT COUNSEL
By:___________________________________
Name:
Title: