1. Form of Underwriters Agreement and Warrant Agreement
Form of Underwriting Agreement
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1,000,000 Shares of Series A Preferred Stock
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AWG, LTD.
UNDERWRITING AGREEMENT
New York, New York
, 1998
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[address]
▇▇▇▇▇ ▇▇▇▇ and Shire, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
As Representatives of the
Several Underwriters listed on Schedule A hereto
Ladies and Gentlemen:
AWG, Ltd., a Nevada corporation (the "Company"), confirms its
agreement (the "Agreement") with ▇. ▇. ▇▇▇▇▇▇ & Co., L.L.C. ("▇▇▇▇▇▇") and
▇▇▇▇▇ ▇▇▇▇ and Shire, Inc., (collectively, the "Underwriters," which term
shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom ▇▇▇▇▇▇ and KMS are acting as representatives (in such
capacity, ▇▇▇▇▇▇ and KMS shall hereinafter be collectively referred to as
"you" or the "Representatives"), with respect to the sale (the "Offering") by
the Company and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of securities set forth
in Schedule A consisting of 500,000 shares (the "Shares") of the Company's
Series A 6% Preferred Stock, $.001 par value per share (the "Preferred Stock"
or the "Securities"). Such 500,000 shares of Preferred Stock are hereinafter
also referred to as the "Firm Securities." Upon your request, as provided in
Section 2(b) of this Agreement, the Company shall also issue and sell to you
up to an additional 75,000 shares of Preferred Stock for the purpose of
covering over-allotments, if any, in the sale of the Firm Securities. Such
additional 75,000 shares of Preferred Stock are hereinafter referred to as
the "Option Securities." The Firm Securities and the Option Securities are
hereinafter collectively referred to as the "Securities." The Company also
proposes to issue and sell to the Underwriters warrants (the
"Representatives' Warrants") pursuant to the Representatives' Warrant
Agreement (as defined in Section (xxxii) hereof) to purchase an aggregate of
50,000 shares of Preferred Stock (and additionally up to 11,250 shares of
Preferred Stock if the over-allotment is exercised). The 50,000 shares of
Preferred Stock (or up to 61,250 shares if the over-allotment is exercised)
issuable upon exercise of the Representatives' Warrants are hereinafter
referred to as the "Representatives' Securities" or the "Warrant Shares". The
Securities, the Representatives' Warrants and the Representatives' Securities
are more fully described in the Registration Statement and the Prospectus
referred to below. Additionally, 500,000 shares of Preferred Stock are being
registered on behalf of a single shareholder.
1. Representations and Warranties. (a) The Company, a Nevada
corporation, which has one wholly owned subsidiary, AWG, Inc., a Delaware
corporation (the "Subsidiary") represents and warrants to, and agrees with,
each of the Underwriters' as of the date hereof, and as of the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined), if
any, as follows:
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(i) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement, and an
amendment or amendments thereto, on Form SB-1 (No. 333-48165), including any
related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Preferred Stock, the Representatives' Warrants and the
Representatives' Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and
the Rules and Regulations of the Commission thereunder. The Company will
promptly file a further amendment to said registration statement in the form
heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the Registration Statement, becomes effective
(including the Prospectus, financial statements, schedules, exhibits and all
other documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the rules and regulations), is hereinafter called the
"Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the rules and regulations, is
hereinafter called the "Prospectus." For purposes hereof, "Rules and
Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority
has issued
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any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are
pending or threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or Prospectus at the time
of filing thereof contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein and necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriters by or
on behalf of the Underwriters expressly for use in such Preliminary
Prospectus, Registration Statement or Prospectus or any amendment or
supplement thereto.
(iii) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (hereinafter defined) and
each Option Closing Date (hereinafter defined), if any, and during such
longer period as the Prospectus may be required to be delivered in connection
with sales by the Underwriters or a dealer, the Registration Statement and
the Prospectus will contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations, and will
conform to the requirements of the Act and the Rules and Regulations; neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, contains or will contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein and necessary to make the statements therein, in light
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of the circumstances under which they were made, not misleading, provided,
however, that this representation and warranty does not apply to statements
made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter (as set forth in paragraph 1(a)(ii) hereof) expressly for use in
the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(iv) The Subsidiary is a wholly-owned subsidiary of the
Company. Each of the Company and the Subsidiary has been duly organized and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation. Except as set forth in the Prospectus, neither
the Company nor the Subsidiary own an equity interest in any corporation,
partnership, trust, joint venture or other business entity. Each of the
Company and the Subsidiary is each duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations require such
qualification or licensing except where the failure(s) to be so qualified,
licensed and in good standing, individually or in the aggregate, would not
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company and the
Subsidiary. Each of the Company and the Subsidiary has all requisite power
and authority (corporate and other), and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental
or similar matters), necessary to own or lease its properties and conduct its
business as described in the Prospectus, or is subject to no material
liability or disability by reason of the failure to obtain such
authorizations, approvals, orders, licenses,
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certificates, franchises and permits; each of the Company and the Subsidiary
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, state, local and foreign laws, rules and regulations and neither the
Company nor the Subsidiary have received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, prospects, value, operations,
properties, business, or results of operations of the Company and the
Subsidiary. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on
the business of the Company and the Subsidiary as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and will have the adjusted
capitalization set forth therein on the Closing Date (hereinafter defined)
and the Option Closing Date(hereinafter defined), if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement and as described in the Prospectus. The Securities, the
Representatives' Warrants and the Representatives' Securities (collectively,
hereinafter sometimes referred to as the "IPO Securities") and all other
securities issued or issuable by the Company conform or, when issued and paid
for, will conform, in all material respects to all
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statements with respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding securities of the Company and its
Subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or the
Subsidiary or similar contractual rights granted by the Company or the
Subsidiary. The IPO Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale
of the IPO Securities has been duly and validly taken; and the certificates
representing the IPO Securities are in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the IPO Securities to be sold by
the Company hereunder, the Underwriters or the Representatives, as the case
may be, will acquire good and marketable title to such IPO Securities free
and clear of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever.
(vi) The consolidated financial statements of the Company
together with the related notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiary at the respective dates and for the respective periods to which
they apply and the pro forma financial
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information included in the Registration Statement, each Preliminary
Prospectus and the Prospectus presents fairly on a basis consistent with that
of the audited financial statements included therein, the Company's and the
Subsidiary's pro forma net income or loss per share, as the case may be, pro
forma net tangible book value, and the pro forma capitalization and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no material adverse change or
development involving a material change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company or the
Subsidiary whether or not arising in the ordinary course of business, since
the date of the financial statements included in the Registration Statement
and the Prospectus, and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and the Subsidiary conforms in
all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(vii) The Company and its Subsidiary (A) have each paid all
federal, state, local, and foreign taxes for which it is liable, including,
but not limited to, withholding taxes and amounts payable under Chapters 21
through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and
has furnished all information returns it is required to furnish pursuant to
the Code, (B) has established adequate reserves for such taxes which are not
due and payable, and (C) does not have any tax deficiency or claims
outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the Securities,
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(B) the purchase by the Underwriters of the Securities and the purchase by
the Representatives of the Representatives' Warrants from the Company, (C)
the consummation by the Company of any of its obligations under this
Agreement, or (D) resales of the Securities in connection with the
distribution contemplated hereby.
(ix) The Company and its Subsidiary maintain insurance
policies, including, but not limited to, general liability, product liability
if applicable and property insurance, which insures the Company and its
Subsidiary and their employees, against such losses and risks generally
insured against by comparable businesses. The Company and its Subsidiary (A)
have not failed to give notice or present any insurance claim with respect to
any matter, including but not limited to the Company's or the Subsidiary's
business, property or employees, under the insurance policy or surety bond in
a due and timely manner, (B) do not have any disputes or claims against any
underwriter of such insurance policies or surety bonds or has not failed to
pay any premiums due and payable thereunder, and (C) have not failed to
comply with all conditions contained in such insurance policies and surety
bonds. To the Company's knowledge there are no facts or circumstances under
any such insurance policy or surety bond which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company and/or its
Subsidiary.
(x) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the
Company or its Subsidiary which (A) questions the validity of the capital
stock of the Company, its
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Subsidiary or this Agreement, the Representatives' Warrant Agreement, (as
defined in Section 1(xxxii) below) or of any action taken or to be taken by
the Company or its Subsidiary pursuant to or in connection with this
Agreement or the Representatives' Warrant Agreement, (B) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (C) if adversely determined, might
materially and adversely affect the condition, financial or otherwise, or the
business affairs or business prospects, earnings, liabilities, prospects,
stockholders' equity, value, properties, business or assets of the Company
and its Subsidiary.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the IPO Securities, enter into this
Agreement and the Representatives' Warrant Agreement and to consummate the
transactions provided for herein and therein; and each of this Agreement and
the Representatives' Warrant Agreement have been duly and properly
authorized, executed and delivered by the Company. This Agreement and the
Representatives' Warrant Agreement each constitute a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, and neither the Company's issue and sale of the IPO Securities or
execution or delivery of this Agreement and the Representatives' Warrant
Agreement or its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result
in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever
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upon, any property or assets (tangible or intangible) of the Company or its
Subsidiary pursuant to the terms of, (A) the certificate of incorporation or
by-laws of the Company or its Subsidiary, (B) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company or its Subsidiary are a party or by which
they are or may be bound or by which their properties or assets (tangible or
intangible) are or may be subject, or any indebtedness, or (C) any statute,
judgment, decree, order, rule or regulation applicable to the Company or its
Subsidiary by any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or its Subsidiary or any of
their activities or properties, in each case except as described in the
Prospectuses and except for conflicts, breaches, violations, defaults,
creations or impositions which do not and would not have a material adverse
effect on the condition, financial or otherwise, or the earnings, business
affairs, position, shareholder's equity, value, operation, properties,
business or results of operations of the Company and its Subsidiary.
(xii) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign which has not theretofore been obtained, is required for
the issuance of the IPO Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representatives' Warrants, the
execution, delivery or performance of this Agreement and the Representatives'
Warrant Agreement, and the transactions contemplated hereby and thereby,
including, without limitation, any waiver of any preemptive, first refusal or
other rights that any entity or person may have for the issue and/or
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sale of any of the IPO Securities, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Underwriters' purchase and distribution of the
Securities and the Representatives' purchase of the Representatives' Warrants
to be sold by the Company hereunder and thereunder.
(xiii) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company and/or its Subsidiary are
a party or by which they may be bound or to which their assets, properties or
business may be subject have been duly and validly authorized, executed and
delivered by the Company and/or its Subsidiary and constitute the legal,
valid and binding agreements of the Company and its Subsidiary, enforceable
against the Company and its Subsidiary, in accordance with their respective
terms. The descriptions in the Registration Statement of agreements,
contracts and other documents and statutes and regulations are accurate and
fairly present the information required to be shown with respect thereto by
Form SB-1, and there are no contracts or other documents which are required
by the Act to be described in the Registration Statement or filed as exhibits
to the Registration Statement which are not described or filed as required,
and the exhibits which have been filed are complete and correct copies of the
documents of which they purport to be copies.
(xiv) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein,
neither the Company nor its Subsidiary has (A) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed
money, (B) entered into any
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transaction other than in the ordinary course of business, or (C) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock of any class, and there has not been any change in the capital
stock, or any change in the debt (long or short term) or liabilities or
material change in or affecting the business affairs or prospects,
management, stockholders' equity, properties, business, financial operations
or assets of the Company and its Subsidiary.
(xv) Except as described in the Prospectuses no default exists
in the due performance and observance of any term, covenant or condition of
any license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement,
partnership agreement, note, loan or credit agreement, purchase order, or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company or
its Subsidiary is a party or by which the Company or its Subsidiary may be
bound or to which the property or assets (tangible or intangible) of the
Company or its Subsidiary is subject or affected, which default would have a
material adverse effect on the condition, financial or otherwise, earnings,
business affairs, position, stockholder's equity, value, operation,
properties, business or results of operations of the Company and the
Subsidiary.
(xvi) Each of the Company and its Subsidiary has generally
enjoyed a satisfactory employer-employee relationship with its employees and
is in compliance in all material respects with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or the Subsidiary by the U.S. Department
of Labor,
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or any other governmental agency responsible for the enforcement of such
federal, state, local, or foreign laws and regulations. There is no unfair
labor practice charge or complaint against the Company or the Subsidiary
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or the Subsidiary, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees
of the Company or the Subsidiary and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or its
Subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or its
Subsidiary. No labor dispute with the employees of the Company or its
Subsidiary exists, or, to the knowledge of the Company is imminent.
(xvii) Except as described in the Prospectus, each of the
Company and the Subsidiary does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan," or a "multiemployer 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") ("ERISA Plans").
The Company and/or its Subsidiary does not maintain or contribute, now or at
any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code, which could subject the Company or the Subsidiary
to any tax penalty on prohibited transactions and which has not adequately
been corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
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such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply
with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. Neither the Company or the Subsidiary has
ever completely or partially withdrawn from a "multiemployer plan."
(xviii) The Company and the Subsidiary has not taken, and will
not take, directly or indirectly, and the Company and the Subsidiary will use
their best efforts to ensure that, any of their employees, directors, nor any
of its employees, directors, stockholders, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has not taken or will
not take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the IPO
Securities or otherwise.
(xix) None of the patents, patent applications, trademarks,
service marks, trade names and copyrights, and licenses and rights to the
foregoing presently owned or held by the Company or its Subsidiary are in
dispute or are in any conflict with the right of any other person or entity.
The Company and its Subsidiary (i) own or have the license or other right to
use, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of their business as now conducted or proposed to be
conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity
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under or with respect to any of the foregoing, except as set forth in the
Prospectuses and (ii) except as set forth in the Prospectus, are not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service ▇▇▇▇, tradename, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of their business or otherwise.
(xx) Neither the Company or its Subsidiary have received any
notice of infringement of or conflict with asserted rights of others with
respect to any trademark, service ▇▇▇▇, trade name or copyright or other
intangible asset used or held for use by it in connection with the conduct of
its business which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect
on the condition, financial or otherwise, or the business affairs, position,
properties, results of operations or net worth of the Company and its
Subsidiary.
(xxi) The Company and its Subsidiary have good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus, to be owned or leased by them
free and clear of all liens, charges, claims, encumbrances, pledges, security
interest, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet
due and payable.
(xxii) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which each of its officers,
directors or any person or entity deemed to be an affiliate of the Company
and any stockholders, noteholders and any other parties holding, or in the
future holding, securities, instruments or contract rights convertible into
common
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shares or preferred shares and/or any other securities of the Company,
including common shares issued pursuant to the Company's two Stock Option
Plans, has agreed or shall agree prior to issuance as the case may be, not
to, directly or indirectly, offer to sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
securities issued by the Company (either pursuant to Rule 144 of the Rules
and Regulations or otherwise) or dispose of any beneficial interest therein
for a period of not less than 24 months following the effective date of the
Registration Statement without the prior written consent of the
Representatives except only with respect to 3,495,000 shares of common stock
of the Company held by unaffiliated persons which constitute the tradeable
"public float" on the NASD Electronic Bulletin Board, and that for a period
of 2 years following the effective date of the Registration Statement any
such security which has been issued and is outstanding on the effective date
of the Registration Statement and is to be sold or otherwise disposed of
pursuant to such Rule 144 with the consent of the Representatives shall only
be sold or otherwise disposed of through the Representatives. The Company
will cause the Transfer Agent, as defined below, to ▇▇▇▇ an appropriate
legend on the face of stock certificates representing all of such securities
and to place "stop transfer" orders on the Company's stock ledgers.
(xxiii) The Company has caused to be duly executed binding and
enforceable agreements with respect to all of the outstanding loans made to
the Company from time to time from affiliated persons wherein the Company and
each such lender has agreed that the Company will not make payment of
principal or accumulated interest thereon for an eighteen (18) month period
commencing from the effective date of the Registration Statement except that
$500,000 in presently outstanding loans to the Company including interest
thereon from affiliated persons and no more may be repaid at any time and a
Bridge Loan in the principal sum of $50,000 plus accumulated
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interest thereon which is being repaid to a Bridge Lender out of the proceeds
of the Offering.
(xxiv) There are no claims, payments, issuances, arrangements
or understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the IPO Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company, the Subsidiary or any of its officers,
directors, stockholders, partners, employees or affiliates that may affect
the Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD") except for the sum of $25,000 previously
paid by the Company to KMS and the Company is aware that the Representatives
and each of the Underwriters shall compensate any of their respective
personnel who may have acted in such capacities as they shall determine in
their sole discretion.
(xxv) The Preferred Stock has been approved for quotation on
the Nasdaq SmallCap Market and upon notice of issuance, listing on the Boston
Stock Exchange ("BSE").
(xxvi) Neither the Company, the Subsidiary nor any of their
respective officers, employees, agents or any other person acting on behalf
of the Company or the Subsidiary has, directly or indirectly, given or agreed
to give 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 or supplier, or official or
employee of any governmental agency (domestic or foreign) 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 the Company or
-18-
the Subsidiary in connection with any actual or proposed transaction) which
(A) might subject the Company or the Subsidiary, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (B) if not given in the past, might have
had a materially adverse effect on the assets, business or operations of the
Company or the Subsidiary, or (C) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company
or the Subsidiary. The Company's and the Subsidiary's internal accounting
controls are sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
(xxvii) Except as set forth in the Prospectus, no officer,
director, or stockholder of the Company or the Subsidiary, or any Aaffiliate"
or Aassociate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (A) an interest in any person or entity
which (1) furnishes or sells services or products which are furnished or sold
or are proposed to be furnished or sold by the Company or the Subsidiary, or
(2) purchases from or sells or furnishes to the Company or the Subsidiary any
goods or services, or (B) a beneficiary interest in any contract or agreement
to which the Company or the Subsidiary is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under ACertain
Transactions," there are no existing agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or any Subsidiary, and any
officer, director, and 50% or more stockholders (as such term is defined in
the Prospectus) of the Company or any Subsidiary, or any partner, affiliate
or associate of any of the foregoing persons or entities.
-19-
(xxviii) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to Underwriters' Counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(xxix) The minute books of the Company and the Subsidiary have
been made available to the Underwriters and contains a complete summary of
all meetings and actions of the directors and stockholders of the Company and
the Subsidiary, since the time of its incorporation, and reflects all
transactions referred to in such minutes accurately in all material respects.
(xxx) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or the Subsidiary or of any options,
warrants or other convertible or exchangeable securities of the Company have
the right to include any securities issued by the Company or the Subsidiary
in the Registration Statement or any registration statement under the Act and
no person or entity holds any anti-dilution rights with respect to any
securities of the Company or the Subsidiary.
(xxxi) The Company has as of the effective date of the
Registration Statement (a) entered into employment agreements with its
President ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and a consulting agreement with its Chairman,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, on terms and conditions satisfactory to the
Representatives, and (ii) purchased "Key-Man" insurance on the life of ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ in the sum of $1,000,000 which names the Company as the sole
beneficiary on terms and conditions satisfactory to the Representatives.
-20-
(xxxii) The Company has entered into a Representatives' Warrant
Agreement with respect to the Representatives' Warrants in the form filed as
Exhibit ____ to the Registration Statement, with American Stock Transfer and
Trust Company in form and substance satisfactory to the Underwriters.
(xxxiii) Immediately prior to the effective date of the
Registration Statement there shall be no more than an aggregate of 7,973,635
shares of Common Stock and 500,000 shares of Preferred Stock issued and
outstanding including any and all (a) securities with equivalent rights as
the Common Stock or Preferred Stock, (b) Common Stock or Preferred Stock or
such equivalent securities, issuable upon the exercise of options, warrants
and other contract rights, and (c) securities convertible directly or
indirectly into Common Stock or Preferred Stock or such equivalent
securities, but excluding a maximum of _______________ shares of Common Stock
which are issuable upon exercise of options which may be granted pursuant to
the Company's two Stock Option Plans.
(xxxiv) Except for fair market value the Company shall not
issue any shares, options, warrants or any other equity or debt security
within three (3) years following the Effective Date of the Registration
Statement without the express written consent of the Representatives except
for a maximum of 1,957,500 shares of common stock which may be issued
pursuant to the Company's stock option plans nor shall the Company, during
such three (3) year period, effect a reverse split or reclassification of
shares of its capital stock without the express written consent of the
Representatives. Notwithstanding the foregoing, the Company shall not issue
any shares of
-21-
preferred stock or securities convertible into preferred stock during such
three (3) year period without the express written consent of the
Representatives.
(xxxv) Services currently being provided to the Company by
affiliated companies, if any, shall continue to be provided to the Company
without charge except for reasonable disbursements incurred on behalf of the
Company.
2. Purchase, Sale and Delivery of the Securities. (a) On the basis
of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter, severally
and not jointly, agrees to purchase from the Company at a price of $9.00 per
share of Preferred Stock that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Underwriters in their sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriters may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 75,000 shares of Preferred Stock at a price of $9.00 per share.
The option granted hereby will expire 45 days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Rules and Regulations, or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations,
-22-
and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Securities upon notice by the
Underwriters to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such
time and date of delivery (an "Option Closing Date") shall be determined by
the Underwriters, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Date
(hereinafter defined), unless otherwise agreed upon in writing by the
Underwriters and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
evidencing the Firm Securities shall be made at the offices of ▇▇▇▇▇ ▇▇▇▇ and
Shire, Inc., at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other
place as shall be agreed upon in writing by the Underwriters and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
___________________, 1998 or at such other time and date as shall be agreed
upon by the Underwriters and the Company, but not less than five (5) nor more
than ten (10) full business days after the effective date of the Registration
Statement (such time and date of payment and delivery being herein called the
"Closing Date"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Securities shall be made
at the above mentioned office of the Underwriters or at such other place as
shall be agreed upon by the Underwriters and the Company
-23-
on each Option Closing Date as specified in the notice from the
Representatives to the Company. Delivery of the certificates for the Firm
Securities and the Option Securities if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly,
of the purchase price for the Firm Securities and the Option Securities if
any, to the order of the Company by New York Clearing House Funds. In the
event such option is exercised, each of the Underwriters, acting severally
and not jointly, shall purchase that proportion of the total number of Option
Securities then being purchased which the number of Firm Securities set forth
in Schedule A hereto opposite the name of such Underwriter bears to the total
number of Firm Securities, subject in each case to such adjustments as the
Underwriters in their discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option Securities if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least
two (2) business days prior to the Closing Date or the relevant Option
Closing Date, as the case may be. The certificates for the Firm Securities
and the Option Securities if any, shall be made available to the Underwriters
at such office or such other place as the Underwriters may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives the Representatives' Warrants at a purchase price of $.0001
per warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 50,000 shares of Preferred Stock. The Representatives' Warrants
shall be exercisable for a period of four (4) years commencing one (1) year
from the Closing Date at a price equal to 165% of the initial public offering
price of one (1)
-24-
share of the Preferred Stock. The Representatives' Warrant Agreement and
Warrant Certificate shall be substantially in the form filed as Exhibit
_______ to the Registration Statement. Payment for the Representatives'
Warrants shall be made on the Closing Date.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective as the Underwriters deem advisable, the
Underwriters shall make a public offering of the Firm Securities and such of
the Option Securities as they may determine (other than to residents of or in
any jurisdiction in which qualification of the Securities is required and has
not become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriters may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or
more broker-dealers who shall act as dealers in connection with such public
offering.
4. Covenants and Agreements of the Company. The Company covenants
and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable (such Registration Statement to be in form and substance
satisfactory to the Representatives and their counsel) and will not at any
time, whether before or after the effective date of the Registration
Statement, file any amendment to the Registration Statement or supplement to
the Prospectus or file any document under the Act or Exchange Act before
termination of the offering of the Securities by the Underwriters of which
the Representatives shall not previously have been advised and furnished with
a copy, or to which
-25-
the Representatives shall have objected unless required under the Act, the
Exchange Act or the Rules and Regulations thereunder or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives and confirm the notice in
writing, (I) when the Registration Statement, as amended, becomes effective,
if the provisions of Rule 430A promulgated under the Act will be relied upon,
when the Prospectus has been filed in accordance with said Rule 430A and when
any post-effective amendment to the Registration Statement becomes effective,
(ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding, suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings for that
purpose (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any
of the Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, (iv) of
the receipt of any comments from the Commission; and (v) of any request by
the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If
the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to
-26-
the Representatives and their counsel) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to
Rule 424 (b) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424 (b)(47) not later than the Commission's close of
business on the earlier of (i) the second business day following the
execution and delivery of this Agreement and (ii) the fifth business day
after the effective date of the Registration Statement.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to
the Prospectus (including any revised prospectus which the Company proposes
for use by the Underwriters in connection with the offering of the IPO
Securities which differs from the corresponding prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether
or not such revised prospectus is required to be filed pursuant to Rule
424(b) of the Rules and Regulations), and will furnish the Representatives
with copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
any such prospectus to which the Representatives or Doros & Brescia, P.C.
("Underwriters' Counsel"), shall reasonably object unless required under the
Act or the Rules and Regulations thereunder.
(e) The Company shall take all action, in cooperation with the
Underwriters, at or prior to the time the Registration Statement becomes
effective, to qualify the IPO Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriters may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information
-27-
as may be required for such purpose; provided, however, the Company shall not
be required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company will, unless the
Underwriters agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of
such jurisdiction to continue such qualification. It is agreed that
Underwriters' Counsel (or its designees) shall perform all such required Blue
Sky legal services.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with
all requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings
in the IPO Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the IPO Securities is required to be delivered under
the Act, any event shall have occurred as a result of which, in the
reasonable opinion of counsel for the Company or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act and the
Rules and Regulations, the Company will notify the Representatives promptly
and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be reasonably satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the
-28-
Underwriters may reasonably request.
(g) During the time when a prospectus relating to the IPO Securities
is required to be delivered under the Act, the Company will use its best
efforts to comply with all requirements imposed upon it by the Act and the
Securities Exchange Act of 1934 (the "Exchange Act"), as now and hereafter
amended and by the Regulations, as from time to time in force, as necessary
to permit the continuance of sales of or dealings in the IPO Securities in
accordance with the provisions hereof and the Prospectus and the Company
shall use its best efforts to keep the Registration Statement current and
effective so long as a Prospectus is required to be delivered in connection
with the sale of the IPO Securities by the Underwriters or by dealers
effecting transactions therein in connection with the initial public offering
thereof. If at any time when a prospectus relating to the IPO Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the reasonable opinion of counsel for the Company or
counsel for the Underwriters, the Prospectus as then amended or supplemented
(or the prospectus contained in a new registration statement filed by the
Company pursuant to Paragraph 4(x), includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if, in the
reasonable opinion of either such counsel, it is necessary at any time to
amend the Prospectus (or the prospectus contained in such new registration
statement) to comply with the Act, the Company will notify the
Representatives promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act
and will furnish to the Representatives copies thereof.
-29-
(h) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Preferred Stock which
are issuable upon exercise of the Representatives' Warrants (including the
underlying securities) outstanding from time to time.
(i) The Company will timely prepare and file at its sole cost and
expense one or more post-effective amendments to the Registration Statement
or a new registration statement as required by law as will permit holders of
the Representatives' Warrants to be furnished with a current prospectus in
the event and at such time as the Representatives' Warrants are exercised,
and the Company will use its best efforts and due diligence to have the same
be declared effective (with the intent that the same be declared effective as
soon as the Representatives' Warrants become exercisable) and to keep the
same effective so long as the Representatives' Warrants are outstanding. The
Company will deliver a draft of each such post-effective amendment or new
registration statement to the Representatives at least ten days prior to the
filing of such post-effective amendment or registration statement.
(j) So long as any of the Representatives' Warrants remain
outstanding, the Company will timely deliver and supply to its Warrant Agent
sufficient copies of the Company's current Prospectus, as will enable such
Warrant Agent to deliver a copy of such Prospectus to any holder of the
Representatives' Warrants where such Prospectus delivery is by law required
to be made.
(k) So long as any of the Representatives' Warrants remain
outstanding, the Company shall continue to employ the services of a firm of
independent certified public accountants reasonably acceptable to the
Representatives in connection with the preparation of the financial
-30-
statements to be included in any registration statement to be filed by the
Company hereunder, or any amendment or supplement thereto. During the same
period, the Company shall employ the services of a law firm(s) reasonably
acceptable to the Representatives in connection with all legal work of the
Company, including the preparation of a registration statement to be filed by
the Company hereunder, or any amendment or supplement thereto.
(l) So long as any of the Representatives' Warrants remain
outstanding, the Company shall continue to appoint a Warrant Agent for the
Representatives' Warrants, who shall be reasonably acceptable to the
Representatives.
(m) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Underwriters, an
earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least 12 consecutive
months after the effective date of the Registration Statement.
(n) During a period of seven years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the
-31-
Underwriters:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy of
the certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
(v) every press release and every material news item or article
of interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning
the Company (and any future Subsidiary) or its businesses which the
Underwriters may reasonably
-32-
request.
During such seven-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(o) The Company will maintain a Transfer Agent, designated American
Stock Transfer and Trust Company, counsel, accounting firm, financial printer
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which shall be the same entity as the Transfer Agent) for its
Common Stock and Preferred Stock all of whom shall be reasonably acceptable
to the Underwriters. Such Transfer Agent shall, for a period of two years
following the Closing Date, deliver to the Underwriters the daily securities
position of the Company's stockholders of record and for a period of three
(3) years thereafter the monthly securities position.
(p) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives
may designate, copies of each Preliminary Prospectus, the Registration
Statement, any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any Prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Representatives may reasonably request.
-33-
(q) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true copies of duly
executed, legally binding and enforceable agreements pursuant to which for a
period of not less than 24 months after the effective date of the
Registration Statement (except only with respect to 3,495,000 shares of
common stock held by unaffiliated persons which constitute the tradeable
"public float" on the NASD Electronic Bulletin Board), each holder of
securities issued by the Company and outstanding at the effective date of the
Registration Statement (including securities issued under the Company's stock
option plans after the effective date of the Registration Statement and
securities convertible into Common Stock or Preferred Stock of the Company)
agrees that it or he or she will not, directly or indirectly, issue, offer to
sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any of such securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent
of the Representatives (collectively, the "Lock-up Agreements"). During the
two (2) year period commencing with the effective date of the Registration
Statement, the Company shall not issue any securities under Regulation S and
will not, without the prior written consent of the Representatives, sell,
contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any debt security of the
Company or any shares of Common Stock or Preferred Stock or any options,
rights or warrants with respect to any shares of Common Stock of Preferred
Stock (other than upon exercise of options or warrants referred to in the
Registration Statement, or with respect to transactions between the Company
and its lenders and purchasers of mortgage backed securities). On or before
the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the
-34-
Company's ledgers.
(r) The Company and the Subsidiary have not taken and will not take,
directly or indirectly, and the Company and the Subsidiary will use their
best efforts to ensure that any of their employees officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company or the Subsidiary.
(s) The Company shall apply the net proceeds from the sale of the
IPO Securities in the manner, and subject to the conditions, set forth under
AUse of Proceeds" in the Prospectus. No portion of the net proceeds will be
used, directly or indirectly, to acquire any securities issued by the Company
or the Subsidiary except as described in the Prospectuses.
(t) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act and the Rules and
Regulations.
(u) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior
-35-
to the date of the Registration Statement) which have been read by the
Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 6(j) hereof.
(v) The Company shall cause the Preferred Stock to be listed on the
Nasdaq SmallCap Market and on the BSE, and for a period of seven (7) years
from the date hereof, use its best efforts to maintain such listings of the
Preferred Stock to the extent outstanding.
(w) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Underwriters at the Underwriters' request and at
the Company's sole expense, (i) the list of holders of all of the Company's
securities, (ii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company, and (iii) daily
consolidated transfer sheets relating to the Preferred Stock but not more
than six (6) times per year.
(x) As soon as practicable, (i) but in no event more than five
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the
Exchange Act of the Securities and (ii) but in no event more than 30 days
from the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation Records
Service in order to satisfy the requirements for "manual exemption" in those
states where available and to maintain such inclusion for as long as the IPO
Securities are outstanding.
(y) Until the completion of the distribution of the IPO Securities,
the Company shall not without the prior written consent of the Underwriters
and Underwriters' Counsel, issue,
-36-
directly or indirectly any press release or other communication or hold any
press conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in the
ordinary course of the Company's business consistent with past practices with
respect to the Company's operations.
(z) For a period of three (3) years after the effective date of the
Registration Statement, the Representatives, jointly, shall have the right to
designate, one (1) individual for election to the Company's Board of
Directors ("Board") and the Company shall cause such individual to be elected
to the Board. In the event the Representatives 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 Representatives of each
meeting of the Board and an individual designated by the Representatives
shall be permitted to attend all meetings of the Board and to receive all
notices and other correspondence and communications sent by the Company to
members of the Board. Such individual shall be reimbursed for all
out-of-pocket expenses incurred in connection with his or her service on, or
attendance at meetings of, the Board. The Company shall provide its outside
directors with compensation in the form of cash and/or options on its Common
Stock and/or Preferred Stock as deemed appropriate and similar for similar
companies.
(aa) The Company and the Subsidiary hereby grant to the
Representatives a right of first refusal on the terms and subject to the
conditions set forth in this paragraph, for a period of five years from the
effective date of the Registration Statement, to purchase for its account or
to sell for the account of the Company or its present or future Subsidiary,
any securities of the company or any of its present or future Subsidiary,
with respect to which the Company or any of its present or
-37-
future Subsidiary may seek a public or private sale. The Company, for a
period of five years from the effective date of the Registration Statement,
will consult, and will cause such present or future Subsidiary to consult
with the Representatives with regard to any such offering or placement and
will offer, or cause any of its present or future Subsidiary to offer, to the
Representatives the opportunity, on terms not more favorable to the Company
or such present or future subsidiary than they can secure elsewhere, to
purchase or sell any such securities. If the Representatives fail to accept
in writing such proposal made by the Company or any of its present or future
Subsidiary within fifteen business days after receipt of a notice containing
such proposal, then the Representatives shall have no further claim or right
with respect to the proposal contained in such notice. If, thereafter, such
proposal is materially modified, the Company shall again consult, and cause
each present or future subsidiary to consult, with the Representatives in
connection with such modification and shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as
are provided hereinabove with respect to the original proposal.
(bb) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the date of the sale to the public of the
securities issuable upon exercise of the Representatives' Warrants and the
Representatives' Securities, the Company will not take any action or actions
which may prevent or disqualify the Company's use of Form SB-1 for the
registration under the Act of the securities issuable upon exercise of the
Representatives' Warrants and the Representatives' Securities.
(cc) On or before the effective date of the Registration Statement,
the Company shall have retained a financial public relations firm reasonably
satisfactory to the Underwriters,
-38-
which shall be continuously engaged from such engagement date to a date
twelve (12) months from the Closing Date.
5. Payment of Expenses. (a) The Company hereby agrees to pay on each
of the Closing Date and the Option Closing Date (to the extent not paid at
the Closing Date) all expenses and fees (other than fees of Underwriters'
Counsel, except as provided in (iv) below) incident to the performance of the
obligations of the Company under this Agreement and the Representatives'
Warrant Agreement including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing, (including mailing
and handling charges) filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage with respect thereto) and delivery
of this Agreement, the Representatives' Warrant Agreement, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriters and such dealers as the Underwriters may
reasonably request, in quantities as hereinabove stated, (iii) the printing,
engraving, issuance and delivery of the IPO Securities, including, but not
limited to, (x) the purchase by the Underwriters of the IPO Securities and
the purchase by the Representatives of the Representatives' Warrants from the
Company, (y) the consummation by the Company of any of its obligations under
this Agreement, and the Representatives' Warrant Agreement and (z) resale of
the IPO Securities by the Underwriters in connection with the distribution
contemplated hereby to the extent that expenses relate to the
-39-
printing, engraving, issuance and delivery of the IPO Securities, (iv) the
qualification of the IPO Securities under state or foreign securities or
"Blue Sky" laws and determination of the status of such securities under
legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and legal fees of counsel Doros &
Brescia, P.C., of $75,000 less $20,000 heretofore paid plus disbursements
incurred by then in connection therewith, (v) advertising costs and expenses,
(not to exceed $5,000) including but not limited to costs and expenses in
connection with the "road show", information meetings and presentations,
bound volumes and prospectus memorabilia and "tomb-stone" advertisement
expenses, (vi) costs, fees and expenses in connection with due diligence
investigations, including but not limited to the costs of background checks
on key management and/or personnel of the Company, (vii) fees and expenses of
the transfer agent, warrant agent and registrar, (viii) applications for
assignments of a rating of the IPO Securities by qualified rating agencies,
(ix) the fees payable to the Commission, Nasdaq and the NASD, and (x) the
fees and expenses incurred in connection with the listing of the IPO
Securities on the Nasdaq SmallCap Market, the BSE and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriters for all of their
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel (and in addition to fees and expenses of Underwriters'
Counsel incurred pursuant to Section 5(a)(iv) above for which the Company
shall remain liable), provided, however, that in the event of a termination
pursuant to Section 10(a) hereof such obligation of the Company shall not
exceed $50,000.
-40-
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Underwriters on the Closing Date by certified or bank cashier's check or, at
the election of the Underwriters, by deduction from the proceeds of the
Offering a non-accountable expense allowance equal to two percent (2%) of the
gross proceeds of the Offering less the amount of $25,000 previously paid by
the Company to KMS. In the event the Underwriters elect to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Underwriters on the Option Closing Date (by certified or
bank cashier's check or, at the Underwriters' election, by deduction from the
proceeds of the Offering) a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds of this Offering in connection with the
sale of the Option Securities.
(d) The Underwriters shall not be responsible for any expense of the
Company or others or for any charge or claim related to the Offering in the
event that the sale of the IPO Securities as contemplated hereunder is not
consummated.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and its Subsidiary herein as of
the date hereof and as of the Closing Date and each Option Closing Date, if
any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date
or Option Closing Date, if any, of the statements of the officers of the
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the Closing Date and each
-41-
Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement, which shall be in form and substance
satisfactory to the Representatives and Underwriters' Counsel, shall have
become effective no later than 12:00 p.m., New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by
the Representatives, and, at the Closing Date and each Option Closing Date,
if any, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending or contemplated by the Commission
and any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Underwriters'
Counsel. If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the IPO Securities and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing, or
a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Underwriters' opinion, is material and is
required to be stated therein or is necessary to make the statements therein,
in light
-42-
of the circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company and its Subsidiary, the validity of the IPO
Securities, the Representatives' Warrants, the Registration Statement, the
Prospectus and other related matters as the Representatives may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Jackier, Gould, Bean, Upfal & ▇▇▇▇▇▇▇▇, counsel to the
Company, dated as of the Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction; (B) to such counsel's knowledge has all requisite
corporate power and authority, and has obtained any and all authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters),
to own or lease its properties and conduct its
-43-
business as described in the Prospectus; (C) to such counsel's knowledge is
duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing; and (D)
to such counsel's knowledge, has not received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the business, operations,
condition, financial or otherwise, or the earnings, business affairs or
prospects, properties, business, assets or results of operations of the
Company and the Subsidiary taken as a whole. The disclosures in the
Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's or the Subsidiary's business as
currently conducted and as contemplated are correct in all material respects
and do not omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made:
(ii) to such counsel's knowledge, except as set forth in the
Prospectus neither the Company nor the Subsidiary owns an equity interest in
any other corporation, partnership, joint venture, trust or other business
entity except with respect to the Company the Subsidiary;
(iii) to such counsel's knowledge the Company has a duly
authorized, issued and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto, under "Capitalization",
and, to such counsel's knowledge, neither the Company nor the Subsidiary is a
party to or bound by any instrument, agreement or other arrangement
-44-
providing for it to issue any capital stock, rights, warrants, options or
other securities, except for this Agreement, the Representatives' Warrant
Agreement and as described in the Prospectus. The IPO Securities, and all
other securities issued or issuable by the Company, conform in all material
respects to all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company and the Subsidiary have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability
under the laws of the State of Nevada as currently in effect by reason of
being such holders; and none of such securities were issued in violation of
the preemptive rights of any holders of any security of the Company. The IPO
Securities to be sold by the Company hereunder and under the Representatives'
Warrant Agreement are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the holders thereof will not be subject
to any liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the IPO Securities has been
duly and validly taken; and the certificates representing the IPO Securities
are in due and proper form. The Representatives' Warrants constitute valid
and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefore the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to this
Agreement of the IPO Securities to be sold by the Company, the Underwriters
will acquire good and marketable title to the IPO Securities free and clear
of any pledge, lien, charge, claim, encumbrance, pledge, security interest,
or other restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of
-45-
the IPO Securities, (B) the purchase by the Underwriters of the IPO
Securities from the Company, (C) consummation by the Company of any of its
obligations under this Agreement, or (D) resales of the Securities in
connection with the distribution contemplated hereby;
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and, to such counsel's knowledge, no
stop order suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplement thereto (other
than the financial statements and other financial and statistical data
included therein, as to which no opinion need be rendered) comply as to form
in all material respects with the requirements of the Act and the Rules and
Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be described
in the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration
Statement (or required to be filed under the Exchange Act if upon such filing
they would be incorporated, in whole or in part, by reference therein) and
the Prospectus and filed as exhibits thereto, and the exhibits which have
been filed are correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and the Prospectus
and
-46-
any supplement or amendment thereto of contracts and other documents to
which the Company or the Subsidiary is a party or by which it is bound,
including any document to which the Company or the Subsidiary is a party or
by which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-1; (C) there
is not pending or threatened against the Company or the Subsidiary any
action, arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give rise to the
same), or involving the properties or business of the Company or the
Subsidiary which (1) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized
in the Registration Statement are accurately summarized in all respects), (2)
questions the validity of the capital stock of the Company or the Subsidiary
or this Agreement or the Representatives' Warrant Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with any of
the foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described as
required; and (E) except as disclosed in the Prospectus, there is no action,
suit or proceeding pending, or threatened, against or affecting the Company
or the Subsidiary before any court or arbitrator or governmental body, agency
or official (or any basis thereof known to such counsel) in which an adverse
decision which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of operations of
the Company and the Subsidiary taken as a whole, which could adversely affect
the present or prospective ability of the Company to perform its obligations
under this Agreement, or the Representatives' Warrant Agreement or which in
any
-47-
manner draws into question the validity or enforceability of this
Agreement or the Representatives' Warrant Agreement;
(vii) the Company has full legal right, power and authority to
enter into this Agreement and the Representatives' Warrant Agreement and to
consummate the transactions provided for herein and therein; and this
Agreement and the Representatives' Warrant Agreement have been duly
authorized, executed and delivered by the Company. Each of this Agreement,
the Representatives' Warrant Agreement assuming due authorization, execution
and delivery by each other party hereto constitutes a legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be limited
by applicable law), and neither the Company's execution or delivery of this
Agreement and the Representatives' Warrant Agreement, its performance
hereunder or thereunder, its consummation of the transactions contemplated
herein or therein, or the conduct of their business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation or imposition
of any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of, (A) the certificate of incorporation or by-laws of the Company
-48-
or the Subsidiary, (B) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company or the
Subsidiary is a party or by which it is or may be bound or to which any of
its properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Subsidiary of any arbitrator,
court, regulatory body or administrative agency or other governmental agency
or body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction
over the Company or the Subsidiary or any of its activities or properties,
except for conflicts, breaches, violations, defaults, creations or
impositions which do not and would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs,
position, shareholder's equity, value, operations, properties, business or
results of operations of the Company and the Subsidiary taken as a whole;
(viii) except as described in the Prospectus, no consent,
approval, authorization or order, and no filing with, any court, regulatory
body, government agency or other body (other than such as may be required
under Blue Sky laws, as to which no opinion need be rendered) is required in
connection with the issuance of the IPO Securities pursuant to the Prospectus
and the Registration Statement, the issuance of the Representatives'
Warrants, the performance of this Agreement and the Representatives' Warrant
Agreement and the transactions contemplated hereby and thereby;
(ix) the properties and business of the Company and the
Subsidiary
-49-
conform to the description thereof contained in the Registration Statement
and the Prospectus;
(x) to such counsel's knowledge and except as described in the
Prospectus neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract, indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other 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 the property or assets (tangible or
intangible) of the Company or the Subsidiary is subject or affected, which
could materially adversely affect the Company or the Subsidiary; and neither
the Company nor the Subsidiary is in violation of any term or provision of
its Certificate of Incorporation or By-Laws, or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation the result of which would materially and adversely affect the
condition, financial or otherwise, or the earnings, business affairs,
position, shareholders' equity, value, operation, properties, business or
results of operations of the Company and the Subsidiary taken as a whole;
(xi) to the knowledge of such counsel except as described in
the Prospectus each of the Company and the Subsidiary owns or possesses, free
and clear of all liens or encumbrances and rights thereto or therein by third
parties, the requisite licenses or other rights to use all trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications and licenses necessary to conduct its business (including,
without limitation any such licenses or rights described in the Prospectus as
being owned or possessed by the Company or the
-50-
Subsidiary), and to the best of such counsel's knowledge after reasonable
investigation, there is no claim or action by any person pertaining to, or
proceeding, pending, or threatened, which challenges the exclusive rights of
the Company or the Subsidiary with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of the Company's or the Subsidiary's business
(including, without limitations, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company or the Subsidiary);
(xii) except as described in the Prospectus, neither the
Company nor the Subsidiary (A) maintains, sponsors, or contributes to any
ERISA Plans, (B) maintains or contributes now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever
completely or partially withdrawn from a "multiemployer plan";
(xiii) the IPO Securities have been approved for listing on the
Nasdaq SmallCap Market and the BSE, and the Company's Registration Statement
on Form 8-A under the Exchange Act has become effective;
(xiv) to such counsel's knowledge, the persons listed caption
"PRINCIPAL SHAREHOLDERS" in the Prospectus are the respective Abeneficial
owners" (as such phrase is defined in regulation 13d-3 under the Exchange
Act) of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xv) to such counsel's knowledge, except as described in the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or
-51-
register any securities of the Company or the Subsidiary in the Registration
Statement, require the Company or the Subsidiary to file any registration
statement or, if filed, to include any security in such registration
statement;
(xvi) to such counsel's knowledge, except as described in the
Prospectus, 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 IPO Securities hereunder or the financial
consulting arrangement or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters' compensation, as
determined by the NASD;
(xvii) the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against each such party and
any subsequent holder of the securities subject thereto in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable); and
Such counsel shall state that such counsel has participated in
conferences including telephone conferences with officers and other
representatives of the Company, the Subsidiary and representatives of the
independent public accountants for the Company and the Subsidiary, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed
and, although such counsel is not passing upon and does not assume
-52-
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Preliminary Prospectus, the Registration
Statement and Prospectus, on the basis of the foregoing, no facts have come
to the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or the Preliminary
Prospectus or Prospectus or amendment or supplement thereto as of the date of
such opinion contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Preliminary Prospectus,
the Registration Statement or Prospectus).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with
the applicable laws; (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company or the Subsidiary and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company or the
Subsidiary, provided that copies of any such statements or certificates shall
be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Representatives
and the Underwriters are justified in relying thereon.
-53-
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Jackier, Gould, Bean, Upfal & ▇▇▇▇▇▇▇▇,
counsel to the Company, dated the Option Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of such Option Closing Date the statements made in its opinion
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection
(c) of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(f) Prior to each Closing Date and each Option Closing Date, if any,
(i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company and the
Subsidiary taken as a whole, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in
the Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company or the Subsidiary, (iii) neither the Company nor the Subsidiary shall
be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) neither the Company nor any of the Subsidiary
shall have issued any securities (other than the IPO Securities and the
-54-
Representatives' Warrants) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there has not
been any change in the capital or any change in the debt (long or short term)
or liabilities or obligations of the Company or the Subsidiary (contingent or
otherwise); (v) no material amount of the assets of the Company or the
Subsidiary shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances
giving rise to same) against the Company or the Subsidiary, or affecting any
of its properties or business before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, management prospects or financial condition or assets of the
Company or the Subsidiary taken as a whole, except as set forth in the
Registration Statement and Prospectus: and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(g) At each Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the
effect that each of such persons has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of the
Company are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with
all agreements and covenants and satisfied all
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conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as the
case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, are
contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and neither the Preliminary Prospectus or any supplement thereto
included 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, in light of the circumstances under which they were made,
not misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there must not have been any
material change in the shares of Common Stock, Preferred Stock or liabilities
of the Company or the Subsidiary except as set forth in or contemplated by
the Prospectus; (B) there must not have been any material adverse change in
the general affairs, management, business, financial condition or results of
operations of the Company or the Subsidiary, whether or not arising from
transactions in the ordinary course of business, as set forth in or
contemplated by the Prospectus; (C) the Company and the Subsidiary
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must not have sustained any material loss or interference with its business
from any court or from legislative or other governmental action, order or
decree, whether foreign or domestic, or from any other occurrence, not
described in the Registration Statement and Prospectus; (D) there must not
have occurred any event that makes untrue or incorrect in any material
respect any statement or information contained in the Registration Statement
or Prospectus or that is not reflected in the Registration Statement or
Prospectus but should be reflected therein in order to make the statements or
information therein, in light of the circumstances in which they were made,
not misleading in any material respect; (E) the Company and the Subsidiary
must not have incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent; (F)
the Company and the Subsidiary must not have paid or declared any dividends
or other distributions on its capital stock; (G) the Company and the
Subsidiary must not have entered into any transactions not in the ordinary
course of business; (H) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other than any
increase in the short-terms borrowings in the ordinary course of business) of
the Company or the Subsidiary; (i) the Company and the Subsidiary must not
have sustained any material loss or damage to its property or assets, whether
or not insured; and (J) there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date
of such certificate.
(h) By the Closing Date, the Underwriters will have received
clearance from the
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NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all
respects to the Underwriters and Underwriters' Counsel, from ________________:
(i) confirming that they are independent accountants with
respect to the Company and the Subsidiary within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company and the Subsidiary included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder
and that the Representatives may rely upon the opinion of
______________________ with respect to the financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company and the Subsidiary (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the latest available minutes of the stockholders and board of directors and
the various
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committees of the boards of directors of the Company and the Subsidiary,
consultations with officers and other employees of the Company and the
Subsidiary responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention which
would lead them to believe that (A) the unaudited financial statements, if
any, of the Company and the Subsidiary included in the Registration Statement
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of the Company and the Subsidiary included in the
Registration Statement, or (B) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has
been any change in the capital stock or long-term debt of the Company and the
Subsidiary, or any decrease in the stockholders' equity or net current assets
or net assets of the Company and the Subsidiary as compared with amounts
shown in the __________________ balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting forth the amount
of such change or decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of liabilities of
the Company and the Subsidiary (including a breakdown of commercial paper and
notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company and the Subsidiary set forth
in the Prospectus in each case to the extent that such
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amounts, numbers, percentages, statements and information may be derived from
the general accounting records, including work sheets, of the Company and the
Subsidiary and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement
and the Prospectus and that nothing has come to their attention as a result
of such procedures that caused them to believe such unaudited pro forma
financial information does not comply in form in all respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of that information;
(vii) stating that they have not during the immediately
preceding five (5) year period brought to the attention of any of the
Company's or the Subsidiary's management any "weakness," as defined in
Statement of Auditing Standard No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the Company's
internal controls; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may reasonably
request.
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(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from _____________________, a letter, dated
as of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (i) of this Section, except that the specified date in
the letter referred to shall be a date not more than five days prior to the
Closing Date or the Option Closing Date, as the case may be, and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(v) of subsection (i) of this Section with respect to certain amounts,
percentages and financial information as specified by the Representative and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b)
and have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (v).
(k) On each of the Closing Date and the Option Closing Date, if any,
there shall have been duly tendered to the several Underwriters' accounts the
appropriate number of IPO Securities.
(l) No order suspending the sale of the IPO Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or shall be contemplated.
(m) On or before Closing Date, the Preferred Stock shall have been
approved for
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quotation on the Nasdaq SmallCap Market and shall have been authorized upon
official notice of issuance for trading on the BSE.
(n) On or before the Closing Date, three shall have been delivered
to the Underwrites the Lock-up Agreements in form and substance satisfactory
to Underwriters' Counsel.
(o) On or before the Closing Date, the Company shall have executed
and delivered to the Underwriters, (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit _______ to the Registration
Statement in final form and substance satisfactory to the Underwriters, and
(ii) the Representatives' Warrants in such denominations and to such
designees as shall have been provided to the Company.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Underwriters may terminate
this Agreement or, if the Underwriters so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification. (a) The Company and its Subsidiary, jointly and
severally, agree to indemnify and hold harmless each of the Underwriters (for
purposes of this Section 7 "Underwriters" shall include the officers,
directors, partners, employees, agents and counsel of the Underwriters,
including specifically each person who may be substituted for an Underwriters
as provided in Section 11 hereof), and each person, if any, who controls the
Underwriters ("controlling person") within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, from and
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against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), whatsoever (including but not
limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriters or such controlling person may become subject under the Act, the
Exchange Act, or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment
or amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
IPO Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "Application") executed
by the Company or based upon written information furnished by the Company in
any jurisdiction in order to qualify the IPO Securities under the securities
laws thereof or filed with the Commission, any securities commission or
agency, NASDAQ, the BSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of
the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to
any Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any Application, as the case
may be.
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The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same
extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any Application made in reliance upon, and in
strict conformity with, written information furnished to the Company with
respect to any Underwriter by such Underwriter expressly for use in such
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such Application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this offering.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party
shall not relieve it from any liability which it may have under this Section
7 except to the extent that it has been prejudiced in any material respect by
such failure or from any liability which it may have otherwise). In case any
such action is brought
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against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying parties in connection with the
defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory
to such indemnified party to have charge of the defense of such action within
a reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that such
consent was not unreasonably withheld.
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(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, 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 this Section 7 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) (A) in such
proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the IPO Securities or (B)
if the allocation provided by clause (A) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each
of the contributing parties, on the one hand, and the party to be indemnified
on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages, expenses or liabilities, as well as
any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriters are the indemnified party, the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged
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untrue statement of a material fact or the omission or alleged omission to
state a material fact necessary to make the statements made, in light o the
circumstances under which they were made, not misleading relates to
information supplied by the Company, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to
the IPO Securities purchased by the Underwriters hereunder. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each
person, if any, who controls the Company within the meaning of the Act, each
officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subparagraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation
it or they may have hereunder or otherwise than under this subparagraph (d),
or to the extent that such party or parties were not adversely affected by
such omission. The contribution agreement set forth above shall be in
addition to any
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liabilities which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant
hereto, shall be deemed to be representations, warranties and agreements at
the Closing Date and any Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any controlling person of any
Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the IPO Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriters, in they discretion, shall release the
Securities for the sale to the public; provided, however, that the provisions
of Sections 5, 7 and 10 of this Agreement shall at all times be effective.
For purposes of this Section 9, the Securities to be purchased hereunder
shall be deemed to have been so released upon the earlier of dispatch by the
Underwriters of telegrams to securities dealers releasing such shares for
offering or the release by the Underwriters for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination. (a) Subject to subsection (b) of this Section 10,
the
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Underwriters shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Underwriters' opinion will in the immediate future disrupt the financial
markets; or (ii) any material adverse change in the financial markets shall
have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall
have been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (v) if a banking
moratorium has been declared by a state or federal authority; or (vi) if a
moratorium in foreign exchange trading has been declared; or (vii) if the
Company, shall have sustained a loss material or substantial to the Company
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Underwriters' opinion, make it inadvisable to proceed
with the delivery of the IPO Securities; or (vii) if there shall have been
such a material adverse change in the condition (financial or otherwise),
business affairs or prospects of the Company and/or the Subsidiary, whether
or not arising in the ordinary course of business, which would render, in the
Underwriters' judgment, either of such parties unable to perform
satisfactorily its respective obligations as contemplated by this Agreement
or the Registration Statement, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere
as in the Underwriters' judgment would make it inadvisable to proceed with
the offering, sale and/or delivery of the IPO Securities.
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(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Underwriters for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for
the Underwriters in an amount not to exceed $50,000 (less amounts previously
paid pursuant to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out
within the time specified herein, or any extension thereof granted to 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 (including, without limitation, pursuant to Section 6
or Section 12) then, the Company shall promptly reimburse and indemnify the
Underwriters for all of their actual out-of-pocket expenses, including the
fees and disbursements of counsel for the Underwriters (less amounts
previously paid pursuant to Section 5 (c) above). In addition, the Company
shall remain liable for all Blue Sky counsel fees and expenses and Blue Sky
filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by
such election or termination or failure to carry out the terms of this
Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 6, Section
10 or Section 12 hereof) to purchase the Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the remaining Underwriters shall have the right, within 24
hours thereafter, to make arrangement for one
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or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if,
however, the remaining Underwriters shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the remaining Underwriters shall have the
right to postpone the Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is
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obligated to sell hereunder on such date, then this Agreement shall terminate
(or, if such default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at their option, by
notice from the Underwriters to the Company, terminate the Underwriters'
obligation to purchase Option Securities from the Company on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriters shall be directed to the
Representatives at ▇▇▇▇▇ ▇▇▇▇ and Shire, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇▇ ▇▇▇ Khan, President, with a copy to Doros &
Brescia, P.C., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed
to the Company at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President, with a copy to Jackier, Gould, Bean, Upfal &
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim
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under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
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 the choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representatives' Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof.
This Agreement may not be amended except in a writing, signed by the
Underwriters and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
AWG, LTD.
By:
----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
Confirmed and accepted as of
the date first above written
For themselves and as Representatives
of the several Underwriters named in
Schedule A hereto
▇. ▇. ▇▇▇▇▇▇ & CO., L.L.C.
By:
--------------------------
Name:
Title:
▇▇▇▇▇ ▇▇▇▇ AND SHIRE, INC.
By:
-------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇ Khan
Title: President
SCHEDULE A
Number of Firm Securities
Name of Underwriters to be purchased
-------------------- -------------------------
▇▇▇▇▇ ▇▇▇▇ and Shire, Inc.
▇.▇. ▇▇▇▇▇▇ & Co., L.L.C.
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AWG, LTD.
AND
▇. ▇. ▇▇▇▇▇▇ & CO., L.L.C. and
▇▇▇▇▇ ▇▇▇▇ AND SHIRE, INC.
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of _______________, 1998
REPRESENTATIVES' WARRANT AGREEMENT dated as of
__________, 1998 (the "Agreement") between AWG, LTD., a Nevada corporation
(the "Company") and ▇. ▇. ▇▇▇▇▇▇ & CO., L.L.C. ("▇▇▇▇▇▇") and ▇▇▇▇▇ ▇▇▇▇ AND
SHIRE, INC. ("KMS"), their successors, designees and assigns (hereinafter
referred to collectively as the "Representatives" or the "Underwriters").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to ▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇ and Shire, Inc. (collectively the "Representatives" or the
"Underwriters") warrants (the "Representatives' Warrants") entitling the
holder(s) to purchase up to an aggregate of 50,000 shares (or up to 61,250
shares if the over-allotment is exercised), of the Company's Series A
Preferred Stock, $.001 par value per share (the "Preferred Stock"), at a
purchase price of $.0001 per Representatives' Warrant ($5.00 in aggregate)
(the Representatives' Warrants and Preferred Stock into which the
Representatives' Warrants are exercisable being collectively referred to as
the "Warrant Securities"); and
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof among the underwriters named therein and the Company to act as the
representatives of such underwriters, in connection with the Company's
proposed public offering of 500,000 shares of Preferred Stock at a public
offering price of $10.00 per share of Preferred Stock (the "Public
Offering"); and
-1-
WHEREAS, the Representatives' Warrants to be issued
pursuant to this Agreement will be issued on the Closing Date and each Option
Closing Date (s), if any, (as such terms are defined in the Underwriting
Agreement) by the Company to the Underwriters in consideration for, and as
part of the Underwriters' compensation in connection with, and pursuant to
the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the
payment by the Underwriters to the Company of an aggregate five dollars
($5.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Underwriters are hereby granted the right
to purchase, at any time from ____________, 1999 until 5:00 P.M., New York
time, on _______________, 2003, up to an aggregate of 50,000 shares of
Preferred Stock (the "Shares") at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $16.50 per share of Preferred
Stock subject to the terms and conditions of this Agreement. Except as set
forth herein, the shares of Preferred Stock issuable upon exercise of the
Representatives' Warrants are in all respects identical to the shares of
Preferred Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A,
-2-
attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by
this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Representatives' Warrants
initially are exercisable at an aggregate initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Preferred Stock as
set forth in Section 6 hereof payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the shares of Preferred Stock purchased at
the Company's principal offices (presently located at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Preferred Stock so purchased. The purchase
rights represented by each Warrant Certificate are exercisable at the option
of the Holders thereof, in whole or part (but not as to fractional shares of
the Preferred Stock). In the case of the purchase of less than all of the
Preferred Stock purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute
and deliver a new Warrant Certificate of like tenor for the balance of the
shares of Preferred Stock purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the
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Representatives' Warrants shall have the right at any time and from time to
time to exercise the Representatives' Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1.
The number of shares of Preferred Stock to be issued pursuant to this Section
3.2 shall be equal to the difference between (a) the number of shares of
Preferred Stock in respect of which the Representatives' Warrants are
exercised and (b) a fraction, the numerator of which shall be the number of
shares of Preferred Stock in respect of which the Representatives' Warrants
are exercised multiplied by the Exercise Price (as hereinafter defined) and
the denominator of which shall be the Market Price.
3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Preferred Stock, the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Preferred Stock is
listed or admitted to trading or by the Nasdaq National Market ("NNM"), or,
if the Preferred Stock is not listed or admitted to trading on any national
securities exchange or quoted by NNM, the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization including the NASD Electronic Bulletin
Board if Nasdaq is no longer reporting such information, or if the Preferred
Stock is not quoted on Nasdaq, or such similar organization as determined in
good faith by resolution of the Board of Directors of the Company, based on
the best information available to it. Notwithstanding the foregoing, for
purposes of Section 8, the Market Price of a share of Preferred Stock shall
be determined by reference to the relevant information set forth above during
the thirty (30) trading days immediately preceding the date of the event
requiring the determination of the
-4-
Market Price (except that, in the event of a public offering of shares of
Preferred Stock, the Market Price of a share of Preferred Stock shall be
determined by reference to the trading day immediately preceding the
effective date of the public offering and not such thirty (30) trading day
period).
4. Issuance of Certificates. Upon the exercise of the
Representatives' Warrants, the issuance of certificates for shares of
Preferred Stock and/or other securities, properties or rights underlying such
Representatives' Warrants, shall be made forthwith (and in any event within
five (5) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
The Warrant Certificates and the certificates
representing the shares of Preferred Stock (and/or other securities, property
or rights issuable upon the exercise of the Representatives' Warrants) shall
be executed on behalf of the Company by the manual or facsimile signature of
the then present Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates
-5-
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Representatives' Warrants are being acquired as an investment and not with a
view to the distribution thereof; that the Representatives' Warrants may not
be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, for a period of one (1) year from the date hereof, except
to officers of the Underwriters.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Underwriters Warrant shall be $16.50 per share of Preferred Stock. The
adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration Rights.
7.1 Current Registration Under the Securities Act of
1933. The Representatives' Warrants and the shares of Preferred Stock
issuable upon exercise of the Representatives' Warrants
-6-
have been registered under the Securities Act of 1933, as amended (the
"Act"), pursuant to the Company's Registration Statement on Form SB-1
(Registration No. 333-48165) (the "Registration Statement"). The Company
covenants and agrees to use its best efforts to maintain the effectiveness of
the Registration Statement for a period of five (5) years from its effective
date.
7.2 Contingent Registration Rights. In the event that,
for any reason whatsoever, the Company shall fail to maintain the
effectiveness of the Registration Statement for a period of five (5) years
from its effective date and, in any event, from and after the fifth (5th)
anniversary of the effective date of the Registration Statement, the
Representatives' and other Holders shall have, commencing the date of any
such occasion, the contingent registration rights ("Registration Rights") set
forth in Sections 7.3 and 7.4 hereof.
7.3 Piggyback Registration. (1) If, at any time
commencing after the effective date of the Registration Statement and
expiring on the seventh (7th) anniversary of the effective date of the
Registration Statement, the Company proposes to register any of its
securities under the Act, either for its own account or the account of any
other security holder or holders of the Company possessing registration
rights ("Other Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at least
thirty (30) days prior to the filing of each such registration statement, to
the Representatives and to all other Holders of Representatives' Warrants
and/or shares of Preferred Stock issuable upon exercise of the
Representatives' Warrants (collectively the "Registrable Securities") of its
intention to do so. If the Representatives or other Holders of Registrable
Securities notify the Company within twenty-one (21) days after the receipt
of any such notice of its or their desire to include any such securities in
-7-
such proposed registration statement, the Company shall afford the
Representatives and such other Holders of such securities the opportunity to
have any such securities registered under such registration statement.
(2) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Representatives and such other Holders as part of
the written notice given pursuant to Section 7.3(a) hereof. The right of the
Representatives or any such other Holders to registration pursuant to this
Section 7.3 shall be conditioned upon their participation in such
underwriting and the inclusion of their Registrable Securities in the
underwriting to the extent hereinafter provided. The Representatives and all
other Holders proposing to distribute their securities through such
underwriting shall (together with the Company and any officers, directors or
other stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
representatives of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 7.3, if the
representatives of the underwriter or underwriters advises the Company in
writing that marketing factors require a limitation or elimination of the
number of shares of Preferred Stock or other securities to be underwritten,
the representatives may limit the number of shares of Preferred Stock or
other securities to be included in the registration and underwriting. The
Company shall so advise the Representatives and all other Holders of
Registrable Securities requesting registration, and the number of shares of
Preferred Stock or other securities that are entitled to be included in the
registration and underwriting shall be allocated among the Representatives
and other Holders requesting registration, in each case, in proportion, as
nearly as practicable, to the respective amounts of securities which they had
requested to be included in such registration at the time of filing the
registration statement.
-8-
(3) Notwithstanding the provisions of this Section
7.3, the Company shall have the right at any time after it shall have given
written notice pursuant to Section 7.3(a) hereof (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw
the same after the filing but prior to the effective date thereof.
7.4 Demand Registration. (1) At any time commencing
after the effective date of the Registration Statement and ending on the
fifth (5th) anniversary of the effective date of the Registration Statement,
the Holders of Registrable Securities representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Representatives' Warrants) (the "Initiating Holders") shall have the right
(which right is in addition to the registration rights under Section 7.3
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Commission, on one occasion, a registration
statement and such other documents, including a prospectus, as may be
necessary in the opinion of both counsel for the Company and counsel for the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Registrable Securities for up to
two hundred and seventy (270) days by such Holders and any other Holders of
Registrable Securities, as well as any other security holders possessing
similar registration rights, who notify the Company within twenty-one (21)
days after receiving notice from the Company of such request.
(2) The Company covenants and agrees to give written
notice of any registration request under this Section 7.4 by any Holder or
Holders to all other registered Holders of Registrable Securities, as well as
any other security holders possessing similar registration rights, within ten
(10) days after the date of the receipt of any such registration request.
-9-
(3) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 7.4(a) hereof. The right of any Holder to
registration pursuant to this Section 7.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent and subject
to the limitations provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities it holds.
(4) The Company shall (together with all Holders,
officers, directors and other stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representatives of the underwriters selected for such
underwriting by the Initiating Holders, which underwriter(s) shall be
reasonably acceptable to the Representatives. Notwithstanding any other
provision of this Section 7.4, if the representatives of the underwriter or
underwriters advises the Initiating Holders in writing that marketing factors
require a limitation or elimination of the number of shares of Preferred
Stock or other securities to be underwritten, the representatives may limit
the number of shares of Preferred Stock or other securities to be included in
the registration and underwriting. The Company shall so advise the
Representatives and all Holders of Registrable Securities requesting
registration, and the number of shares of Preferred Stock or other securities
that are entitled to be included in the registration and underwriting shall
be allocated among the Representatives and other Holders requesting
registration, in each case, in proportion, as nearly as practicable, to the
respective amounts of securities which they had requested to be included in
such registration at the time of filing the registration statement. If the
Company or any Holder of Registrable Securities who has requested inclusion
in such registration as provided above disapproves of the terms of any such
underwriting, such person may
-10-
elect to withdraw its securities therefrom by written notice to the Company,
the Representatives and the Initiating Holders. Any securities so excluded
shall be withdrawn from such registration. No securities excluded from such
registration by reason of such underwriters' marketing limitations shall be
included in such registration. To facilitate the allocation of shares in
accordance with this Section 7.4(d), the Company or underwriter or
underwriters selected as provided above may round the number of securities of
any holder which may be included in such registration to the nearest 100
shares.
(5) In the event that the Initiating Holders are
unable to sell all of the Registrable Securities for which they have
requested registration due to the provisions of Section 7.4(d) hereof and if,
at that time, the Initiating Holders are not permitted to sell Registrable
Securities under Rule 144(k), the Initiating Holders shall be entitled to
require the Company to afford the Initiating Holders an opportunity to effect
one additional demand registration under this Section 7.4.
(6) In addition to the registration rights under
Section 7.3 and subsection (a) of Section 7.4 hereof, at any time commencing
on the date hereof and expiring five (5) years thereafter any Holder of
Registrable Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with
the Commission a registration statement so as to permit a public offering and
sale for 270 days by any such Holder of its Registrable Securities provided,
however, that the provisions of Section 7.5(b) hereof, shall not apply to any
such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holder's making such request.
(7) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration
statement for the Registrable Securities of the Initiating
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Holders or the Holder(s) referred to in Section 7.5(f) above (the "Paying
Holders"), within the time period specified in Section 7.5(a) below, the
Company shall upon the written notice of election of the Initiating Holders
or the Paying Holders, as the case may be, repurchase (i) any and all shares
of Preferred Stock at the higher of the Market Price per share of Preferred
Stock on (x) the date of the notice sent to the Company under Section 7.4(a)
or (f), as the case may be, or (y) the expiration of the period specified in
Section 7.5(a) and (ii) any and all Representatives' Warrants at such Market
Price less the Exercise Price of such Representatives' Warrant. Such
repurchase shall be in immediately available funds and shall close within
five (5) business days after the expiration of the period specified in
Section 7.5(a).
7.5 Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 7.3 and 7.4
hereof, the Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within sixty (60) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each
Holder desiring to sell Registrable Securities such number of prospectuses as
shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.3 and 7.4 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, blue
sky fees and expenses. If the Company shall fail to comply with the
provisions of Section 7.5(a), the Company shall, in addition to any other
equitable or other relief available to the Holder(s), extend the exercise
period of the Representatives' Warrants by such number of days as shall equal
the delay caused by the
-12-
Company's failure.
(3) The Company will take all necessary action which
may be required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested by the
Holder(s); provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(4) The Company shall indemnify the Holder(s) of the
Registrable Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from
such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to
indemnify each of the Underwriters contained in Section 7 of the Underwriting
Agreement.
(5) The Holder(s) of the Registrable Securities to
be sold pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which they may become subject under the Act, the
exchange Act or otherwise, arising from information furnished by or on behalf
of such Holders, or
-13-
their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which the
Underwriters have agreed to indemnify the Company.
(6) For a period of one hundred eighty (180) days
after the effectiveness of any registration statement filed pursuant to
Section 7.4 hereof, the Company shall not permit any other registration
statement (other than (1) a registration statement relating to the securities
for which the Company has granted demand registration rights, as described in
the Prospectus included in the Registration Statement, (2) a registration
statement relating to the securities for which the Company has granted
piggyback registration rights, as described in the Prospectus included in the
Registration Statement and (3) a registration statement filed on Forms S-4 or
S-8 to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Holders of the Registrable Securities representing a Majority
of such securities.
(7) The Company shall furnish upon request to each
Holder participating in the offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under
the underwriting agreement) signed by the independent public accountants who
have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with
-14-
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered
to underwriters in underwritten public offerings of securities.
(8) The Company shall as soon as practicable after
the effective date of any registration statement filed pursuant to Sections
7.3 and 7.4 hereof, and in any event within 15 months thereafter, make
Agenerally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12
consecutive months beginning after the effective date of the registration
statement.
(9) The Company shall deliver promptly to each
Holder participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of all
written correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each Holder and
underwriters to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the NASD. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such
Holder or underwriter shall reasonably request.
(10) With respect to any registration under Section
7.4 hereof, the Company shall enter into an underwriting agreement with the
managing underwriter selected for
-15-
such underwriting by the Initiating Holders or the Paying Holders, as the
case may be. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriters, and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities
and may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters, except as they may relate to
such Holders and their intended methods of distribution.
(11) For purposes of this Agreement, the term
"Majority" in reference to the Holders of Registrable Securities, shall mean
in excess of fifty percent (50%) of the then outstanding Representatives'
Warrants and/or Shares of Preferred Stock issued upon exercise of the
Representatives' Warrants that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to
a registration statement filed with the Commission under the Act.
(12) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Representatives'
Warrants prior to the initial filing of any registration statement or the
effectiveness thereof.
(13) In addition to the Registrable Securities, upon
the written request therefor, by any Holder(s), the Company shall include in
the registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration
-16-
statement, including without limitation restricted shares of Preferred Stock,
options, warrants or any other securities convertible into shares of
Preferred Stock.
7.6 Restrictive Legends. In the event that the Company
fails to maintain the effectiveness of the Registration Statement, such that
the exercise, in part or in whole, of the Representatives' Warrants are not,
at the time of such exercise, registered under the Act, any certificates
representing the shares of Preferred Stock underlying the Representatives'
Warrants and any of the other securities issuable upon exercise of the
Representatives' Warrants shall bear the following restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended ("Act"), and may
not be offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
8. Adjustments to Exercise Price and Number of
Securities.
8.1 Computation of Adjusted Exercise Price. Except as
hereinafter provided, in the event the Company shall at any time after the
date hereof issue or sell any shares of Preferred Stock (other than the
issuances or sales referred to in Section 8.7 hereof), including shares held
in the Company's treasury and shares of Preferred Stock issued upon the
exercise of any options, rights or warrants to subscribe for shares of
Preferred Stock and shares of Preferred Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Preferred Stock,
for a
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consideration per share less than the Market Price in effect immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest
full cent) equal to the quotient derived by dividing (i) an amount equal to
the sum of (a) the total number of shares of Preferred Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and (b)
the aggregate of the amount of all consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of shares of
Preferred Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Preferred Stock, as provided by Section
8.3 hereof.
For the purposes of this Section 8 the term Exercise
Price shall mean the Exercise Price per share of Preferred Stock set forth in
Section 6 hereof, as adjusted from time to time pursuant to the provisions of
this Section 8.
For the purposes of any computation to be made in
accordance with this Section 8.1, the following provisions shall be
applicable:
(i) In case of the issuance or sale of shares of
Preferred Stock for a consideration part or all of which shall be cash, the
amount of the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Preferred
Stock are offered by the Company for subscription, the subscription price,
or, if either of such securities shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price) before deducting therefrom any compensation paid or
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discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or other performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (other than as
a dividend or other distribution on any stock of the Company) of shares of
Preferred Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall be
deemed to be the value of such consideration as determined in good faith by
the Board of Directors of the Company and shall include any amounts payable
to security holders or any affiliates thereof, including without limitation,
pursuant to any employment agreement, royalty, consulting agreement, covenant
not to compete, earnout or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written; all such amounts being
valued for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of the
period or uncertainty of payment, the rate of interest, if any, or the
contingent nature thereof; provided, however, that if any Holder(s) does not
agree with such evaluation, a mutually acceptable independent appraiser shall
make such evaluation, the cost of which shall be borne by the Company.
(iii) Shares of Preferred Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day
following the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to have been
issued without consideration.
(iv) The reclassification of securities of the
Company other than shares of Preferred Stock into securities including shares
of Preferred Stock shall be deemed to involve the issuance of such shares of
Preferred Stock for a consideration other than cash immediately prior to
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the close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the consideration
allocable to such shares of Preferred Stock shall be determined as provided
in subsection (ii) of this Section 8.1.
(v) The number of shares of Preferred Stock at any
one time outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Preferred
Stock, or issue any securities convertible into or exchangeable for shares of
Preferred Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, or without consideration, the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the
case may be, shall be reduced to a price determined by making a computation
in accordance with the provisions of Section 8.1 hereof, provided that:
(1) The aggregate maximum number of shares of
Preferred Stock, as the case may be, issuable under such options, rights or
warrants shall be deemed to be issued and outstanding at the time such
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration (determined in the
same manner as consideration received on the issue or sale of shares in
accordance with the terms of the Representatives' Warrants), if any,
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received by the Company for such options, rights or warrants.
(2) The aggregate maximum number of shares of
Preferred Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at the
time of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Preferred Stock in accordance with the terms of
the Representatives' Warrants) received by the Company for such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
subsection (a) of this Section 8.2, or in the price per share at which the
securities referred to in subsection (b) of this Section 8.2 are convertible
or exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated on
the date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the
new price in respect of the number of shares issuable upon the exercise of
such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
8.3 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Preferred
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each
adjustment of the Exercise
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Price pursuant to the provisions of this Section 8, the number of Warrant
Securities issuable upon the exercise at the adjusted exercise price of each
Representatives' Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Securities issuable upon exercise
of the Representatives' Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 Definition of Preferred Stock. For the purpose of
this Agreement, the term "Preferred Stock" shall mean those shares of Series
A Preferred Stock, $.001 par value per share (the "Preferred Stock") of the
Company authorized for issuance in the Company's Certification of
Incorporation by the Company's Board of Directors, which do not have voting
rights except as may be required by applicable law, entitles the holders
thereof to a Preferred Annual Return of 6% per annum payable in Preferred
Stock in an amount equivalent to 6% of the number of shares of Preferred
Stock registered in the name of each of the holders as of the close of
business on December 31 of each year and will have a preference upon
liquidation of the Company in the amount of $10.00 per share.
8.6 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger
of the Company into, another corporation (other than a consolidation or
merger which does not result in any reclassification or change of the
outstanding Preferred Stock), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant
agreement providing that the holder of each Representatives' Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of
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such Representatives' Warrant) to receive, upon exercise of such warrant, the
kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger, by a holder of the number of
shares of Preferred Stock of the Company for which such Representatives'
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in
Section 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(1) Upon the issuance or sale of the
Representatives' Warrants or the shares of Preferred Stock issuable upon the
exercise of the Representatives' Warrants; or
(2) If the amount of said adjustment shall be less
than two cents (2 cents) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2 cents) per Warrant Security.
8.8 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Representatives'
Warrants declare a dividend (other than a dividend consisting solely of
shares of Preferred Stock) or otherwise distribute to its stockholders any
assets, property, rights, evidences of indebtedness, securities (other than
shares of Preferred Stock), whether issued by the Company or by another, or
any other thing of value, the Holders of
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the unexercised Representatives' Warrants shall thereafter be entitled, in
addition to the shares of Preferred Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Representatives' Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution as if
the Representatives' Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution,
the Company shall make appropriate reserves to ensure the timely performance
of the provisions of this subsection 8.8.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Warrant Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Representatives' Warrants, if mutilated, the Company will
make and deliver a new Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company
shall not be required to issue fractional shares of Preferred Stock upon the
exercise of Representatives' Warrants.
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Representatives' Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares of
Preferred Stock. If one or more Representatives' Warrants shall be presented
for exercise in full at the same time by the same Holder, the number of whole
shares of Preferred Stock which shall be issuable upon such exercise thereof
shall be computed on the basis of the aggregate number of shares of Preferred
Stock purchasable on exercise of the Representatives' Warrants so presented.
If any fraction of a share of Preferred Stock would, except for the
provisions provided herein, be issuable on the exercise of any
Representatives' Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to such fraction multiplied by the then current
market value of a share of Preferred Stock, determined as follows:
(1) If the Preferred Stock is listed or admitted to
unlisted trading privileges on the NYSE or the AMEX, or is traded on the NNM,
the current market value of a share of Preferred Stock shall be the closing
sale price of the Preferred Stock at the end of the regular trading session
on the last business day prior to the date of exercise of the
Representatives' Warrants on whichever of such exchanges or NNM had the
highest average daily trading volume for the Preferred Stock on such day; or
(2) If the Preferred Stock is not listed or admitted
to unlisted trading privileges, on either the NYSE or the AMEX and is not
traded on NNM, but is quoted or reported on Nasdaq, the current market value
of a share of Preferred Stock shall be the average of the closing bid and
asked prices (or the last sale price, if then reported by Nasdaq) of the
Preferred Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Representatives' Warrants
as quoted or reported on Nasdaq, as the case may be; or
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(3) If the Preferred Stock is not listed, or
admitted to unlisted trading privileges, on either of the NYSE or the AMEX,
and is not traded on NNM or quoted or reported on Nasdaq, but is listed or
admitted to unlisted trading privileges on the BSE or another national
securities exchange (other than the NYSE or the AMEX), the current market
value of a share of Preferred Stock shall be the closing sale price of the
Preferred Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Representatives' Warrants
on whichever of such exchanges has the highest average daily trading volume
for the Preferred Stock on such day; or
(4) If the Preferred Stock is not listed or admitted
to unlisted trading privileges on any national securities exchange, or listed
for trading on NNM or quoted or reported on Nasdaq, but is traded in the
over-the-counter market, the current market value of a share of Preferred
Stock shall be the average of the last reported bid and asked prices of the
Preferred Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Representatives' Warrants;
or
(5) If the Preferred Stock is not listed, admitted
to unlisted trading privileges on any national securities exchange, or listed
for trading on NNM or quoted or reported on Nasdaq, and bid and asked prices
of the Preferred Stock are not reported by the National Quotation Bureau,
Inc., the current market value of a share of Preferred Stock shall be an
amount, not less than the book value thereof as of the end of the most
recently completed fiscal quarter of the Company ending prior to the date of
exercise, determined in accordance with generally acceptable accounting
principles, consistently applied.
11. Reservation and Listing of Securities. The Company
shall at all times
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reserve and keep available out of its authorized shares of Preferred Stock,
solely for the purpose of issuance upon the exercise of the Representatives'
Warrants, such number of shares of Preferred Stock or other securities,
properties or rights as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of the Representatives'
Warrants and payment of the Exercise Price therefor, all shares of Preferred
Stock and other securities, if any, issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Representatives'
Warrants shall be outstanding, the Company shall use its best efforts to
cause all shares of Preferred Stock issuable upon the exercise of the
Representatives' Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Preferred Stock issued to
the public in connection herewith may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Representatives' Warrants
and their exercise, any of the following events shall occur:
(1) the Company shall take a record of the holders of
its shares of Preferred Stock for the purpose of entitling them to receive a
dividend or distribution payable other than in cash, or a cash dividend or
distribution payable other than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
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(2) the Company shall offer to all the holders of its
Preferred Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or
(3) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as an
entirety shall be proposed; then, in any one or more of said events, the
Company shall give written notice of such event at least fifteen (15) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stockholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription rights,
or entitled to vote on such proposed dissolution, liquidation, winding up or
sale. Such notice shall specify such record date or the date of closing the
transfer book, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection with
the declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
130 Representatives' Warrants.
The form of the certificate representing the
Representatives' Warrants (and the form of election to purchase shares of
Preferred Stock upon the exercise of Representatives' Warrants and the form
of assignment printed on the reverse thereof) shall be substantially as set
forth in Exhibit "A" to the Representatives' Warrant Agreement. Each
Representatives' Warrant shall entitle the Holder to purchase one fully paid
and non-assessable share of Preferred Stock at an initial purchase price of
$16.50 per share from ______________, 1999 until 5:00 P.M. New York time on
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_____________, 2003 at which time the Representatives' Warrants shall expire.
The exercise price of the Representatives' Warrants and the number of shares
of Preferred Stock issuable upon the exercise of the Representatives'
Warrants are subject to adjustment, whether or not the Representatives'
Warrants have been exercised, in the manner and upon the occurrence of the
events set forth in Section 8 of this Agreement. Subject to the provisions of
this Agreement and upon issuance of the Representatives' Warrants, each
registered holder of such Representatives' Warrants shall have the right to
purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of
Preferred Stock (subject to adjustment as provided herein and in the Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Representatives' Warrants set forth in the Warrant Agreement, and pays the
applicable exercise price, determined in accordance with the terms of the
Warrant Agreement. Upon exercise of the Representatives' Warrants, the
Company shall forthwith issue to the registered holder of any such
Representatives' Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Preferred Stock so purchased.
Except as otherwise provided herein and in Section 6.1 hereof, the
Representatives' Warrants shall be governed in all respects by the terms of
the Warrant Agreement. The Representatives' Warrants shall be transferable in
the manner provided in the Warrant Agreement, and upon any such transfer, a
new Warrant Certificate shall be issued promptly to the transferee. The
Company covenants to, and agrees with, the Holder(s) that without the prior
written consent of the Holder(s), which will not be unreasonably withheld,
the Warrant Agreement will not be modified, amended, canceled, altered or
superseded, and that the Company will send to each Holder, irrespective of
whether or not the Representatives' Warrants have been exercised, any and all
notices required by the Warrant Agreement to be sent to holders of the
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Representatives' Warrants.
140 Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return
receipt requested:
(1) If to the registered Holder of the Representatives'
Warrants, to the address of such Holder as shown on the books of the Company;
or
(2) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may designate by
notice to the Holders.
150 Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates in order to cure
any ambiguity, to correct or supplement any provision contained herein which
may be defective or inconsistent with any provisions herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the Company and the Underwriters may deem necessary or desirable and which
the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
160 Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
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170 Termination. This Agreement shall terminate at the
close of business on ___________, 2003. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until
the close of business on ___________, 2008.
180 Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be
a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State of New York
without giving effect to the rules of said State of New York governing the
conflicts of laws.
The Company, the Representatives and any other
registered Holders hereby agree that any action, proceeding or claim against
it arising out of, or relating in any way to, this Agreement shall be brought
and enforced in the courts of the State of New York or of the District Court
of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representatives and any other registered Holders
hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company, the Representatives and the Holders (at the option of the party
bringing such action, proceeding or claim) may be served by transmitting a
copy thereof, by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 14
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representatives and any other registered Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its their reasonable legal costs and
expenses
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relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
190 Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement and the Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may
not be modified or amended except by a writing duly signed by the party
against whom enforcement of the modification or amendment is sought.
200 Severability. If any provision of this Agreement
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
210 Captions. The caption headings of the Sections of
this Agreement are for convenience of reference only and are not intended,
nor should they be construed as, a part of this Agreement and shall be given
no substantive effect.
220 Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company and the Representatives and any other registered Holder(s) of the
Warrant Certificates or Warrants Securities any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the
sole benefit of the Company and the Representatives and any other registered
Holders of Warrant Certificates or Warrant Securities.
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230 Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] AWG, LTD.
By:
___________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
Attest:
___________________________
______________, Secretary
▇. ▇. ▇▇▇▇▇▇ & CO., L.L.C.
By:
_________________, President
▇▇▇▇▇ ▇▇▇▇ AND SHIRE, INC.
By: ____________________________-
▇▇▇▇▇▇▇▇ ▇▇▇ Khan, President
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
(ii) TO THE EXTENT "APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______________, 2003
No. RW-______ ______ Warrants to Purchase
________ Shares of Series A Preferred Stock
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WARRANT CERTIFICATE
This Warrant Certificate certifies that
_________________, or registered assigns, is the registered holder of
Warrants to purchase initially, at any time from _________, 1999 until 5:00
p.m. New York time on ___________, 2003 (the "Expiration Date"), up to
___________ fully-paid and non-assessable shares of Series A Preferred Stock,
$.001 par value per share ("Preferred Stock") of AWG, Ltd., a Nevada
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $16.50 per share of
Preferred Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representatives' Warrant Agreement
dated as of ________________, 1998 between the Company and _______________
and ▇▇▇▇▇ ▇▇▇▇ and Shire, Inc. (the "Representatives' Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank
check in New York Clearing House funds payable to the order of the Company or
by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are
part of a duly authorized issue of Warrants issued pursuant to the
Representatives' Warrant Agreement, which Representatives' Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Representatives' Warrant Agreement provides that
upon the occurrence of certain events the Exercise Price and the type and/or
number of the Company's securities issuable thereupon may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of
the holder, issue a new Warrant Certificate evidencing the adjustment in the
Exercise Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company
to issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the
Representatives' Warrant Agreement.
Upon due presentment for registration of transfer of
this Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Representatives' Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with
such transfer.
Upon the exercise of less than all of the Warrants
evidenced by this Warrant Certificate, the Company shall forthwith issue to
the holder hereof a new Warrant Certificate
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representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s)
hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are
defined in the Representatives' Warrant Agreement shall have the meanings
assigned to them in the Representatives' Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ____________, 1998
[SEAL] AWG, LTD.
By:
_____________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
Attest:
_____________________________
______________, Secretary
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[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
_________________ Warrant Securities
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of AWG, Ltd.
in the amount of $_____, all in accordance with the terms of Section 3.1 of
the Representatives' Warrant Agreement dated as of ___________________, 1998
between AWG, Ltd., ▇. ▇. ▇▇▇▇▇▇ & Co., L.L.C., and ▇▇▇▇▇ ▇▇▇▇ and Shire, Inc.
The undersigned request that a certificate for such Warrant Securities be
registered in the name of whose address is _________ and that such
Certificate be delivered to _____________ whose address is
_____________________.
Signature ___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate)
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
-37-
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
_________ unto
______________________________________________________________________
(Please print name and address of transferee)
____ Warrant Certificate, together with all right, title and interest
therein, and does hereby reasonably constitute and appoint _________________,
as Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Date: _______________ Signature: ________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
___________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
-38-