Exhibit 1.0
E-NET, INC.
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1997
▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
e-Net, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to such Underwriters as named in Schedule A (the "Underwriters") to the
Underwriting Agreement (the "Agreement"), for whom ▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc.
is acting as a representative (the "Representative"), pursuant to the terms of
this Agreement, on a "firm commitment" basis, 1,500,000 shares of Common Stock
(the "Shares") at $5.00 per Share and 1,500,000 Redeemable Common Stock Purchase
Warrants (the "Warrants") at $.125 per Warrant. The Shares and the Warrants are
collectively referred to as the "Securities". Each Warrant is exercisable to
purchase one (1) share of Common Stock (the "Common Stock") at $5.25 per share
at any time during the period between the Effective Date and five (5) years from
the Effective Date. The date upon which the Securities and Exchange Commission
("Commission") shall declare the Registration Statement of the Company effective
shall be the "Effective Date". The Warrants are subject to redemption under
certain circumstances. In addition, the Company proposes to grant to the
Underwriters (or, at the option of the Representative, to the Representative,
individually) the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 225,000 additional Shares and/or 225,000 additional Warrants
(the "Option Securities").
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms
the agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-3860 on Form SB-2 relating to
the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters
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specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and regarding the identity of counsel to the Underwriters
under the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as of
the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
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The Warrants have been duly authorized and, when issued, delivered and paid
for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreement, will
be duly and validly authorized, validly issued, fully paid and non-assessable,
free of pre-emptive rights and no personal liability will attach to the
ownership thereof. The Warrant exercise period and the Warrant exercise price
may not be changed or revised by the Company without the prior written consent
of the Representative. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement, will have been duly executed
and delivered and will constitute the valid and legally binding obligation of
the Company enforceable in accordance with its terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Representative's Warrant Agreement have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution of this
Agreement by the other party hereto, constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally. The Company has full power and
lawful authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be issued
pursuant to the Representative's Warrant Agreement, except such as may be
required
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under the Act or state securities laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the Company
or each subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or by-laws of the
Company or each subsidiary, as amended, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or each subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or each subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P., who have given their report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are included in the Prospectus, are with
respect to the Company,
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independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related notes,
set forth in the Prospectus and the Registration Statement present fairly the
financial position and results of operations and changes in financial position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business
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prospects, net worth, or properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service ▇▇▇▇ registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be described
in or filed as exhibits to the Registration Statement have been so described
and/or filed.
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(r) Except as described in the Registration Statement and Prospectus, no
holders of Common Stock or of any other securities of the Company have the right
to include such Common Stock or other securities in the Registration Statement
and Prospectus.
(s) Except as set forth in or contemplated by the Registration Statement
and the Prospectus, neither the Company nor any subsidiary has any material
contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in the
Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately discloses
all unregistered securities sold by the Company within the three year period
prior to the date as of which information is presented in the Registration
Statement. All of such securities were sold in transactions which were exempt
from the registration provisions of the Act and not in violation of Section 5
thereof.
(x) Other than as set forth in the Prospectus, the Company has not entered
into any agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriters against any losses, claims, damages or
liabilities, joint or several, which shall include, but not be limited to, all
costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the
8
Company, no officer, director or five percent (5%) or greater stockholder of the
Company or any subsidiary has any direct or indirect affiliation or association
with any member of the National Association of Securities Dealers, Inc.
("NASD"), except as disclosed to the Representative in writing, and no
beneficial owner of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member except as disclosed to
the Representative in writing. The Company will advise the Representative and
the NASD if any five percent (5%) or greater shareholder of the Company or any
subsidiary is or becomes an affiliate or associated person of an NASD member
participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity.
No question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan", an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy laws or
any state insolvency law filed by or
9
against them, or by a receiver, fiscal agent or similar officer
appointed by a court for their business or property, or any
partnership in which either or them was a general partner at or within
two years before the time of such filing, or any corporation or
business association of which either of them was an executive officer
at or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining either of them
from, or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with any such
activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or Federal
Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or State
authority barring, suspending or otherwise limiting for more than
sixty (60) days either of their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any Federal or State
10
securities law, and the judgment in such civil action or finding by
the Commission has not been subsequently reversed, suspended or
vacated; or
(6) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
Federal Commodities Law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,500,000 Shares at $4.50 per Share and 1,500,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)), at the place and
time hereinafter specified, in accordance with the number of Shares and/or
Warrants set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "Securities") plus any additional Securities which such Underwriters
may become obligated to purchase pursuant to the provisions of Section 9 hereof.
The Securities shall consist of 1,500,000 Shares and 1,500,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Representative shall designate, but not
later than ten (10) business days (holidays excepted) following the first date
that any of the Securities are released to you, such time and date of payment
and delivery for the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriters (or, at the
option of the Representative, to the Representative, individually) to purchase
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all or any part of an aggregate of an additional 225,000 Shares and 225,000
Warrants at the same price per Share and Warrant as the Underwriters shall pay
for the Securities being sold pursuant to the provisions of subsection (a) of
this Section 2 (such additional Securities being referred to herein as the
"Option Securities"). This option may be exercised within forty-five (45) days
after the Effective Date of the Registration Statement upon notice by the
Underwriters to the Company advising as to the amount of Option Securities as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and the time and
date when such certificates are to be delivered. Such time and date shall be
determined by the Underwriters (or the Representative, individually) but shall
not be later than ten (10) full business days after the exercise of said option,
nor in any event prior to the Closing Date, and such time and date is referred
to herein as the "Option Closing Date". Delivery of the Option Securities
against payment therefor shall take place at the offices of the Representative.
The Option granted hereunder may be exercised only to cover overallotments in
the sale by the Underwriters of the Securities referred to in subsection (a)
above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be sold
hereunder available to you for inspection at least two (2) full business days
prior to the Closing Date at the offices of the Representative, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative
individually) exercises the option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Representative for the respective accounts
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of the several Underwriters registered in such names and in such denominations
as the Representative may request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover overallotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof, the
Company will advise you, and confirm the advice in writing, of the receipt of
any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of
13
the issuance by the Commission or any state or regulatory body of any stop order
or other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Definitive Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriters or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company or counsel for the Underwriters, should be set forth in
an amendment to the Registration Statement or a supplement to the Prospectus, in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Securities, or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Act and the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations thereunder,
the Securities Exchange Act of 1934 (the "1934 Act"), and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and
14
will make such applications and furnish such information as may be required for
that purpose and to comply with such laws, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Securities.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect for
so long a period as the Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not consummated,
the Company shall pay all costs and expenses incident to the performance of the
Company's obligations hereunder, including, but not limited to, all such
expenses itemized in Section 8(a) and 8(c) hereof, and either (i) the
out-of-pocket expenses of the Representative, not to exceed the $30,000
previously paid if the Representative elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Representative if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-paragraph, the Representative shall be deemed to have assumed such expenses
when they are billed or incurred, regardless of whether such expenses have been
paid. The Representative shall not be responsible for any expenses of the
Company or others, or for any charges or claims relative to the proposed public
offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either Section
12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the
Representative during the period ending five (5) years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet of
the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate
15
or report thereon of independent accountants; (ii) as soon as they are
available, a copy of all reports (financial or other) mailed to security
holders; (iii) as soon as they are available, a copy of all non-confidential
documents, including annual reports, periodic reports and financial statements,
furnished to or filed with the Commission under the Act and the 1934 Act; (iv)
copies of each press release, news item and article with respect to the
Company's affairs released by the Company; and (v) such other information as you
may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and to
the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary action
to become a reporting company under Section 12 of the 1934 Act, and the Company
will make all filings required to, and will have obtained approval for, the
listing of the Shares and Warrants on The Nasdaq Small Cap Market System, and
will use its best efforts to maintain such listing for at least seven (7) years
from the date of this Agreement.
(i) For such period as the Company's securities are registered under the
1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
16
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you the
Representative's Warrant Agreement. The Representative's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Representative's
Warrant Agreement filed as an Exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including Warrants,
Options and Common Stock of the Company), as of the Effective Date, shall agree
in writing, in a form satisfactory to the Representative, not to sell, transfer
or otherwise dispose of any of such securities or underlying securities for a
period of twenty-four (24) months from the Effective Date, or any longer period
required by any State, without the prior written consent of the Representative.
All sales of the Company's securities by officers and/or directors of the
Company shall be effected through the Representative.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on the life of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in an amount of not less than
$2,000,000, and will use its best efforts to maintain such insurance for a
period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The
Company hereby agrees to use its best efforts to maintain such listing for a
period of not less than five (5) years. The Company shall take such action as
may be reasonably requested by the Representative to obtain a secondary market
trading exemption in such states as may be reasonably requested by the
Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior
17
written consent of the Representative, grant options or warrants to purchase the
Company's Common Stock at a price less than the initial per share public
offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary will
issue, directly or indirectly, without your prior consent, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering of the Securities other than routine customary
advertising of the Company's products and services, and except as required by
any applicable law or the directives of any relevant regulatory authority in any
relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Representative as a
non-exclusive financial advisor to the Company for a period of thirty-six (36)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Representative on the Closing Date. The financial
advisory agreement will provide that the Representative shall, at the Company's
request, provide advice and consulting services to the Company concerning
potential merger and acquisition proposals and the obtaining of short or
long-term financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company,
at its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain American Stock Transfer & Trust Company as
the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct
such transfer agent to furnish the Representative with daily transfer sheets as
to each of the Company's securities as prepared by the Company's transfer agent
and copies of lists of stockholders and warrantholders as reasonably requested
by the Underwriter, for a five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to deliver a "special security position
report" to the Representative on a daily and weekly basis at the expense of the
Company, for a five (5) year period from the Effective Date.
18
(w) Following the Effective Date, the Company shall, at its sole cost and
expense, prepare and file such Blue Sky applications with such jurisdictions as
the Representative shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years thereafter,
the Company's Board of Directors shall consist of a minimum of five (5) persons,
two (2) of whom shall be independent and not otherwise affiliated with the
Company or associated with any of the Company's affiliates. The Representative
shall have the opportunity to invite an observer to attend Board of Directors
meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Representative in a form satisfactory to
the Representative, providing:
(1) that the Representative will be paid a finder's fee, of from five
percent (5%) of the first $1,000,000 ranging in $1,000,000 increments down
to one percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced in writing by the
Representative (including mergers, acquisitions, joint ventures, and any
other business for the Company introduced by the Representative)
consummated by the Company, as an "Introduced, Consummated Transaction", by
which the Representative introduced the other party to the Company during a
period ending five (5) years from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Representative will be paid
in cash or stock as mutually agreed at the closing of the particular
Introduced, Consummated Transaction for which the finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Representative at a total cost not to exceed $15,000.
(aa) For such period as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
19
Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption. In addition, the Warrants shall not be
redeemable during the first year after the Effective Date without the written
consent of the Representative.
(ab) Until such time as the securities of the Company are listed or quoted
on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the
Representative a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary Market Trading Opinion shall be delivered to the Representative on the
Effective Date, and the Company shall continue to update such opinion and
deliver same to the Representative on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Representative or counsel to the Representative.
4. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the continuing
accuracy of, and compliance with, the representations and warranties of the
Company herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later
time or on such later date as you may agree to in writing; (ii) at or prior to
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceeding for that
purpose shall have been initiated or pending, or shall be threatened, or to the
knowledge of the Company, contemplated by the Commission; (iii) no stop order
suspending the effectiveness of the qualification or registration of the
Securities under the securities or "blue sky" laws of any jurisdiction (whether
or not a jurisdiction which you shall have specified) shall be threatened or to
the knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional
20
information on the part of the Commission or any such authorities shall have
been complied with to the satisfaction of the Commission and any such
authorities, and to the satisfaction of counsel to the Underwriters; and (v)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Underwriters and the Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company or
any subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and Prospectus; and (iv) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to the
knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants
21
and agreements herein contained to be performed on the part of the Company and
all conditions herein contained to be fulfilled or complied with by the Company
at or prior to the Closing Date shall have been duly performed, fulfilled or
complied with.
(e) At each Closing Date, you shall have received the opinion, together
with copies of such opinion for each of the other several Underwriters, dated as
of each Closing Date, from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., Esq., counsel for the
Company, in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) the Company and each subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
own its properties and conduct its business as described in the
Registration Statement and Prospectus and is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its properties or conduct
of its business requires such qualification except for jurisdictions in
which the failure to so qualify would not have a material adverse effect on
the Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for issuance
by the Company's Board of Directors have been duly authorized, validly
issued, are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding shares of Common Stock
of the Company and other securities have not been issued in violation of
the preemptive rights of any shareholder and the shareholders of the
Company do not have any preemptive rights or, to such counsel's knowledge,
other rights to subscribe for or to purchase securities of the Company,
nor, to such counsel's knowledge, are there any restrictions upon the
voting or transfer of any of the securities of the Company, except as
disclosed in the Prospectus; the Common Stock, the Shares, the Warrants,
and the securities contained in the Representative's Warrant Agreement
conform to the respective descriptions thereof contained in the Prospectus;
the Common Stock, the Shares, the Warrants, the shares of Common Stock to
be issued upon exercise of the Warrants and the securities contained in the
Representative's Warrant Agreement, have been duly authorized and, when
issued, delivered and paid for, will be duly authorized, validly issued,
fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof; all prior sales by the
Company of the Company's securities have been made in compliance with or
under an
22
exemption from registration under the Act and applicable state securities
laws and no shareholders of the Company have any rescission rights against
the Company with respect to the Company's securities; a sufficient number
of shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and the Representative Warrants, and to the best of such
counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated by this Agreement
gives rise to any registration rights or other rights, other than those
which have been waived or satisfied or described in the Registration
Statement;
(iii) this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement and the M/A Agreement
have been duly and validly authorized, executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement by the Representative, are the valid and legally binding
obligations of the Company, enforceable in accordance with their terms,
except (a) as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to time in
effect which effect creditors' rights generally; and (b) no opinion is
expressed as to the enforceability of the indemnity provisions or the
contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth in
the Prospectus, there is not pending or, to the knowledge of the Company,
threatened, any material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the officers
of directors of the Company or any subsidiary, nor any material action,
suit, proceeding, inquiry, arbitration, or investigation, which might
materially and adversely affect the condition (financial or otherwise),
business prospects, net worth, or properties of the Company or any
subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a violation
of, or constitute a default under (a) the Articles of Incorporation or
By-Laws of the Company and each subsidiary; (b) to the best of such
counsel's knowledge, any material obligations, agreement,
23
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company or any subsidiary is a party or by which it or any of its
properties is bound; or (c) to the best of such counsel's knowledge, any
material order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance of the
Representative's Warrants or the Securities underlying the Representative's
Warrants, other than registrations or qualifications of the Securities
under applicable state or foreign securities or Blue Sky laws and
registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such
counsel to the Company shall state that the opinion of any such other counsel is
in form satisfactory to such counsel and that the Representative and they are
justified in relying thereon.
Such counsel shall also include a statement to the effect that such counsel
has participated in the preparation of the Registration Statement and the
Prospectus and nothing has come to the attention of such counsel to lead such
counsel to believe that the Registration Statement or any amendment thereto at
the time it
24
became effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading or that the Prospectus or any supplement thereto contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(f) You and the several Underwriters shall have received on each Closing
Date a certificate dated as of each Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company and such other officers
of the Company as the Underwriters may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect and
no proceedings for such purpose are pending or are, to their knowledge,
threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any officer
or director of the Company or any subsidiary of a character required to be
disclosed in the Registration Statement which is not disclosed therein;
they do not know of any contracts which are required to be summarized in
the Prospectus which are not so summarized; and they do not know of any
material contracts required to be filed as exhibits to the Registration
Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or supplement
to either of the foregoing contains an untrue statement of any material
fact or omits to state any material fact required to be stated therein or
necessary to make the statement therein, in light of the circumstances
under which they are made, not misleading; and since the Effective Date, to
the best of their knowledge, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth;
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the
25
condition of the Company or any subsidiary, financial or otherwise, or in
the results of its operations, except as reflected in or contemplated by
the Registration Statement and the Prospectus and except as so reflected or
contemplated since such date, there has not been any material transaction
entered into by the Company or any subsidiary;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has complied
with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and municipal tax return or the payment of any
federal, state or municipal taxes; they know of no proposed redetermination
or re-assessment of taxes, adverse to the Company or any subsidiary, and
the Company and each subsidiary has paid or provided by adequate reserves
for all known tax liabilities;
(vii) They know of no material obligation or liability of the Company
or any subsidiary, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement and the M/A Agreement,
the consummation of the transactions therein contemplated, and the
fulfillment of the terms thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, its Articles of
Incorporation or By-Laws, any indenture, mortgage, lease, deed or trust,
bank loan or credit agreement or any other material agreement or
undertaking of the Company or any subsidiary including, by way of
specification but not by way of limitation, any agreement or instrument to
which the Company or any subsidiary is now a party or pursuant to which the
Company or any subsidiary has acquired any right and/or obligations by
succession or otherwise;
(ix) The financial statements and schedules filed with and as part of
the Registration Statement present fairly the financial position of the
Company as of the dates thereof all in conformity with generally accepted
principles of accounting applied on a consistent basis throughout the
periods involved. Since the respective dates of such financial statements,
there have been no material adverse change in the condition or general
affairs of the Company, financial or otherwise, other than as referred to
in the Prospectus;
(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may otherwise
be indicated therein,
26
neither the Company nor any subsidiary has, prior to the Closing Date,
either (i) issued any securities or incurred any material liability or
obligation, direct or contingent, for borrowed money, or (ii) entered into
any material transaction other than in the ordinary course of business.
The Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company, and
all information contained therein is true and accurate; and
(xii) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) Subject of a petition under the Federal bankruptcy laws or
any state insolvency law filed by or against them, or by a receiver,
fiscal agent or similar officer appointed by a court for their
business or property, or any partnership in which either or them was
a general partner at or within two years before the time of such
filing, or any corporation or business association of which either of
them was an executive officer at or within two years before the time
of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining either of them
from, or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with any such
activity;
(ii) engaging in any type of business practice; or
27
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or Federal
Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or State
authority barring, suspending or otherwise limiting for more than
sixty (60) days either of their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any Federal or State securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently
reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any
Federal Commodities Law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(g) The Underwriters shall have received from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, L.L.P.,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriters, stating that:
(i) they are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable Rules and
Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and Regulations
and instructions of the Commission with respect to Registration
Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them (not
constituting an examination in accordance with generally accepted auditing
standards), including a reading of the latest available unaudited interim
28
financial statements or other financial information of the Company (with an
indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other specified
inquiries and procedures, nothing has come to their attention as a result of the
foregoing inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to a specified date not more than five days prior to the date of such
letters, there has been any change in the Common Stock, long-term debt
or other securities of the Company (except as specifically
contemplated in the Registration Statement and Prospectus) or any
material decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriters may
request advice, in each case as compared with amounts shown in the
balance sheet as of the date of the financial statement in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the Prospectus
to such specified date there was any material decrease in revenues or
in the total or per share amounts of income or loss before
extraordinary items or net income or loss, or any other material
change in such other items appearing in the Company's financial
statements as to which the Underwriters may request advice, in each
case as compared with the fiscal period ended as of the date of the
financial statement in the Prospectus, except in each case for
increases, changes or decreases which the Prospectus discloses have
occurred or will occur;
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and the Prospectus (if any) 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 and practices on a basis substantially
consistent with the audited financial statements included in the
Registration Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, statements
29
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company 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; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any reportable
condition related to the Company's internal accounting procedures,
weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof, the
obligation of the several Underwriters (or, at its option, the Representative,
individually) to purchase and pay for the Option Securities referred to therein
will be subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and any reasonable
request on the part of the Commission for additional information shall have
been complied with to the satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been delivered to
you the signed opinion from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., Esq., counsel for the
Company, dated as of the Option Closing Date, in form and substance
satisfactory to counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished to
you at the Closing Date pursuant to Section 4(e) hereof, except that such
opinion, where appropriate, shall cover the Option Securities.
30
(iii) At the Option Closing Date, there shall have been delivered to
you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriters, substantially the
same in scope and substance as the certificate furnished to you at the
Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
L.L.P., independent auditors to the Company, dated the Option Closing Date
and addressed to the several Underwriters confirming the information in
their letter referred to in Section 4(g) hereof and stating that nothing
has come to their attention during the period from the ending date of their
review referred to in said letter to a date not more than five business
days prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been furnished with
all such documents, certificates, and opinions as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The
Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD. The Company shall
advise the Representative of any NASD affiliations of any of its officers,
directors, or stockholders or their affiliates in accordance with paragraph 1(y)
of this Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
31
(k) The authorization and issuance of the Securities and delivery thereof,
the Registration Statement, the Prospectus, and all corporate proceedings
incident thereto shall be satisfactory in all respects to counsel for the
several Underwriters, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the several Underwriters under this Agreement may be canceled at, or at any
time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Representative may agree in
writing; and
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefore initiated or threatened
by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless each
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may
32
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in (i) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
33
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by you or by any Underwriter through you specifically
for use in the preparation thereof. Notwithstanding the foregoing, the
Underwriters shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate
34
counsel (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the Underwriter or such controlling
person, it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all such Underwriters and
controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party.
7. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which (i) each Underwriter makes claim for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the
35
aggregate damages (even if the Underwriters and their controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the first sentence of this Section; and (b) that the contribution of each
contributing Underwriter shall not be in excess of its proportionate share
(based on the ratio of the number of Securities purchased by such Underwriter to
the number of Securities purchased by all contributing Underwriters) of the
portion of such losses, claims, damages or liabilities for which the
Underwriters are responsible. No person ultimately determined to be guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not ultimately
determined to be guilty of such fraudulent misrepresentation. As used in this
paragraph, the term "Underwriter" includes any officer, director, or other
person who controls the Underwriter within the meaning of Section 15 of the Act,
and the word "Company" includes any officer, director, or person who controls
the Company within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons
to the full extent permitted by law. This foregoing agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Company who
shall serve as Blue Sky counsel to the Company in connection with the filing of
applications to register the Securities under the state securities or blue sky
laws; the cost of printing and furnishing to the several Underwriters copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers
36
Agreement, the Agreement Among Underwriters, Underwriters Questionnaire,
Underwriters Power of Attorney and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriters and its counsel bound volumes
containing copies of all documents and appropriate correspondence filed with or
received from the Commission and the NASD and all closing documents; and the
fees and disbursements of the transfer agent for the Company's securities. The
Company shall pay any and all taxes (including any original issue, transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's counsel
to provide the Representative with a written Secondary Market Trading Opinion in
accordance with paragraphs 3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $30,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any of the Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
37
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number of
Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the time for delivery
of the Securities shall be extended to the next business day to allow the
several Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another Underwriter or Underwriters satisfactory
to the Company. If no such Underwriter or Underwriters shall have been
substituted as aforesaid, within such twenty-four period, the time of delivery
of the Securities may, at the option of the Company, be again extended to the
next following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
Underwriter or Underwriters to purchase the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted Underwriters to take up
the Securities of the defaulting Underwriter or Underwriters as provided in this
Section, (i) the Company or the Representative shall have the right to postpone
the time of delivery for a period of not more than seven (7) business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the Securities agreed to be
purchased by the defaulting Underwriters or substitute another Underwriter or
Underwriters as aforesaid, and the Company shall not find or shall not elect to
seek another Underwriter or Underwriters for such Securities as aforesaid, then
this Agreement shall terminate.
38
If, following exercise of the option provided in Section 2(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which they
become obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Securities of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not
take up and pay for all Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the public
offering by the Underwriters of any of the Securities. The time of the public
offering shall mean the time after the effectiveness of the Registration
Statement when the Securities are first generally offered by you to the other
Underwriters and Selected Dealers. This Agreement may be terminated by you at
any time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect notwithstanding
such termination.
11. TERMINATION. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal
39
or New York or Florida state authorities; (v) an outbreak of major international
hostilities or other national or international calamity having occurred; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Representative to have a material adverse impact on the business,
financial condition or financial statements of the Company or the market for the
securities offered hereby; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) any material adverse change having occurred,
since the respective dates as of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business; (ix) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representative, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (xi) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. REPRESENTATIVE'S WARRANT AGREEMENT. At the Closing Date, the Company
will issue to the Representative and/or persons related to the Representative,
for an aggregate purchase price of $10, and upon the terms and conditions set
forth in the form of Representative's Warrant Agreement annexed as an exhibit to
the Registration Statement, Representative Warrants to purchase up to an
aggregate of 150,000 Shares and 150,000 Warrants, in such denominations as the
Representative shall designate. In the event of conflict in the terms of this
Agreement and the Representative's Warrant Agreement, the language of the form
of Representative's Warrant Agreement shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
40
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. NOTICE. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telegraphed
and confirmed:
If to the Underwriters: ▇▇▇▇▇▇ ▇. ▇▇▇▇, President
▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.A.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the Company: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
e-Net, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇., Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
15. PARTIES IN INTEREST. This Agreement herein set forth is made solely
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree
that any action brought by any party against another party in connection with
any rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue only
in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or
the United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or
41
district shall have the right to have the venue of said action changed to the
above designated county or district or, if necessary, have the case dismissed,
requiring the other party to refile such action in an appropriate court in the
above designated county or federal district.
17. 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.
18. ENTIRE AGREEMENT. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. REPRESENTATIVE AS UNDERWRITER. In the event the Representative acts
as the sole Underwriter ("Underwriter") in connection with the underwriting of
the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Representative shall
instead be received by the Underwriter; and (iii) the provisions of section nine
(9) of this Agreement shall not apply.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
Agreement between the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
e-NET, INC.
BY:
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
▇▇▇▇▇▇ ▇▇▇▇▇ SECURITIES, INC.
BY:
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
For itself and as Representative
of the several Underwriters
42
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
UNDERWRITER SHARES
▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc
---------
1,500,000
UNDERWRITER WARRANTS
▇▇▇▇▇▇ ▇▇▇▇▇ Securities, Inc.
----------
1,500,000
43
+