EXHIBIT 1.1
1,200,000 Shares of Common Stock
of
PACIFICHEALTH LABORATORIES, INC.
UNDERWRITING AGREEMENT
----------------------
Red Bank, New Jersey
December , 1997
First Montauk Securities
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
PacificHealth Laboratories Inc., a Delaware corporation (the "Company"),
confirms its agreement with First Montauk Securities Corp. (the "Underwriter"),
with respect to the sale by the Company and the purchase by the Underwriter, of
1,200,000 shares of the Company's common stock, par value $.0025 per share
("Common Stock") and with respect to the grant by the Company to the
Underwriter of the option described in Section 2(b) hereof to purchase all or
any part of 180,000 additional shares for the purpose of covering
over-allotments, if any. The aforesaid 1,200,000 shares of Common Stock (the
"Firm Securities") and together with all or any part of the 180,000 additional
shares of Common Stock subject to the overallotment option described in Section
2(b) hereof (the "Overallotment Securities") are hereinafter collectively
referred to as the "Securities". The Company also proposes to issue and sell to
the Underwriter, (the "Underwriter's Warrant") pursuant to the Underwriter's
Warrant Agreement (the "Underwriter's Warrant Agreement") for the purchase of an
aggregate of 120,000 additional shares of Common Stock (the "Underwriter's
Option Shares"). The Securities, the Underwriter's Warrant Agreement and
Underwriter's Option Shares are more fully described in the Registration
Statement (as defined in Subsection 1(a) hereof) and the Prospectus (as defined
in Subsection 1(a) hereof) referred to below. Unless the context otherwise
requires, all references to the "Company" shall include all presently existing
subsidiaries and any entities acquired by the Company on or prior to the Closing
Date (defined in Subsection 2(c) hereof). All representations, warranties and
opinions of counsel required hereunder shall cover any such subsidiaries and
acquired entities taken as a whole.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriter as of the date hereof,
and as of the Closing Date and any Overallotment Closing Date (as defined in
Subsection 2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, and an amendment or amendments thereto,
on Form SB-2 (No. 333-36379) including any related preliminary prospectus (each
a "Preliminary Prospectus"), for the registration of the Securities under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
any amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act and the rules and regulations of the Commission
under the Act. Following execution of this Agreement, the Company will promptly
file (i) if the Registration Statement has been declared effective by the
Commission, (A) a Term Sheet (as defined in the Rules and Regulations (as
hereinafter defined)) pursuant to Rule 434 under the Act or (B) a Prospectus
under Rules 430A and/or 424(b) under the Act, in either case in form
satisfactory to the Underwriter or (ii) in the event the registration statement
has not been declared effective, a further amendment to said registration
statement in the form heretofore delivered to the Underwriter and will not,
before the registration statement becomes effective, file any other amendment
thereto unless the Underwriter shall have consented thereto after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations)(as hereinafter
defined), is hereinafter called the "Registration Statement" and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part thereof and no proceedings for
a stop order have been instituted or are pending or, to the best knowledge of
the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and the Prospectus at the time of filing thereof conformed in all
material respects with the requirements of the Act and the Rules and
Regulations, and neither the Preliminary Prospectus, the Registration Statement
nor the Prospectus at the time of filing thereof, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation
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and warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriter by or on behalf of the Underwriter expressly for use
in such Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Overallotment Closing Date
(as hereinafter defined) and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all material
statements which are required to be stated therein in compliance with the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Overallotment Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, not misleading; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information supplied to the
Company in writing by or on behalf of the Underwriter expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is now, and at the Closing Date
and any Overallotment Closing Date will be, validly existing as a corporation in
good standing under the laws of the State of Delaware. The Company does not own,
directly or indirectly, an interest in any corporation, partnership, trust,
joint venture or other business entity; provided, that the foregoing shall not
be applicable to the investment of the net proceeds from the sale of the
Securities in short-term, low-risk investments as set forth under "Use of
Proceeds" in the Prospectus except to the extent that any failure of the Company
to comply with the foregoing does not have a material adverse effect on the
Company. The Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
its properties or the character of its operations require such qualification to
do business, except where the failure to so qualify would not have a material
adverse effect on the Company. The Company has all requisite power and authority
(corporate and other), and has
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obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations upon the Company; and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operation of the Company.
The disclosures, if any, in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date,
based upon the assumptions set forth therein, and the Company is not a party to
or bound by any instrument, agreement or other arrangement providing for the
Company to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as otherwise described in the
Prospectus. The Securities, the Underwriter's Warrant and the Underwriter's
Warrant Shares and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform in all respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company to subscribe for or purchase securities. The Securities, the
Underwriter's Warrant and the Underwriter's Warrant Shares to be issued and sold
by the Company hereunder, and upon payment therefor, are not and will not be
subject to any preemptive or other similar rights of any stockholder to
subscribe for or purchase securities, have been duly authorized and, when
issued,
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paid for and delivered in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable and will conform to the
descriptions thereof contained in the Prospectus; the holders thereof will not
be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issuance and sale of the Securities,
the Underwriter's Warrant and the Underwriter's Warrant Shares has been duly and
validly taken; and the certificates, if any, representing the Securities and the
Underwriter's Warrant Shares will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold to the
Underwriter by the Company hereunder, the Underwriter will acquire good and
marketable title to such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) Schiffman, Hughes, ▇▇▇▇▇, Blue, ▇▇▇▇, P.A., whose report is filed with
the Commission as a part of the Registration Statement, is an independent
certified public accountant as required by the Act and the Rules and
Regulations.
(h) The Company (i) has paid all federal, state, local, and foreign taxes
for which it is liable, including, but not limited to, withholding taxes and
taxes payable under Chapters 21 through 24 of the Internal Revenue Code of 1986
(the "Code"), (ii) has furnished all tax and information returns it is required
to furnish pursuant to the Code, and has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have knowledge of any
tax deficiency or claims outstanding, proposed or assessed against it.
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(i) The Company maintains insurance, which is in full force and effect, of
the types and in the amounts which it reasonably believes to be adequate for its
business, including, but not limited to, personal injury and product liability
insurance covering all personal and real property owned or leased by the Company
against fire, theft, damage and all risks customarily issued against.
(j) There is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
pending or to the knowledge of the Company threatened against (or circumstances
that may give rise to the same), or involving the properties or business of the
Company which: (i) questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement; (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
respects); or (iii) might materially affect the condition, financial or
otherwise, or the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to enter into
this Agreement, the Underwriter's Warrant Agreement, the Consulting Agreement
(as described in Section 4(x) hereof) and to consummate the transactions
provided for in such agreements; and this Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement have each been duly authorized, executed
and delivered by the Company. Each of this Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement, constitutes a legally valid and binding
agreement of the Company, subject to due authorization, execution and delivery
by the Underwriter, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriter's Warrant
Agreement, or the Consulting Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any material breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a material default under, or result in the creation or imposition of
any
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material lien, charge, claim, encumbrance, pledge, security interest defect or
other restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of: (i) the
Certificate of Incorporation or By-Laws of the Company; (ii) any material
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject; or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body, domestic or
foreign, is required for the performance by the Company of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriter's purchase and distribution of the
Firm Securities and Overallotment Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Underwriter's Warrant or the
Underwriter's Warrant Shares.
(m) All executed agreements or copies of executed agreements (whether
electronically scanned or otherwise) filed as exhibits to the Registration
Statement to which the Company is a party or by which the Company may be bound
or to which any of its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legally valid and binding agreements of the Company, enforceable
against it in accordance with their respective terms, except to the extent there
is no material adverse effect upon the Company. The descriptions contained in
the Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by the Rules and Regulations and there are no material contracts
or other documents which are required by the Act or the Rules and Regulations to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are materially or substantially complete and
correct copies of the documents of which they purport to be copies.
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(n) Subsequent to the respective dates as of which information is set forth
in the Registration Statement and Prospectus, and except as may otherwise be
indicated or contemplated herein or therein, the Company has not: (i) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money in any material amount; (ii) entered into any transaction other
than in the ordinary course of business; (iii) declared or paid any dividend or
made any other distribution on or in respect of its capital stock; or (iv) made
any changes in capital stock, material changes in debt (long or short term) or
liabilities other than in the ordinary course of business; or (v) made any
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
(o) No default exists in the due performance and observance of any material
term, covenant or condition of any license, contract, indenture, mortgage,
installment sales agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which any of the
Company may be bound or to which any of its property or assets (tangible or
intangible) of the Company is subject or affected except where such default does
not, and will not, have a material adverse effect upon the Company.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
(q) Since its inception, the Company has not incurred any liability arising
under or as a result of the application of the provisions of the Act.
(r) Except as disclosed in the Prospectus, the Company does not presently
maintain, sponsor or contribute to, and never has maintained, sponsored or
contributed to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan " or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37) respectively of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
Except as disclosed in the Prospectus, the Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as defined
in Section 3(35) of ERISA.
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(s) The Company is not in violation of any domestic or foreign laws,
ordinances or governmental rules or regulations to which it is subject.
(t) No holders of any securities of the Company or of any options, warrants
or other convertible or exchangeable securities of the Company exercisable for
or convertible or exchangeable for securities of the Company have the right to
include any securities issued by the Company in the Registration Statement or
any registration statement to be filed by the Company or to require the Company
to file a registration statement under the Act.
(u) Neither the Company, nor, to the Company's best knowledge after due
inquiry, any of its employees, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(v) None of the patents, patent applications, trademarks, service marks,
trade names and copyrights, or licenses and rights to the foregoing presently
owned or held by the Company is in dispute or are in any conflict with the right
of any other person or entity within the Company's current area of operations
nor has the Company received notice of any of the foregoing. The Company: (i)
owns or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing; and (ii) except as set forth in the Prospectus,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service ▇▇▇▇ trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(w) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all the material trade secrets,
trademarks, know-how (including unpatented and/or unpatentable proprietary and
confidential
9
information) technical data and information ("Intellectual Property") material
to its operations.
(x) The Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property owned or leased by
it free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than liens for taxes or assessments not yet due and payable.
(y) On or before the effective date of the Registration Statement, the
Company shall cause to be duly executed legally binding and enforceable
agreements pursuant to which (i) each of the Company's officers and directors,
has agreed not to, directly or indirectly, offer to sell, sell, grant any option
for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber any
of their shares of Common Stock or other securities (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than 12 months, (ii) other persons owning
at least 469,307 shares of the Company's Common Stock (or Securities convertible
into Common Stock) have agreed not to, directly or indirectly, offer to sell,
sell, grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber any of their shares of Common Stock or other securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period of not less than 6
months. The Company will cause the Transfer Agent, as defined below, to ▇▇▇▇ an
appropriate legend on the face of stock certificates representing all of such
shares of Common Stock.
(aa) The Company has not incurred any liability and there are no
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company or any of its officers, directors, employees or affiliates that may
adversely affect the Underwriter's compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(bb) The Firm Securities have been approved for quotation on the Nasdaq
SmallCap Market of the Nasdaq Stock Market, Inc. subject to official notice of
issuance.
(cc) Neither the Company nor any of its respective officers, employees,
agents or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or
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supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company;
and (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(dd) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) a material interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, except with respect to the beneficial ownership
of not more than 1% of the outstanding shares of capital stock of any
publicly-held entity; or (ii) a beneficial interest in any material contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions",
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or principal stockholder of the
Company, or any affiliate or associate of any such person or entity.
(ee) Any certificate signed by any officer of the Company and delivered to
the Underwriter or to the Underwriter's counsel shall be deemed a representation
and warranty by the Company to the Underwriter as to the matters covered
thereby.
(ff) The Company has entered into an employment agreement with ▇▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ as described in the Prospectus. The Company has obtained key-man life
insurance policy with respect to ▇▇. ▇▇▇▇▇▇▇ in an amount of at least
$2,000,000.
(gg) No securities of the Company have been sold by the Company since its
inception, except as disclosed in Part II of the Registration Statement.
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(hh) The minute books of the Company have been made available to
Underwriter's counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Stockholders of the Company since April, 1995.
(ii) Except as disclosed in writing to the Underwriter or the Prospectus no
officer, or director or to the Company's knowledge, stockholder of the Company
has any affiliation or association with any member of the NASD.
2. Purchase, Sale and Delivery of the Securities and Agreement to Issue
Underwriter's Warrant.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, at the price per Security set forth below, the
Firm Securities.
(b) In addition, on the basis of the representations, warranties, covenants
and agreements, herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriter to purchase up
to an additional 180,000 shares of Common Stock. The option granted hereby will
expire 45 days after the date of this Agreement, and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the Firm
Securities upon notice by the Underwriter to the Company setting forth the
number of Overallotment Securities as to which the Underwriter is then
exercising the option and the time and date of payment and delivery for such
Overallotment Securities. Any such time and date of delivery shall be determined
by the Underwriter, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Date, as
defined in paragraph (c) below, unless otherwise agreed to between the
Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to make any over-allotments. No Overallotment Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Underwriter at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ or at such other place as shall
be designated by the Underwriter. Such delivery and payment shall be made at
10:00 a.m. (New York City time) on December __, 1997 or at such other time and
date as shall be designated by the Underwriter but not less than three (3) nor
more than five (5) business days after
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the effective date of the Registration Statement (such time and date of payment
and delivery being hereafter called "Closing Date"). In addition, in the event
that any or all of the Overallotment Securities are purchased by the
Underwriter, payment of the purchase price for, and delivery of certificates for
such Overallotment Securities shall be made at the above-mentioned office or at
such other place and at such time (such time and date of payment and delivery
being hereinafter called "Overallotment Closing Date") as shall be agreed upon
by the Underwriter and the Company on each Overallotment Closing Date as
specified in the notice from the Underwriter to the Company. Delivery of the
certificates for the Firm Securities and the Overallotment Securities, if any,
shall be made to the Underwriter against payment by the Underwriter of the
purchase price for the Firm Securities and the Overallotment Securities, if any,
to the order of the Company as the case may be by certified check in New York
Clearing House funds, certificates for the Firm Securities and the Overallotment
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriter may request in writing at least two (2) business days
prior to Closing Date or the relevant Overallotment Closing Date, as the case
may be. The certificates for the Firm Securities and the Overallotment
Securities, if any, shall be made available to the Underwriter at the
above-mentioned office or such other place as the Underwriter may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to Closing Date or the relevant Overallotment Closing Date, as the
case may be.
The purchase price of the Securities to be paid by the Underwriter to the
Company for the Securities purchased under Clauses (a) and (b) above will be
$5.40 per Share (which price is net of the Underwriter's discount and
commissions). The Company shall not be obligated to sell any Securities
hereunder unless all Firm Securities to be sold by the Company are purchased
hereunder. The Company agrees to issue and sell the Securities to the
Underwriter in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's Warrant at a purchase price of $120.00 which
Underwriter's Warrant shall entitle the holders thereof to purchase an aggregate
of 120,000 shares of Common Stock. The Underwriter's Warrant shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an initial exercise price equal
to one hundred forty-five (145%) of the initial public offering price of the
Firm securities. The Underwriter's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as exhibits to the
Registration Statement. Payment for the Underwriter's Warrant shall be made on
the Closing Date. The
13
Company has reserved and shall continue to reserve a sufficient number of Shares
for issuance upon exercise of the Underwriter's Warrant.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Underwriter deems advisable, but in no
event more than five (5) business days after such effective date, the
Underwriter shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus and otherwise in compliance with the Rules and
Regulations. The Underwriter may allow such concessions and discounts upon sales
to other dealers as set forth in the Prospectus. The Underwriter may from time
to time increase or decrease the public offering price after distribution of the
Securities has been completed to such extent as the Underwriter, in its sole
discretion, deems advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act or
within 25 days after the Closing Date except for Form 8-A: (i) before
termination of the offering of the Securities by the Underwriter which the
Underwriter shall not previously have been advised and furnished with a copy; or
(ii) to which the Underwriter shall have objected; or (iii) which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriter and confirm by notice in writing: (i) when
the Registration Statement, as amended, becomes effective, if the provisions of
Rule 430A promulgated under the Act will be relied upon, when the Prospectus has
been filed in accordance with said Rule 430A and when any post-effective
amendment to the Registration Statement becomes effective; (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening of
any proceeding, suspending the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution or
proceeding for that purpose; (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Securities for offering or sale in any jurisdiction or of the
14
initiation, or the threatening, of any proceeding for that purpose; (iv) of the
receipt of any comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission or
any state securities commission or regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every
reasonable effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriter pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriter notice of its intention to file
or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriter or ▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇, LLP ("Underwriter's counsel"), shall reasonably object.
(e) The Company shall cooperate in good faith with the Underwriter, and
Underwriter's counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriter may
reasonably designate, and shall cooperate with the Underwriter and Underwriter's
counsel in the making of such applications, and filing such documents and shall
furnish such information as may be required for such purpose; provided, however,
the Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriter agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times
15
as are or may reasonably be required by the laws of such jurisdiction to
continue such qualification.
(f) During the time when the Prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriter's counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriter's counsel, and the Company will furnish
to the Underwriter a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45 days after
the end of the 12-month period commencing on the day after the end of the fiscal
quarter of the Company during which the effective date of the Registration
Statement occurs (90 days in the event that the end of such fiscal quarter is
the end of the Company's fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule 158(b) of the
Rules and Regulations, and to the Underwriter, an earnings statement which will
be in such form and detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of five (5) years after the date hereof and provided
that the Company is required to file reports with the Commission under Section
12 of the Exchange Act, the Company will furnish to its stockholders, as soon as
practicable, annual reports (including financial statements audited by
independent public accountants), and will deliver to the Underwriter:
16
(i) as soon as they are available, copies of all reports (financial or
other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
(iii) every press release and every material news item or article of
interest to the financial community in respect of the Company and any
future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature concerning the
Company and any future subsidiaries or their respective businesses which
the Underwriter may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or
filed by the Company from time to time.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent, as well as a Registrar (which may be the same entity as the
Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Underwriter or pursuant to the
Underwriter's direction, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may reasonably
request.
(k) Neither the Company, nor its officers or directors, nor affiliates of
any of them (within the meaning of the Rules and Regulations) will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company except as may be permitted under the
Exchange Act.
17
(l) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the provisions, set forth under the
caption "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriter as early as practicable
prior to each of the date hereof, the Closing Date and each Overallotment
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited consolidated interim financial
statements of the Company (which in no event shall be as of a date more than
forty-five (45) days prior to the date of the Registration Statement) which have
been read by the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Section 6(k) hereof.
(o) For a period of two (2) years from the Closing Date, the Company shall
furnish to the Underwriter at the Company's sole expense, (i) daily consolidated
transfer sheets relating to the Securities upon the Underwriter's request; (ii)
a list of holders of Common Stock upon the Underwriter's request; (iii) a list
of, if any, the securities positions of participants in the Depository Trust
Company upon the Underwriter's request.
(p) Until a date which is five (5) years from the Closing Date shall use
its best efforts to cause one (1) individual selected by the Underwriter to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Underwriter and provided such individual is reasonably acceptable to and
approved by the Company. The Underwriter's nominee, if elected, shall receive
the same compensation as the other non-employee members of the Board.
Alternatively, the Underwriter shall be entitled to appoint an individual who
shall be permitted to attend all meetings of the Board and to receive all
notices and other correspondence and communications sent by the Company to
members of the Board, and copies of all minutes thereof. The Company shall
reimburse the Underwriter's designee for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or observer)
and the Underwriter harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or an observer and
the Company shall
18
maintain a liability insurance policy in an amount of not less than $1,000,000
affording coverage for the action of its officer and directors, to include such
designee and the Underwriter as an insured under such policy. The Underwriter's
nominee shall, if a member of the Board, be a member of the Audit Committee of
the Board if qualified. The Underwriter's nominee or designee, as the case may
be, shall agree not to disclose any non-public information and shall, if
requested by the Company, execute and deliver a non-disclosure agreement upon
terms reasonably acceptable to the Company. The Company reserves the right not
to provide information and to exclude such Underwriter's attendee from any
meeting or portion thereof if attendance at such meeting by such attendee would
compromise or adversely affect the attorney-client privilege between the Company
and its counsel, or would, in the good faith judgment of the Board, result in
conflict of interest situation. The Company shall use its reasonable efforts to
promptly bring to the attention of such attendee any agenda item that, in the
good faith judgment of the Board, would result in any trade secret, privileged
matter or conflict of interest arising during such meeting and the Board may
exclude such attendee (or alternatively, the attendee shall be entitled to
exclude himself or herself) from any deliberation or discussion of the Board
concerning such trade secret (if the observer has not executed a confidentiality
agreement), privileged matter or dissemination of such information. If such
observer in his or her good faith believes that an item to be discussed shall
result in a conflict, then such observer shall promptly bring such conflict to
the attention of the Chairman of the Board. In no event shall any provision of
this paragraph waive any obligation of confidentiality to the Company owed by
any such attendee or the Underwriter.
(q) For a period equal to the lesser of (i) five (5) years from the date
hereof, or (ii) the sale to the public of the Underwriter's Warrant Shares, the
Company will not take any action or actions that may prevent or disqualify the
Company's use of Form S-3 (or other appropriate form) for the registration under
the Act of the Underwriter's Warrant Shares.
(r) For a period of five (5) years from the date hereof, use its best
efforts at its cost and expense to maintain the listing of the Securities on the
Nasdaq SmallCap or National Market System.
(s) As soon as practicable, but in no event more than 5 business days after
the effective date of the Registration Statement, file a Form 8-A with the
Commission providing for the registration under the Exchange Act of the
Securities.
(t) Following the Effective Date of the Registration Statement and for a
period of two (2) years thereafter, the
19
Company shall, at its sole cost and expense, prepare and file such blue sky
trading applications with such jurisdictions as the Underwriter may reasonably
request after consultation with the Company, and on the Underwriter's request,
furnish the Underwriter with a secondary trading survey prepared by securities
counsel to the Company.
(u) The Company shall not amend or alter the terms of any written or oral
employment agreement between the Company and any executive officer in existence
as of the date hereof in a manner more favorable to such employee without the
prior consent of the Underwriter, which consent shall not be unreasonably
withheld by the Underwriter. For a period of three (3) years from the date
hereof prior to the Company entering into any oral or written employment
agreement with any person who will, upon commencement of such persons duties be
deemed an executive officer, the Company shall consult with the Underwriters and
the entire Board of Directors as to the proposed terms of such employment.
(v) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter, which consent
shall not be unreasonably withheld, issue, directly or indirectly, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(w) The Company will use its best efforts to maintain its registration
under the Exchange Act in effect for a period of five (5) years from the Closing
Date.
(x) On the Closing Date, the Company and the Underwriter shall enter into a
financial consulting agreement, in the form filed as an Exhibit to the
Registration Statement, pursuant to which the Underwriter will provide financial
consulting services to the Company for a two year period for an aggregate fee of
$2,000 per month ($48,000 in the aggregate), payable in full at the Closing and
the term of which shall commencing on the Closing Date (the "Financial
Consulting Agreement"). Among other provisions, the Consulting Agreement shall
contain terms which provide that the Company shall pay the Underwriter a fee
equal to five (5%) percent of the amount up to $5,000,000 and two and one half
(2 1/2 percent) of the excess, if any, over $5,000,000 of the consideration
involved in any transaction (regardless of the form of transaction, whether by
merger, acquisition or sale of assets or otherwise) consummated by the Company
with a party introduced by the Underwriter to the Company.
20
(y) For a period of 12 months commencing on the Closing Date, except with
the written consent of the Underwriter, will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Underwriter's Warrant , (iii) the exercise of
warrants and options of the Company heretofore issued and described in the
Prospectus, and (iv) the grant of options and the issuance of shares issued upon
exercise of options issued or to be issued under the Company's stock option plan
as described in the Prospectus (Stock Option Plan). Except as discussed in the
Prospectus, prior to the Closing Date, the Company will not issue any options or
warrants without the prior written consent of the Underwriter. The Company shall
not, for a period of 12 months from the Closing Date offer or sell any
securities pursuant to Regulation S or similar regulation without the
Underwriter's prior written consent.
(z) Except for the rights of Big Sky, Inc. the Company will not file any
registration statement relating to the offer or sale of any of the Company's
securities, including any registration statement on Form S-8, during the 24
months following the Closing Date without the Underwriter's prior written
consent.
(aa) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any material adverse
change in the condition (financial or other), business, operations, income, net
worth or properties, including any material loss or damage to the properties of
the Company (whether or not such loss is insured against), which could
materially adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Common Stock or its other securities or redeem or repurchase any of its Common
Stock or other securities.
(bb) Except as disclosed in or contemplated by the Registration Statement
and Prospectus, the Company, for a period of 24 months following the Closing
Date, shall not redeem any of its securities, and shall not pay any dividends or
make any other cash distribution in respect of its securities in excess of the
amount of the Company's current or retained earnings derived after the Closing
Date without obtaining the Underwriter's prior written consent, which consent
shall not be unreasonably
21
withheld. The Underwriter shall either approve or disapprove such contemplated
redemption of securities or dividend payment or distribution within ten (10)
business days from the date the Underwriter receives written notice of the
Company's proposal with respect thereto; a failure of the Underwriter to respond
within the ten (10) business day period shall be deemed approval of the
transaction.
(cc) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date and the
Overallotment Closing Date (to the extent not paid at the Closing Date) all its
expenses and fees (other than fees of Underwriter's Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation: (i) the fees and expenses
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with the preparation, duplication, mailing, printing and filing of
the Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements, and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities and Underwriter's Warrant Shares including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Underwriter's counsel in connection with the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, which Underwriter's
counsel fees (exclusive of filing fees and disbursements) shall equal $25,000
and of which $7,500 has previously been paid; (v) advertising costs and
expenses, including but not limited to costs and expenses in connection with one
information meeting held in New York, New
22
York, one tombstone advertisement, at least 5 bound volumes of the Offering
documents for the Underwriter and its counsel and prospectus memorabilia; (vi)
fees and expenses of the transfer agent; (vii) the fees payable to the NASD; and
(viii) the fees and expenses incurred in connection with the listing of the
Securities on the Nasdaq SmallCap Market. All fees and expenses payable to the
Underwriter hereunder shall be payable at the Closing Date or Overallotment
Closing Date, as applicable; provided, however, the company shall pay such fees
and costs in advance of the Closing Date if requested by the Underwriter. The
Underwriter shall be responsible for all of its own costs of counsel.
(b) If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6, Section 10(a) or Section 11, the Company shall
reimburse and indemnify the Underwriter for up to $40,000 out-of-pocket actual
expenses reasonably incurred in connection with the transactions contemplated
hereby including the fees and disbursements of counsel for the Underwriter of
which the Underwriter acknowledges $30,000 has been paid prior to the date
hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Underwriter a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Firm Securities, $30,000
of which has been paid to date to the Underwriter . The Company will pay the
remainder of the non-accountable expense allowance on the Closing Date by
certified or bank cashier's check or, at the election of the Underwriter, by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elects to exercise the over-allotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on the
Overallotment Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the offering) a non-
accountable expense allowance equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Overallotment Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Overallotment Closing Date, if any, as if they had been made on and as of
the Closing Date or each Overallotment Closing Date, as the case may be; the
accuracy on and as of the Closing Date or Overallotment Closing Date, if any, of
the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Overallotment Closing Date, if any, of each of its covenants
23
and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later than
5:30 P.M., New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Underwriter, and, at Closing
Date and each Overallotment Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated to the knowledge of the Company by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriter's counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to Closing
Date the Company shall have provided evidence satisfactory to the Underwriter of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, and the opinion of its counsel is
material or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Underwriter's
reasonable opinion, or the opinion of its counsel is material, or omits to state
a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) At the Closing Date and the Overallotment Closing Date, the Underwriter
shall have received the favorable opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Chicco Foxman
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel to the Company, dated the Closing Date, or
Overallotment Closing Date, as the case may be, addressed to the Underwriter and
in form and substance satisfactory to Underwriter's counsel, to the effect that:
(i)(A) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
full corporate power and
24
authority to own or lease its properties and to carry on its business as
set forth in the Registration Statement and Prospectus; (B) the Company is
duly qualified as a foreign corporation in all jurisdictions in which by
reason of maintaining an office in such jurisdiction or by owning or
leasing real property in such jurisdiction it is required to be so
qualified except where the failure to be so qualified would have no
material adverse effect upon the business, properties, results of
operations, conditions (financial or otherwise) affairs or properties of
the Company (a "Material Adverse Effect"); and (C) to the best of counsel's
knowledge, the Company has not received any notice of proceedings relating
to the revocation or modification of any such license or qualification
which revocation or modification would have a Material Adverse Effect upon
the Company.
(ii) The Registration Statement, each Preliminary Prospectus that has
been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, schedules and
other financial and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material respects with
the requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(iii) Except as described in the Prospectus, the Company does not own
an interest of a character required to be disclosed in the Registration
Statement in any corporation, partnership, joint venture, trust or other
business entity;
(iv) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus as of the date indicated
therein, under the caption "Capitalization". The Securities, Underwriter's
Warrant and the Underwriter's Warrant Shares conform or upon issuance will
conform in all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and all shares of capital stock are fully paid and non-assessable;
the holders thereof are not, except by reason of their own conduct or acts,
subject to personal liability by reason of being such holders, and none of
such securities were issued in violation of the preemptive rights of any
holder of any security of the Company. The Securities to be sold by the
Company hereunder, the Underwriter's Warrant to be sold by the Company
under the Underwriter's Warrant Agreement and Underwriter's Warrant Shares
have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and conform or upon issuance will conform to the description
thereof contained in the Prospectus; are not, subject to any preemptive
25
or other similar rights of any stockholder of the Company; that, to such
counsel's knowledge, the holders of the Securities and Underwriter's
Warrant Shares shall not be personally liable for the payment of the
Company's debts solely by reason of being such holders except as they may
be liable by reason of their own conduct or acts; and that the certificates
representing the Securities, Underwriter's Warrant and Underwriter's
Warrant Shares are in due and proper legal form. Upon delivery of the
Securities to the Underwriter against payment therefor as provided for in
this Agreement, the Underwriter (assuming they are bona fide purchasers
within the meaning of the Uniform Commercial Code) will acquire good title
to the Securities, free and clear of all liens, encumbrances, equities,
security interests and claims.
(v) The Registration Statement has been declared effective under the
Act, and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened or contemplated under the Act;
(vi) To the best of such counsel's knowledge, (A) there are no
material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits thereto, and (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto regarding such material contracts or other
documents to which the Company is a party or by which it is bound, are
accurate in all material respects and fairly represent the information
required to be shown by Form SB-2 and the Rules and Regulations;
(vii) This Agreement, the Underwriter's Warrant Agreement and the
Financial Consulting Agreement have each been duly and validly authorized,
executed and delivered by the Company, and assuming that each is a valid
and binding agreement of the Underwriter, as the case may be, constitutes
a legally valid and binding agreement of the Company, enforceable as
against the Company in accordance with their respective terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting enforcement of creditors rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law or
pursuant to public policy).
26
(viii) Neither the execution or delivery by the Company of this
Agreement, the Underwriter's Warrant Agreement or the Financial Consulting
Agreement, nor its performance hereunder or thereunder, nor its
consummation of the transactions contemplated herein or therein, nor the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, nor the issuance of
the Securities pursuant to this Agreement, conflicts with or will conflict
with or results or will result in any material breach or violation of any
of the terms or provisions of, or constitutes or will constitute a material
default under, or result in the creation imposition of any material lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company except to the extent such event
will not have a Material Adverse Effect pursuant to the terms of, (A) the
Certificate of Incorporation or By-Laws of the Company, (B) any material
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument that is material to the Company to which the Company is a party
or by which it is bound or to which its properties or assets (tangible or
intangible) are subject, or any indebtedness, or (C) any statute, judgment,
decree, order, rule or regulation applicable to the Company or any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of
its respective activities or properties.
(ix) No consent, approval, authorization or order, and no filing with,
any court, regulatory body, government agency or other body (other than
such as may be required under state securities laws or the NASD, as to
which no opinion need be rendered) is required in connection with the
issuance by the Company of the Securities pursuant to the Prospectus and
the Registration Statement, the performance of this Agreement, the
Underwriter's Warrant Agreement and the Financial Consulting Agreement by
the Company, and the taking of any action by the Company contemplated
hereby or thereby, which has not been obtained;
(x) Except as described in the Prospectus, to the best of its
knowledge the Company is not in breach of, or in default under, any
material term or provision of any indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets (tangible or
intangible) of the Company is subject or affected; and the Company is not
in violation of any material term or provision of its Certificate of
27
Incorporation or By-Laws or in violation of any material franchise,
license, permit, judgment, decree, order, statute, rule or regulation
material to the Company business;
(xi) The statements in the Prospectus under the captions "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
(xii) To the best of such counsel's knowledge after due inquiry,
except for the rights of Big Sky, Inc. no person, corporation, trust,
partnership, association or other entity holding securities of the Company
has the contractual right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xiii) the Securities are eligible for listing on the Nasdaq SmallCap
Market.
In addition, such counsel shall state that in connection with the
preparation of the Registration Statement and the Prospectus such counsel has
participated in conferences with officers and other representatives of the
Company, the independent public accountants for the Company and the Underwriter
at which the contents of the Registration Statement, the Prospectus and related
matters were discussed and, although such counsel is not passing upon, has not
verified, and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement and
Prospectus and made no independent check or verification thereof, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto
at the time such Registration Statement or amendment became effective or the
Prospectus as of the date of such opinion contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Registration Statement or
Prospectus or with respect to statements or omissions made therein in reliance
upon information furnished in writing to the Company on behalf of the
Underwriter expressly for use in the Registration Statement or the Prospectus).
In
28
rendering such opinion, such counsel may state that no portion of the opinion
relates, or is given with regard to any issues or elements of any state or
federal Intellectual Property Law, Patent Law, Trademark Law, Environmental Law,
the laws and regulations regulating the sale, distribution and preparation of
food, drugs and pesticides, or the laws regulating international trade for the
United States, any of them, or any agencies deriving authority from either or
both, and all other foreign jurisdictions and their respective agencies.
In rendering such opinion, such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of Delaware and New Jersey and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriter's counsel) of other counsel reasonably
acceptable to Underwriter's counsel, familiar with the applicable laws of such
other jurisdictions, and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company; provided, that copies of any such
statements or certificates shall be delivered to Underwriter's counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
(d) At each Overallotment Closing Date, if any, the Underwriter shall have
received the favorable opinion of counsel to the Company, each dated the
Overallotment Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's counsel confirming as of the
Overallotment Closing Date the statements made by such firm, in their opinion,
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Overallotment Closing
Date, Underwriter's Counsel shall have been furnished such documents,
certificates and other legal opinions (including, without limitation, legal
opinions related to patent, trademark or Food and Drug matters) as they may
reasonably require and request for the purpose of enabling them to review or
pass upon the matters referred to in subsection (c) of this Section 6, or in
order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(f) Prior to the Closing Date and each Overallotment Closing Date, if any:
(i) there shall have been no material
29
adverse change nor development involving a prospective change in the condition,
financial or otherwise, prospects or the business activities of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the Company
shall not be in material default under any provision of any instrument relating
to any outstanding indebtedness for money borrowed, except as described in the
Prospectus; (iv) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (v) no action, suit or proceeding, at law or in equity, shall have
been pending or to its knowledge threatened against the Company, or affecting
any of its properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(g) At the Closing Date and each Overallotment Closing Date, if any, the
Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Overallotment Closing Date, as
the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are, in all material respects, true and correct, as if made on
and as of the Closing Date or the Overallotment Closing Date, as the case
may be, and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to such Closing Date or Overallotment
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or to their knowledge threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be
30
included therein, and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and neither the
Preliminary Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading except to
the extent any such material fact may be corrected in the Final Prospectus;
and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Overallotment Closing Date, as the case
may be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (B) the Company has not
paid or declared any dividends or other distributions on its capital stock;
(C) the Company has not entered into any material transactions not in the
ordinary course of business; (D) there has not been any change in the
capital stock or any increase in long-term debt or any increase in the
short-term borrowings (other than any increase in the short-term borrowings
in the ordinary course of business) of the Company; (E) the Company has not
sustained any material loss or damage to its property or assets, whether or
not insured; (F) there is no litigation which is pending or threatened
against the Company which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates shall
have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in the stabilization or manipulation of the
price of the Company's securities to facilitate the sale or resale of the
Shares.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(h) By the Effective Date, the Underwriter shall have received clearance
from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date,
31
addressed to the Underwriter in form and substance satisfactory in all respects
(including the non-material nature of the changes or decreases, if any, referred
to in clause (iii) below) to the Underwriter, from Schiffman, Hughes, ▇▇▇▇▇,
Blue, ▇▇▇▇ P.A.:
(i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the combined financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriter may rely upon the opinion of Schiffman,
Hughes, ▇▇▇▇▇, Blue, ▇▇▇▇, P.A. with respect to the financial statements
and supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim combined financial
statements of the Company (with an indication of the date of the latest
available unaudited interim combined financial statements), a reading of
the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company,
consultations with officers and other employees of the Company responsible
for financial and accounting matters and other specified procedures and
inquiries, nothing has come to their attention that would lead them to
believe that (A) the unaudited combined financial statements and supporting
schedules of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
combined financial statements of the Company included in the Registration
Statement, or (B) at a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company
as compared with amounts shown in the financial statements included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during the period from
September 30, 1997 to a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share of
the Company, in each case as compared with the corresponding period
beginning September 30, 1996 other than as set forth in or contemplated by
the Registration
32
Statement, or, if there was any such decrease, setting forth the amount of
such decrease;
(iv) setting forth, at a date not later than five (5) days prior to
the effective date of the Registration Statement, the amount of liabilities
of the Company (including a breakdown of commercial paper and notes payable
to banks);
(v) stating that they have compared specific dollar amounts, numbers
of Securities, percentages of revenues and earnings, statements 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
(vi) stating that they have not during the immediately preceding five
(5) year period brought to the attention of the Company's management any
"weakness", as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an
Audit, " in the Company's internal controls;
(vii) stating that they have in addition carried out certain specified
procedures, not constituting an audit, with respect to certain pro forma
financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of
such procedures that caused them to believe such unaudited pro forma
financial information does not comply in form in all material respects with
the applicable accounting requirements of Regulation S-B or that the pro
forma adjustments have not been properly applied to the historical amounts
in the compilation of that information; and
(viii) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
At the Closing Date and each Overallotment Closing Date, the Underwriter
shall have received from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, Blue ▇▇▇▇ PA, a letter, dated
as of the Closing Date, or Overallotment Closing Date, as the case may be, to
the effect that they reaffirm that statements made in the letter furnished
pursuant to Subsection (i) of this Section, except that the specified date
referred to shall be a date not more than five
33
days prior to Closing Date and, if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (iii) of subsection (i) of this Section with
respect to certain amounts, percentages and financial information as specified
by the Underwriter and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (iii).
(k) On each of Closing Date and Overallotment Closing Date, if any, there
shall have been duly tendered to the Underwriter for their accounts the
appropriate number of Securities against payment therefore.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Overallotment Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Overallotment Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter, and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), whatsoever (including but not limited
to any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), as such are incurred, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus (except
that the indemnification contained in this paragraph with respect to any
preliminary prospectus shall not inure to the benefit of the Underwriter or to
the benefit of any person controlling the Underwriter on account of any loss,
claim, damage, liability or expense arising from the sale of the Firm Securities
by the
34
Underwriter to any person if a copy of the Prospectus, as amended or
supplemented, shall not have been delivered or sent to such person within the
time required by the Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, as amended and supplemented, and
such correction would have eliminated the loss, claim, damage, liability or
expense), the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included Securities of
the Company issued or issuable upon exercise of the Underwriter's Warrant; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, the Nasdaq Stock Market,
Inc. or any other securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless in any case above
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, in any post-effective amendment, new registration
statement or prospectus or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees, to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the
same extent as the foregoing indemnity from the Company to the Underwriter (i)
with respect to statements or omissions, or alleged statements or omissions if
any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto in any post-effective
amendment, new registration statement or prospectus, or in any application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to the Underwriter by the Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus
35
or any amendment thereof or supplement thereto or in any post-effective
amendment, new registration statement or prospectus, or in any such application,
directly related to the transactions effected by the Underwriter in connection
with this Offering; provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
such application, and (ii) for any claim, loss, damages or liability for
violation or alleged violations of any federal or state securities laws in the
offer or sale of the Securities; provided, further, that the liability of the
Underwriter to the Company shall be limited to the product of the Underwriter's
discount or commission for the Shares multiplied by the number of Shares
purchased by the Underwriter hereunder. The Company acknowledges that the
statements with respect to the public offering of the Firm Securities set forth
under the heading "Underwriting" and the stabilization legend and the last
paragraph of the cover page in the Prospectus have been furnished by the
Underwriter expressly for use therein and any information furnished by or on
behalf of the Underwriter filed in any jurisdiction in order to qualify the
Securities under state securities laws or filed with the Commission, the NASD or
any securities exchange constitute the only information furnished in writing by
or on behalf of the Underwriter for inclusion in the Prospectus and the
Underwriter hereby confirms that such statements and information are true and
correct and shall be on each Closing Date and Overallotment Closing Date.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit or proceeding, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, the indemnifying party may assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been
36
authorized in writing by the indemnifying parties in connection with the defense
of such action at the expense of the indemnifying party, (ii) the indemnifying
parties shall not have employed counsel reasonably satisfactory to such
indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnifying party or parties shall have reasonably concluded that there may be
defenses available to it or them that are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided however, that such consent was not
unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriter is the indemnified party, the relative benefits
received by the Company on the one hand,
37
and the Underwriter, on the other, shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts and commissions received by
the Underwriter hereunder, in each case as set forth in the table on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, each person, if any, who controls the Company within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to this subparagraph (d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
38
deemed to be representations, warranties and agreements at the Closing Date and
the Overallotment Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriter, the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at 9:30 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Underwriter , in its discretion, shall release the Securities for the sale to
the public, provided, however that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such Securities for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) The Underwriter shall have the right to terminate this Agreement: (i)
if any calamitous domestic or international event or act or occurrence has
materially disrupted, or in the Underwriter's commercially reasonable opinion
will in the immediate future materially disrupt general securities markets in
the United States; or (ii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v) if
a moratorium in foreign exchange trading has been declared; or if the Company
shall have sustained a material loss, whether or not insured, by reason of fire,
flood, accident or other calamity; or (vi) if there shall have been such
material adverse change in the conditions or prospects of the Company, involving
a change not contemplated by the Registration Statement, or (vii) if there shall
have been such material adverse change in general economic, political or
financial conditions as in the Underwriter's reasonable judgment would make it
inadvisable or impracticable to proceed with the offering, sale or delivery of
the Securities.
39
(b) Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 9 and 10 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the Closing Date
or any Overallotment Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Overallotment Closing Date, the
Underwriter s may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's obligations to purchase Securities from
the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5 and Section 7 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
12. Venue; Submission to Jurisdiction. The Company (a) agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement
shall be instituted exclusively in the federal or state courts located in the
State of New Jersey (b) waives any objection which the Company may have now or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of the courts of the State of New
Jersey and the United States District Court for the District of New Jersey in
any such suit, action or procedure. Each of the Company and the Underwriter
further agrees to accept and acknowledge service of any and all process which
may be served in any suit, action or proceeding in the federal or state courts
located in the State of New Jersey and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to First Montauk
Securities Corp., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, with a
copy to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. Notices to the Company shall be
directed to the
40
Company at ▇▇▇▇ ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Chicco Foxman Engelmyer & ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal Underwriters and assigns, and their respective heirs and legal
Underwriters and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Applicable Law/Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New Jersey
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Waiver. The waiver by either party of the breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any subsequent breach.
18. Assignment. Except as otherwise provided within this Agreement, neither
party hereto may transfer or assign this Agreement without prior written consent
of the other party.
[remainder of page intentionally left blank]
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19. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.
20. Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the Person or Persons may require.
21. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
PACIFICHEALTH LABORATORIES INC.
By:___________________________
Name:
Title: President
Confirmed and accepted as of the date first above written.
FIRST MONTAUK SECURITIES CORP.
By:_____________________________
Name:
Title: President
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