Exhibit 1.1
1,200,000 Units
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
Each Unit consisting of one share of Common Stock and a
Series B Redeemable Common Stock Purchase Warrant to
purchase one share of Common Stock
Underwriting Agreement
As of , 1999
HD ▇▇▇▇▇ & Co, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to HD ▇▇▇▇▇ & Co., Inc., a New York corporation
("▇▇▇▇▇" or the "Underwriter"), upon the basis of the representations,
warranties, and agreements of the Company contained in this Underwriting
Agreement (the "Agreement") and, subject to the terms and conditions of this
Agreement, the Underwriter proposes to purchase from the Company, an aggregate
of 1,200,000 Units, each Unit to consist of one (1) share of the Company's
common stock, par value $.001 per share ("Common Stock"), and a Series B
Redeemable Common Stock Purchase Warrant ("Warrant") to purchase one (1) share
of Common Stock at a price of $ per share, subject to adjustment. The
1,200,000 Units are hereinafter collectively referred to as the "Firm Units."
The shares of Common Stock issuable upon exercise of the Warrants are presently
authorized but unissued shares of the Common Stock of the Company. In addition,
the Company proposes to grant the Underwriter the option to purchase from the
Company up to an additional 180,000 Units (collectively "Option Units") solely
for the purpose of covering over-allotments, if any, in connection with the sale
of the Firm Units. The Company also proposes to issue and sell to the
Underwriter or its designees, Unit Purchase Options (collectively, the "Unit
Purchase Option") to purchase 120,000 Units (collectively the "Purchase Option
Units") as more fully described in Paragraph 5(a) of this Agreement. The
Warrants included in the Firm Units, the Option Units and the Purchase Option
Units are referred to in this Agreement collectively as the "Warrants." The Firm
Units, Option Units and Purchase Option Units are referred to in this Agreement
collectively as the "Securities."
The Company hereby confirms the agreement made by it with respect to
the purchase of the Firm Units and the Option Units by the Underwriter, as
follows.
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Units. Subject to the terms and
conditions of this Agreement, and upon the basis of the representations and
warranties contained in this Agreement, the Company agrees to issue and sell to
the Underwriter, and Underwriter agrees to
purchase from the Company, the Firm Units at a price of and /100
dollars ($ . ) per Unit. The Underwriter plans to offer the Firm Units for
sale to the public at the price and upon the terms set forth in the Prospectus
(the "Public Offering") as soon as practicable after the date the Registration
Statement, as hereinafter defined, is declared effective (the "Effective Date")
by the Securities and Exchange Commission (the "Commission"). The Company
acknowledges that the Underwriter shall have the right to enter into agreements
with selected dealers for the sale of the Units to the public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter
an option (the "Over-Allotment Option") to purchase from the Company, solely
for the purpose of covering over-allotments in connection with the sale of Firm
Units, all or any portion of the Option Units for a period of forty-five (45)
days from the date of this Agreement at the same purchase price payable by the
Underwriter for Firm Units as provided in Paragraph 1(a) of this Agreement. The
Option Units shall be purchased from the Company, for the account of
Underwriter.
(ii) The Over-Allotment Option may be exercised
during the term thereof by written notice to the Company from the Underwriter.
Such notice shall set forth the aggregate number of Option Units as to which the
option is being exercised and the time and date of payment and delivery
therefor. Such time and date of delivery shall not be earlier than either the
Closing Date (as defined below) or the second business day after the day on
which the option shall have been exercised, nor later than the fifth business
day after the date of such exercise, as determined by the Underwriter (the
"Option Closing Date"). Delivery and payment for such Option Units shall be at
the offices set forth below for delivery and payment of the Firm Units.
(iii) The obligation of the Underwriter to
purchase and pay for any of the Option Units is subject to the accuracy and
completeness (as of the date of this Agreement and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company in this Agreement, to the accuracy and completeness of
the statements of the Company or its officers made in any certificate or other
documents to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions as of the date
of this Agreement and as of the Option Closing Date set forth in Paragraph 1(c)
of this Agreement and to the delivery to the Underwriter an opinion,
certificates and letters dated the Option Closing Date substantially similar in
scope to those specified in Paragraph 6 of this Agreement, but with each
reference to the "Closing Date" being deemed to be the "Option Closing Date."
Notwithstanding the exercise of the Over-Allotment Option, the Underwriter may,
at any time prior to the payment for the purchase price of the Option Units,
cancel, in whole or in part, the exercise of the Over-Allotment Option, in which
event, the Underwriter shall only be obligated to purchase and pay for those
only Option Units, if any, remaining subject to the exercise of the
Over-Allotment Option after such cancellation.
(c) Delivery of and Payment for Securities.
(i) Delivery of the stock and warrant
certificates representing the securities comprising the Firm Units shall be made
to the Underwriter at the offices of ▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, or such other location as you shall determine and
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advise the Company upon at least two (2) full business days' notice in writing,
against payment therefor by certified or bank cashier's check drawn in New York
clearing house funds or similar next day funds or by wire transfer payable to
the order of the Company, at 10:00 A.M., Eastern Time, on ____________, 1999, or
at such other time and business day (Saturdays, Sundays, and legal holidays in
New York, New York not being considered business days for the purposes of this
Agreement), not later than the 10th business day following the Effective Date,
as shall be determined by the Underwriter, which time and date are herein called
the "Closing Date."
(ii) Delivery of certificates for the Common
Stock and Warrants comprising the Units shall be made in registered form in such
name or names and in such denominations as you shall specify to the Company upon
at least two (2) full business days' notice in writing prior to the Closing Date
or the Option Closing Date, as the case may be. The Company will make the
certificates available to the Underwriter for examination at the offices of the
Underwriter, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇
▇. ▇▇▇▇▇, Chairman, or at such other location as you shall specify to the
Company, not later than 2:00 P.M., Eastern Time, on the business day immediately
preceding the Closing Date or the Option Closing Date, as the case may be. At
the request of the Underwriter, delivery of the Common Stock and Warrants
comprising the Units shall be made through the facilities of Depository Trust
Company ("DTC").
(d) Use of Preliminary Prospectus. The Company hereby confirms
its authorization to the Underwriter to use, and to make available for use by
prospective dealers, the Preliminary Prospectus, and the Company hereby
authorizes the Underwriter, all selected dealers, and all other dealers to whom
any of the Securities may be sold by the Underwriter or Selected Dealers, to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Securities in accordance with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the rules and
regulations (the "Regulations") of the Commission thereunder, and applicable
state law until completion of the Public Offering and for such longer period as
Underwriter may request if the Prospectus is required to be delivered in
connection with sales of the Securities by Underwriter or a dealer.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has prepared
in conformity with the requirements under the Securities Act and the
Regulations, and has filed with the Commission under the Securities Act, a
registration statement on Form SB-2, File No. 333-_____, including the related
preliminary prospectus, for the registration of the Securities. The conditions
for the use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company, the
transactions contemplated by this Agreement, and the Registration Statement. As
used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended, on file with the Commission
at the time the registration statement becomes effective under the Securities
Act (including all financial statements and financial schedules, exhibits, all
other documents filed as a part thereof or incorporated by reference therein,
and all the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act or deemed by virtue
of Rule 430A of this Commission under the Securities Act to be part of the
Registration Statement). The term "Prospectus" as used in this Agreement means
the final prospectus included as part of the Registration Statement, including,
if applicable, the information contained
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in any final prospectus filed with the Commission pursuant to Rule 424(b) of the
Commission under the Securities Act or deemed by virtue of Rule 430A of the
Commission under the Securities Act to be part of the Registration Statement.
The term "Preliminary Prospectus" refers to and means any prospectus included in
the Registration Statement or any amendment thereto prior to the Registration
Statement becoming effective under the Securities Act.
(b) Use and Accuracy of Preliminary Prospectus. To the
Company's Knowledge, the Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or any part thereof, and each
Preliminary Prospectus delivered to the Underwriter for dissemination in
connection with the offering, at the time of filing thereof and delivery to the
Underwriter for such dissemination, did not contain any untrue statement of a
material fact, or omit to state a 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; the foregoing shall not apply,
however, to statements in, or omissions from, any Preliminary Prospectus that
are based upon and conform to written information furnished to the Company with
respect to Underwriter (or any affiliate or associate thereof) by or on behalf
of the Underwriter or such Underwriter specifically for use in the preparation
thereof. As used in this Agreement, the term "the Company's Knowledge" or words
of like import shall mean and include (i) actual knowledge of the Company or any
executive officer or director of the Company and (ii) that knowledge which a
prudent businessperson could reasonably have obtained in the management of such
person's business affairs after exercising reasonable due diligence.
(c) Effectiveness and Accuracy of Registration Statement. The
Registration Statement and the Prospectus, from the Effective Date through the
Closing Date and, if Option Units are purchased, up to the Option Closing Date,
will comply as to form in all material respects with the applicable requirements
of the Securities Act and the Regulations, and neither the Registration
Statement nor the Prospectus will, on such dates, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, on such dates, no
event will have occurred that should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus that has not then
been set forth in such an amendment or supplement; the foregoing shall not
apply, however, to statements in, or omissions from, the Registration Statement
or Prospectus that are based upon and conform to written information furnished
to the Company with respect to the Underwriter (or any affiliate or associate
thereof) by or on behalf of the Underwriter specifically for use in the
preparation thereof. The descriptions in the Registration Statement and the
Prospectus of contracts and other documents of the Company are accurate and
present fairly the information required to be disclosed, and there are no
contracts or other documents required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration Statement
under the Securities Act or the Regulations which have not been so described or
filed as required.
(d) Independent Public Accountants. Panel ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, PC,
the accountants whose reports on the financial statements of the Company are
filed with the Commission as a part of the Registration Statement, are, and were
during the periods covered by its report, independent public accountants with
respect to the Company as required by the Securities Act and the Regulations.
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(e) Organization and Qualification. Each of the Company and
its wholly-owned subsidiary, Activeworlds, Inc., a Nevada Corporation (the
"Subsidiary"), is (i) a corporation duly organized and existing in good standing
under the laws of the state of its incorporation and has the requisite corporate
power to own its properties and to carry on its business as now being conducted
and (ii) qualified to conduct business as a foreign corporation to do business
and in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. Other than the Subsidiary, the
Company has no subsidiaries and has no equity interest in, and, the Company has
no loans to or guarantee of obligations of, any other corporation, limited
liability company, partnership or other entity. As used in this Agreement, the
term "Material Adverse Effect" means any material adverse effect on (A) the
Common Stock and the Warrants; (B) the ability of the Company to perform its
obligations under this Agreement, the Warrant Agreement or the Unit Purchase
Option or (C) the business, operations, properties, financial condition or
prospects of the Company or the Subsidiary.
(f) No Other Interests of Investments. Except for the
Company's ownership of and advances to the Subsidiary, neither the Company nor
either Subsidiary controls, directly or indirectly, or has any direct or
indirect interest or investment in any corporation, firm, partnership,
association, limited liability company, business trust or other business
organization, and does not own any shares of stock or any other securities of
(other than bank certificates of deposit, shares or units of interest in "money
market" funds, or as set forth in the Prospectus) and, except as set forth in
the Prospectus, neither the Company nor the Subsidiary has made any loans (other
than advances to employees in the ordinary course of business, none of which are
material or made to officers or directors) to or guaranteed any obligations of,
any other corporation, firm, partnership, association, limited liability
company, business trust or other business organization.
(g) Capitalization and Legality of Securities. (i) The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization." The capital stock and
other securities of the Company conform to the descriptions thereof contained in
the Prospectus under the caption "Description of Capital Stock." Except as
otherwise set forth in the Prospectus, there are no outstanding options,
warrants, or other rights to purchase any shares of Common Stock or other
capital stock, or to purchase any other securities convertible into or
exchangeable for Common Stock. The outstanding securities of the Company and the
outstanding securities of the Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable. All the shares of Common Stock
which are (i) registered pursuant to the Registration Statement, (ii) issuable
upon exercise of the Warrants registered pursuant to the Registration Statement,
and (iii) issuable upon exercise of the Unit Purchase Option and the warrants
issuable upon exercise of the Unit Purchase Option have been duly authorized
and, when issued and delivered against payment therefor as provided in this
Agreement, the Prospectus, Warrant Agreement or the Unit Purchase Option, as
applicable, will be validly issued, fully paid and nonassessable.
(ii) The Company owns all of the issued and
outstanding capital stock of the Subsidiary. The Subsidiary has not granted any
options, warrants or rights or issued any convertible notes, debentures,
preferred stock or other securities or entered into any agreement or
understanding upon the exercise or conversion of which or pursuant to the terms
of which any shares of any class or series of capital stock of the Subsidiary
may be issued.
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(iii) This Agreement constitutes, and the Warrant
Agreement, the Warrants, Unit Purchase Option and the Warrants issuable upon
exercise of the Unit Purchase Option will constitute, when sold and delivered as
contemplated, valid and binding obligations of the Company enforceable in
accordance with their respective terms, except to the extent that enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and similar laws and court decisions now or
hereafter in effect relating to or affecting creditors' rights and remedies
generally and (B) general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or in equity). A sufficient
number of shares of Common Stock have been reserved for issuance upon sale of
the Securities and Purchase Option Units and upon the exercise of all of the
above-referenced Warrants.
(h) Financial Statements. The financial statements (audited
and unaudited) of the Company and the related financial exhibits and schedules
included in the Prospectus or filed with and as part of the Registration
Statement present fairly the consolidated financial position of the Company (and
the Subsidiary ) as of the balance sheet dates and the results of its
consolidated operations and cash flows for the respective periods then ended,
and such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved; all adjustments that are necessary for a fair presentation of
the results for such periods have been made. The financial statements filed with
the Registration Statement or included in the Prospectus are the only financial
statements required under the Securities Act or the Regulations to be included
in the Registration Statement and Prospectus.
(i) Material Loss. Neither the Company nor the Subsidiary has,
since the date of the latest financial statements included in the Prospectus,
sustained any material loss or interference with its business from fire,
explosion, flood, or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order, or decree, other
than as set forth in the Prospectus. Since the respective dates as of which
information is set forth in the Prospectus, and except as otherwise set forth
therein: (i) there has not been any change in the capital stock, or material
increase in the long-term debt, of the Company or the Subsidiary; (ii) there has
not been any material adverse change in the condition (financial or otherwise),
business, results of operations, general affairs, or management of the Company
or the Subsidiary, whether or not arising in the ordinary course of business;
(iii) no event has occurred that would result in a material write-down of assets
of the Company or the Subsidiary; (iv) neither the Company nor the Subsidiary
has incurred any material liability or obligation, direct or contingent, or
entered into any material transaction, other than those in the ordinary course
of business; (v) neither the Company nor either Subsidiary has purchased any of
the Company's outstanding capital stock; (vi) there has been no dividend or
distribution of any kind declared, paid, or made by the Company or the
Subsidiary in respect of the Common Stock; (vii) there has not been any material
interruption in the availability of materials, supplies, or equipment necessary
for the conduct of the business of the Company or the Subsidiary; and (viii)
there has not been any execution or imposition of any material lien, charge, or
encumbrance upon any property or assets of the Company or the Subsidiary.
(j) Compliance with Documents and Laws. Neither the Company
nor the Subsidiary is in violation of its certificate of incorporation, by-laws,
or other governing documents, or in material default in the due performance of
any material lease or other material contract,
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indenture, mortgage, deed of trust, note, loan, or other material agreement or
instrument to which the Company or the Subsidiary is a party or by which it or
any of its properties or businesses are subject or bound, or, to the Knowledge
of the Company, any applicable material license, franchise, certificate, permit,
authorization, statute, rule or regulation of or from any public, regulatory, or
governmental agency or authority having jurisdiction over the Company or the
Subsidiary or any of their respective properties or assets, or any approval,
consent, order, judgment or decree, except such as could not reasonably be
expected to have a Material Adverse Effect. The execution and performance of
this Agreement by the Company will not conflict with or result in a breach or
violation of, or default under, any material lease or other material contract,
indenture, mortgage, deed of trust, note, loan, or other material agreement or
instrument to which the Company or the Subsidiary is a party or by which the
Company, the Subsidiary or any of their respective properties or businesses are
subject, and no consent, approval, authorization, or order of any court or
governmental authority or agency having jurisdiction over any of the Company,
the Subsidiary or any of their respective properties or assets is required to be
obtained by the Company for the consummation by the Company of the transactions
contemplated by this Agreement, except such as have been obtained or may be
required under the Securities Act, the Regulations, the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the regulations of the Commission
thereunder or state securities (or "Blue Sky") laws or the applicable rules and
regulations promulgated thereunder.
(k) Authorization of Agreements. Each of this Agreement, the
Warrant Agreement, the Warrant, the Unit Purchase Options, has been duly
authorized, executed and delivered by the Company and constitutes the valid,
binding and enforceable obligation of the Company. The execution, delivery and
performance of this Agreement, the Warrant Agreement, the Warrants, and the Unit
Purchase Options by the Company, the consummation by the Company of the
transactions herein and therein contemplated, and the compliance by the Company
with the terms of this Agreement, the Warrant Agreement, the Warrants, the Unit
Purchase Option have been duly authorized by all necessary corporate action and
do not and will not, with or without the giving of notice or the lapse of time,
or both, (i) result in any violation of the certificate of incorporation and
by-laws of the Company, (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or the Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or either Subsidiary is a party or which the Company or the Subsidiary or any of
their respective properties or assets are or may be bound or affected, (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company, the Subsidiary or any of their respective properties or
business, or (iv) violate any permit, certification, registration, approval,
consent, license or franchise applicable to the business or properties of the
Company or the Subsidiary.
(l) Title to Property. The Company has good title to, and
valid and enforceable leasehold estates in, all items of property described in
the Registration Statement or Prospectus as owned or leased by it, as the case
may be, or that are material to the conduct of the Company's businesses, free
and clear of all liens, encumbrances, claims, security interests, and other
restrictions, other than those described in the Prospectus and those that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. The leases,
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licenses or other contracts or instruments under which the Company leases, holds
or is entitled to use any property, real or personal, are valid, subsisting and
enforceable as against the Company and, to the Company's Knowledge, the other
parties thereto, with only such exceptions as are not material and do not
interfere with the use of such property made, or proposed to be made, by the
Company, and all rentals, royalties or other payments accruing thereunder which
became due prior to the date of this Agreement have been duly paid, and neither
the Company nor, to its Knowledge, any other party is in default thereunder and,
to the Company's Knowledge, no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a default thereunder.
The Company has not received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties except any such violation that could not reasonably be expected to
have a Material Adverse Effect. The Company has insured their respective
properties against loss or damage by fire or other casualty and maintain such
other insurance which management of the Company believes is adequate for the
Company's present and proposed business operations.
(m) Copyrights, Trademarks and Intellectual Property Rights.
Except as set forth in the Prospectus, the Company owns or possesses the
requisite licenses or rights to use all trademarks, copyrights, service marks,
service names, and trade names, if any, presently used in or necessary to
conduct their respective businesses as described in the Prospectus. To the
Company's Knowledge, neither the Company nor the Subsidiary has infringed the
rights of another in any patent, trademark, copyright, service ▇▇▇▇, service
name, trade name, trade secret, confidential information, or any other such
intellectual property, and there is no outstanding claim of others alleging any
such infringement. To the Company's Knowledge, there is no claim or action by
any person pertaining to, or proceeding pending, or threatened, which challenges
the exclusive rights of the Company or the Subsidiary with respect to any
trademarks, copyrights, service marks, service names and trade names used in the
conduct of the Company's or the Subsidiary's business.
(n) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any public,
regulatory, or governmental agency or authority (or any judgment, decree, or
order of such court, agency, or authority) pending or, to the Company's
Knowledge, threatened, to which the Company or the Subsidiary is a party or of
which the business or property of the Company is the subject that is material to
the Company and is not disclosed in the Prospectus. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or the Subsidiary and enjoining the Company or the Subsidiary
from taking, or requiring the Company or the Subsidiary to take, any action, or
to which the Company, the Subsidiary or their respective properties or
businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor the
Subsidiary nor any of their respective directors or officers acting in any
capacity on behalf of the Company or the Subsidiary nor, to the Company's
Knowledge, any of the Company's or the Subsidiary's sales agents, directly or
indirectly, has used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
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(p) Internal Accounting Controls. The Company and the
Subsidiary maintain a system of internal accounting controls which, taken as a
whole, is sufficient to meet the broad objectives of preventing and detecting
errors or irregularities in amounts that would be material to the Company's and
the Subsidiary's financial statements, and neither the Company nor either
Subsidiary has received any formal or informal notice from its independent
accountants to the contrary. Except as specifically disclosed in the Prospectus,
neither the Company nor any of its employees or agents has made any payment or
transfer of any funds or assets of the Company, conferred any personal benefit
by the use of the assets of the Company or received any funds, assets, or
personal benefit in violation of any law, rule, or regulation, which is required
to be stated in the Prospectus or necessary to make the statements therein not
misleading.
(q) Tax Returns. The Company and the Subsidiary have filed all
Federal, state, and local tax returns required to be filed through the date of
this Agreement, including but not limited to franchise tax returns, or has
obtained valid extensions with respect to such filings not made; neither the
Company nor the Subsidiary is in default in the payment of any taxes or other
amounts that were payable pursuant to said returns or any assessments with
respect thereto; and neither the Company nor the Subsidiary is aware of any tax
or other payment deficiency outstanding, proposed, or assessed against the
Company or the Subsidiary that could, in the aggregate, have a Material Adverse
Effect. Except as disclosed in writing to the Underwriter, neither the Company
nor the Subsidiary has executed or filed with any taxing authority, foreign or
domestic, any agreement extending the period for assessment or collection of any
income taxes and is not a party to any pending action or proceeding by and
foreign or domestic governmental agency for assessment or collection of taxes;
and no claims for assessment or collection of taxes have been asserted against
the Company or the Subsidiary.
(r) Employee Plans. Except as set forth in the Prospectus, the
Company does not have any employee benefit plans (including, without limitation,
pension, profit sharing, and welfare benefit plans, but excluding health and
disability insurance plans and disability provisions of employment contracts) or
deferred compensation arrangements.
(s) Labor Disputes. No labor dispute exists or, to the
Company's Knowledge, is imminent with the employees or other persons engaged by
the Company or the Subsidiary which could reasonably be expected to result in a
Material Adverse Effect.
(t) Registration Rights. No person, firm or entity of any
nature whatsoever has any right to require the Company to register or attempt to
register under the Securities Act or any other securities law any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock, by reason of the filing of the Registration
Statement with the Commission, and, except as set forth in the Prospectus, no
person, firm or entity has any rights which may require the Company to file a
registration statement within eighteen (18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person that
controls, is controlled by or is under common control with the Company has taken
or will take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in under the Exchange Act,
stabilization or manipulation of the price of any security in order to
facilitate the sale or resale of any of the Securities.
- 9 -
(v) Finder or Broker. The Company has not retained or dealt
with any broker or finder with respect to the transactions contemplated hereby,
and the Company knows of no outstanding claims for services in the nature of a
finder's fee or origination fee with respect to the sale of the Securities. The
Company will indemnify and hold harmless Underwriter with respect to any claim
for a finder's fee by any party claiming to be owed such fee based on contacts,
conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements between
the Company and its officers named under the caption "Management -- Employment
Agreements" in the Prospectus, are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity, and public policy considerations.
(x) Contracts. Each material contract or other instrument
(however characterized or described) to which the Company or the Subsidiary is a
party or by which it or its property or business is or may be bound or affected
and to which reference is made in the Prospectus has been duly and validly
executed by the Company or by the Subsidiary, as applicable, is in full force
and effect in all material respects and, assuming that each other party has full
power, corporate or other, to execute, deliver and perform such contracts, is
enforceable against the parties thereto in accordance with its terms, and none
of such contracts or instruments has been assigned by the Company or the
Subsidiary, and neither the Company or the Subsidiary, nor, to the Company's
Knowledge, any other party is in default thereunder and, to the Company's
Knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder. None of the material
provisions of such contracts or instruments violates any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company or the Subsidiary or any of their
assets or businesses, where such violation or default would have a Material
Adverse Effect.
(y) Year 2000 Compliance. To the Company's Knowledge, except
as disclosed in the Prospectus, the Company's and the Subsidiary's computer
systems and products are designed to be year 2000 compliant, and the disclosure
in the Prospectus concerning Year 2000 compliance is true and correct in all
material respects.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) Effectiveness of Registration Statement. The Company will
use its best efforts to cause the Registration Statement and any subsequent
amendments thereto to become effective as promptly as possible. The Company will
notify you promptly (i) when the Registration Statement or any subsequent
amendment thereto has become effective or any supplement to the Prospectus has
been filed and (ii) of the receipt of any requests, and the nature and substance
thereof, by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for any other additional information. The Company
will prepare and file with the Commission, promptly upon your reasonable
request, any amendments or supplements to the Registration Statement or
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities or any of the Securities. The Company will file
no amendment or
- 10 -
supplement to the Registration Statement or Prospectus (other than any document
required to be filed under the Exchange Act that upon filing is deemed to be
incorporated by reference therein) to which you shall reasonably object by
notice to the Company after having been furnished a copy within a reasonable
time, but no later than three (3) business days, prior to the proposed filing
thereof. The Company will furnish to you at or prior to the filing thereof a
copy of any document that upon filing is deemed to be incorporated by reference
in whole or in part in the Registration Statement or Prospectus.
(b) Notice of Stop Order. The Company will advise you
promptly, and confirm in writing, when and if it receives notice or obtains
Knowledge of (i) the issuance by the Commission of any stop order or other order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or the effectiveness of the Registration Statement, (ii) the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
in which they were previously qualified, or (iii) the initiation or threat of
any proceeding for that purpose. The Company will promptly use its best efforts
to prevent the issuance, and to obtain the withdrawal if such issuance is not
prevented, of any such stop order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act.
Within the time during which a prospectus relating to the Securities is required
to be delivered under the Securities Act, the Company will use its best efforts
to comply with all requirements imposed upon it by the Securities Act and the
Exchange Act, as now and hereafter amended, and by the Regulations, as from time
to time in force to permit the continuance of sales of or dealings in the
distribution of the Securities as contemplated by the provisions therein, in
this Agreement, and in the Prospectus. If during such period any event as to
which the Company has Knowledge occurs as a result of which the Prospectus as
then amended or supplemented includes an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Securities Act, the Company will notify you
promptly, will amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act, the Company will notify you promptly, will amend
the Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or otherwise to effect such
compliance, and will furnish without charge to Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectus as you may
from time to time reasonably request.
(d) Copies of Registration Statement. The Company will deliver
to Underwriter, from time to time without charge, such number of copies of the
Registration Statement (at least one of which delivered to you shall be manually
signed and will include all exhibits), each Preliminary Prospectus, the
Prospectus, and all amendments and supplements thereto, in each case as soon as
available and in such quantities and to such persons as requested by you.
(e) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with you and your counsel, to register or qualify the
Securities for offering and sale under the securities laws of such jurisdictions
as you reasonably designate, and will continue such qualifications in effect for
so long as may be necessary to complete the distribution of such Securities;
provided that in no event shall the Company be required in connection therewith
to
- 11 -
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to general service of process in any
jurisdiction where it is not now so subject.
(f) Section 11(a) Earnings Statement. The Company will make
generally available to its security holders (within the meaning of Section 11(a)
of the Securities Act) and deliver to you as soon as practicable (but not later
than fifteen (15) months after the Effective Date), an earnings statement that
shall satisfy the requirements of Section 11(a) and Rule 158 under the
Securities Act, covering a period of at least twelve (12) consecutive months
after the Effective Date.
(g) Information to the Underwriter. Until the earlier of the
third (3rd) anniversary of the Effective Date or such date as of which the
Warrants and the Unit Purchase Option have been exercised or have expired, the
Company will, at its cost and expense, furnish or cause to be furnished to you
and your counsel, with reasonable promptness, copies of (i) annual audited
balance sheets and audited statements of operations and changes in cash flows of
the Company, and quarterly balance sheets and statements of income of the
Company (which need not be audited), (ii) all reports, if any, to its
stockholders, (iii) all reports filed by the Company with the Commission, and
any securities exchange or the National Association of Securities Dealers, Inc.
("NASD") and (iv) such other material documents and information with respect to
the Company and its affairs as you may from time to time reasonably request and
which the Company can produce at reasonable cost; provided, however, that the
Company shall not be required to produce such information or documents if the
Company has received the opinion of its counsel that providing such information
to Underwriter is reasonably likely to create liability under applicable Federal
and state securities laws. Upon request, the Company shall also provide the
Underwriter with current lists of its stockholders. In addition to the
foregoing, during the six months following the Effective Date, the Company
shall, at its cost and expense, furnish or cause to be furnished to the
Underwriter, (x) daily issuer transfer sheets by Depository Trust Company
("DTC"), which shall be transmitted to the Underwriter by fax daily, and (y)
weekly transfer sheets provided by the Company's transfer agent, which shall be
provided to the Underwriter at the end of each week. For the three years
subsequent to such six month period, upon request of the Underwriter, the
Company shall furnish or cause to be furnished to the Underwriter with copies of
the Company's monthly DTC transfer sheets and transfer sheets from the Company's
transfer agent.
(h) Listing in Securities Manual; Investor Relations Firm. The
Company shall, as soon as practicable after the Effective Date, use its best
efforts to obtain listing on an expedited basis in Standard and Poor's
Corporation Records or such other recognized securities manuals for which it may
qualify for listing, and the Company shall use its best efforts to maintain such
listings for at least three (3) years after the Closing Date. The Company
further agrees at any time during the three (3) year period following the
Closing Date, to engage within sixty (60) days of a written request by you, the
services of an investor relations firm reasonably acceptable to you, who will
act as investor relations liaison during such three (3) year period, which
spokesperson is not required to be the same person during the duration of the
three (3) year period, to consult with and advise the Company regarding
communications and relations with stockholders and the financial and investment
communities.
- 12 -
(i) Listing on Nasdaq. The Company shall apply for the
inclusion of the Units, Common Stock and Warrants on The Nasdaq SmallCap Market
(the "SmallCap Market") under the symbols AWLDV, AWLD and AWLDW or another
symbol acceptable to the Underwriter, to take effect on the Effective Date;
provided, that if the Common Stock and Warrants are not separate transferable on
the Effective Date, then the Warrants need not be included in the SmallCap
Market at such date; provided, however, that, on the date on which the Common
Stock and Warrants first become separately transferable, the Warrants shall be
listed on the Small Cap Market. At such time as the Company meets the
eligibility requirements for the inclusion of the Common Stock on the Nasdaq
National Market ("NNM"), the Company shall use its best efforts to obtain such
listing. The Company shall use its best efforts to maintain the Nasdaq listing
provided for in this Paragraph 3(i) for at least three (3) years after the date
of this Agreement.
(j) Exchange Act Filings. The Company shall file such
registration statement and take such other reasonable action, including the
filing of a registration statement on Form 8-A and requesting effectiveness not
later than the date the Registration Statement becomes effective, to register
Common Stock and the Warrants pursuant to Section 12(g) of the Exchange Act,
such registration statement to become effective simultaneously with the
effectiveness of the Registration Statement, and shall thereafter use its best
efforts to keep such registration effective. The Company shall comply with the
Securities Act, the Regulations, the Exchange Act and the rules and regulations
promulgated Commission under the Exchange Act, the applicable rules and
regulations of the Nasdaq, and applicable state securities laws so as to permit
the continuance of sales of and dealings in the Securities in compliance with
applicable provisions of such laws, rules, and regulations, including the filing
with the Commission and the Nasdaq of all reports required to be so filed, and
the Company will deliver to the holders of the Securities all reports required
to be provided to such holders pursuant to such laws, rules, or regulations.
(k) Use of Proceeds. The Company shall apply the net proceeds
received from the sale of the Securities in the manner set forth under the
caption "Use of Proceeds" in the Prospectus. The Company shall report the use of
proceeds from the Offering in accordance with the Regulations and will provide a
copy of each such report to you and your counsel.
(l) Board Meetings and Membership.
(i) For a period of five (5) years commencing on the
Closing Date, the Underwriter shall have the right to designate one nominee
(reasonably acceptable to the Company based on the designee's character and
reputation) for election to the Company's Board of Directors. The Company shall
initially elect such designee as soon as possible after the identity of such
designee is provided to the Company and thereafter shall include the
Underwriter's designee as a member of the board of directors' slate. Following
the election of such nominee as a director, such person shall receive the same
compensation, including options, that is paid to other non-employee directors of
the Company and shall be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings including, but not limited to, food,
lodging and transportation. The Company agrees to indemnify and hold such
director harmless to the maximum extent permitted by law, against any and all
claims, actions, awards and judgments arising out of his or her service as a
director and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
director as an insured under such policy. Such director shall also serve on the
Company's audit, compensation and, if such committees are appointed, nominating
and executive
- 13 -
committees. The rights and benefits of such indemnification and the benefits of
such insurance shall, to the extent possible, extend to the Underwriter insofar
as it may be or may be alleged to be responsible for such director, without
additional cost to the Company.
(ii) In lieu of designating a member of the board
of directors pursuant to Paragraph 3(l)(i) of this Agreement, the Underwriter
shall have the right, during the five-year period commencing on the Closing
Date, to have one observer to attend all meetings of the Board of Directors of
the Company and its executive, audit, compensation and such other committees as
shall be designated by Underwriter. Such observer shall be entitled to the same
compensation and reimbursement for expenses of attending meetings as is provided
to non-employee directors and committee members and, to the extent it may
legally do so, such indemnity as is provided to the Company's non-employee
directors.
(m) Future Sales. Except for the permitted issuances described
below, for a period of one (1) year from the Effective Date, the Company shall
not sell or otherwise dispose of any Common Stock (or securities convertible
into or exercisable for Common Stock) or Preferred Stock of the Company or any
subsidiary of the Company without the Underwriter's prior written consent.
Permitted issuance shall mean shares of Common Stock issuable (i) upon the
exercise or conversion of options or warrants specifically contemplated in the
Prospectus or provided for in this Agreement, (ii) pursuant to and in order to
consummate a merger with or acquisition of an unaffiliated party in a
transaction negotiated at arms' length and approved by (A) a majority of the
Company's Board of Directors, and (B) all of the non-employee directors; (iii)
in a public offering approved by the Underwriter, and (iv) pursuant to a private
placement, at a price per share, or, with respect to convertible securities and
warrants, having an exercise or conversion price, not less than 80% of the
average of the closing bid prices of the Common Stock for ten (10) consecutive
trading days ending not earlier than three (3) days prior to the date of such
sale or on other terms acceptable to the Underwriter.
(n) Preferred Stock. The Company shall not create any series
of preferred stock or issue any shares of preferred stock for two years from the
Effective Date without the consent of the Underwriter.
(o) Press Releases. Prior to the later of the Closing Date or
the Option Closing Date, if any, the Company will not issue, directly or
indirectly, without your prior written consent (which consent shall not be
unreasonably withheld), any press release or other public communication or hold
any press conference with respect to the Company, its activities, or the public
offering, other than trade releases in the ordinary course of the Company's
business.
(p) Undertakings. The Company will comply with the provisions
of all undertakings contained in the Registration Statement or made in
connection with any application to register or qualify any of the Securities
under blue sky laws.
(q) Certain Deliveries to the Underwriter. The Company will
obtain from its officers, counsel, and accountants those certificates, opinions,
and letters referred to in Paragraph 6 of this Agreement.
(r) Key Man Life Insurance. The Company will obtain on or
before the Closing Date, and use its best efforts to maintain thereafter for the
term of their respective employment
- 14 -
with the Company, key man life insurance policies in the amount of $1,000,000
insuring the lives of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇. ▇. ▇▇▇▇▇▇▇▇▇ and ___________________,
of with the Company named as sole beneficiary.
(s) Employment Agreements. The Company has entered into
employment agreements with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇. ▇. ▇▇▇▇▇▇▇▇▇ on the terms that
are disclosed in the Prospectus.
(t) Redemption and Dividends. For a period of two (2) years
from the Closing Date, the Company shall not redeem any of its securities and
shall not pay any dividends or make any other cash distribution without
obtaining the Underwriter's prior written consent. 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. Nothing in this
Paragraph 3(s) shall be construed to prohibit the Company from calling the
Warrants for redemption subsequent to one year from the Effective Date.
(u) Restrictions on Sales, Options by Affiliates. The Company
will cause each of its officers, directors, five percent (5%) stockholders to
agree in writing that such person will not, during the six (6) month period
immediately following the Effective Date (the "Lockup Period"), offer, pledge,
sell (which term includes a short sale or sale against the box), contract to
sell, grant any option for the sale of, or otherwise transfer or dispose of,
directly or indirectly, any shares of the Company's Common Stock without
obtaining the Underwriter's prior written approval; provided that such persons
may transfer such securities in a private transaction to a person who agrees to
be subject to these restrictions.
(v) Outstanding Warrants, Options and Other Rights. There
shall not be outstanding on the Closing Date any warrants, options, or other
rights to purchase any shares of Common Stock, except as otherwise set forth in
the Prospectus. During the two (2) years following the Effective Date, the
Company shall not, without the prior written consent of the Underwriter, grant
options, rights or warrants or sell any securities to its officers, directors,
employees or consultants under its stock option plan as described in the
Prospectus or otherwise except at an exercise, purchase or conversion price
which is not less than the market price of the Common Stock on the date of
grant, issuance or sale, as the case may be.
(w) Restrictions on Filing Registration Statements. During the
eighteen (18) months following the Effective Date, the Company will not, without
the prior written consent of the Underwriter, register any securities pursuant
to the Securities Act, except that such restriction shall not apply to the
registration of Common Stock issuable pursuant to the Company's present stock
option plan, as described in the Prospectus, on a Form S-8 registration
statement.
(x) Waiver of Registration Rights. The Company shall obtain a
waiver of so-called "piggy-back" registration rights from any holders of any
securities of the Company who have the right to require inclusion of any or all
of their securities in the Registration Statement contemplated by this
Agreement.
- 15 -
(y) Directors and Officers Liability Insurance. Within ninety
(90) days after the effective date of the Registration Statement, the Company
will use its best efforts to obtain Directors and Officers Liability Insurance
in an amount no less than $5,000,000 per occurrence.
(z) Accounting Firm. The Company shall retain an independent
public accounting firm reasonably acceptable to the Underwriter for a period of
three (3) years from the Effective Date. The Underwriter agrees that the firm of
Panel ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, PC, is acceptable to the Underwriter. In addition, for a
period of two years from the Effective Date, the Company, at its expense, shall
cause its independent accounting firm to review, but not audit, the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report on Form 10-QSB and the mailing of quarterly financial
information to stockholders, if applicable.
(aa) Restrictions on Acquisitions. During the one (1) year
following the Closing Date, without the prior consent of the Underwriter, the
Company shall not enter into any agreement to acquire any other business or the
assets of any other business. The term "acquire" shall be broadly construed and
shall include the acquisition of assets, the merger with or into another
corporation or entity, whether directly by the Company or through a subsidiary,
or the acquisition of stock or other equity interests, however defined, of
another corporation, partnership, limited liability company, business trust,
sole proprietorship or other entity of any kind or description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing, filing,
and copying of the Registration Statement, Prospectus, this Agreement, blue sky
memoranda, the Agreement Among Underwriter, if any, the Selected Dealers
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter, the
costs of mailing Prospectuses to offerees and purchasers of the Securities, and
the out-of-pocket travel expenses of the Underwriter and counsel to the
Underwriter or other professionals designated by the Underwriter to visit the
Company's facilities or its counsel's offices for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and delivery
of certificates representing Common Stock and Warrants, including any transfer
or other taxes payable thereon; (iii) the registration or qualification of the
Securities under state securities or "blue sky" laws, including the reasonable
fees and disbursements of counsel (regardless of whether such counsel is also
counsel to the Underwriter, subject to the limitation set forth in Paragraph
4(c) of this Agreement) and filing fees in connection therewith; (iv) all
reasonable fees and expenses of the Company's counsel and accountants; (v) all
filing fees in connection with review of the terms of the Public Offering by the
NASD; (vi) all costs and expenses of any listing of the Securities, Common Stock
and Warrants on the SmallCap Market or the NNM and/or any other stock exchange
and/or in Standard and Poor's Stock Guide and/or any other securities manuals;
(vii) all costs and expenses of four (4) bound volumes provided to the
Underwriter and its counsel of all closing documents, paper exhibits,
correspondence and records forming the materials included in the Public
Offering; (viii) the reasonable costs and expenses of all pre-closing and
post-closing advertisements relating to the
- 16 -
Public Offering (such as tombstone adds), in addition to fifteen (15) lucite
cubes;(ix) all costs of holding informational meetings and "road shows;" and (x)
all other costs and expenses incurred or to be incurred by the Company in
connection with the transactions contemplated by this Agreement. The obligations
of the Company under this Paragraph 4(a) shall survive any termination or
cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds of the Public Offering, including in such
amount the proceeds from any sale of Option Units. The non-accountable expense
allowance due shall be paid at the Closing Date and any Option Closing Date, as
applicable, and shall include fees and disbursements of Underwriter's counsel
(exclusive of legal fees for state registration and qualification as provided in
Paragraph 4(c) of this Agreement), but shall not include fees of the Company's
counsel, state registration filing fees, NASD filing fees, Nasdaq listing fees,
printing and mailing to members of the underwriting or selling group, and any
and all other expenses customarily paid by the issuer in a public offering of
securities.
You hereby acknowledge your prior receipt from the Company of
$________, which amount shall be applied to the non-accountable expense
allowance due when and if the Public Offering is closed. If the Public Offering
does not close, then any portion of such amount in excess of your accountable
reimbursable expenses shall be returned promptly by you to the Company.
(c) Compliance with Blue Sky Laws. You shall determine in
which states or jurisdictions the Securities shall be registered or qualified
for sale. Copies of all applications and related documents for the registration
or qualification of securities (except for the Registration Statement and
Prospectus) filed with the various states shall be supplied to the Company's
counsel not later than one business day following their transmission to the
various states, and copies of all comments and orders received from the various
states shall be made available promptly to the Company's counsel. Immediately
prior to the Effective Date, counsel for the Underwriter shall advise counsel
for the Company in writing of all states in which the offering has been
registered or qualified for sale or has been canceled, withdrawn, or denied, the
date of each such event, and the number of Securities registered or qualified
for sale in each such state. The Company shall be responsible for the cost of
state registration or qualification filing fees and the legal fees of
Underwriter's counsel in connection with such filings, which filing fees are
payable to Underwriter's counsel in advance of such filings. The legal fees
payable by the Company with respect to blue sky filings by Underwriter's counsel
shall be fifty thousand dollars ($50,000), of which twenty five thousand dollars
($25,000) has been paid. The Company hereby acknowledges that any remaining
balance with respect to legal fees or blue sky filing fees is immediately due
and payable.
5. Unit Purchase Option; Other Financial Arrangements
(a) Unit Purchase Option. On the Closing Date, the Company
will sell to the Underwriter, for an aggregate price of $10, the Unit Purchase
Option to purchase an aggregate of one hundred twenty thousand (120,000) Units
from the Company at an exercise price equal to one hundred twenty percent (120%)
of the public offering price of the Units. The Unit Purchase
- 17 -
Option and the underlying securities shall be non-transferable (other than to
officers or partners of members of the underwriting or selling group or as
otherwise may be permitted by the NASD) during the one (1) year period
commencing on the Effective Date. The Unit Purchase Option and the terms of the
underlying securities shall be exercisable for a period of four (4) years
commencing one (1) year from the Effective Date. The Unit Purchase Option shall
be in substantially the form provided by the Underwriter and filed as an Exhibit
to the Registration Statement.
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter shall
introduce to the Company another party or entity (the "Introduced Party"), and,
as a result of such introduction, a Transaction is consummated with such
Introduced Party, the Company shall pay to the Underwriter a finder's fee (the
"Fee") equal to six percent (6%) of the first five million dollars ($5,000,000)
of the consideration paid or received in such Transaction; plus five percent
(5%) of the consideration in excess of five million dollars ($5,000,000) and up
to six million dollars ($6,000,000); plus four percent (4%) of the consideration
in excess of six million dollars ($6,000,000) and up to seven million dollars
($7,000,000); plus three percent (3%) of the consideration in excess of seven
million dollars ($7,000,000) and up to eight million dollars ($8,000,000); plus
two percent (2%) of the consideration in excess of eight million dollars
($8,000,000). As used in this Paragraph 5(b), a "Transaction" shall mean any of
the following (i) the sale of all or substantially all of the assets and
properties of the Company or all or substantially all of the stock of the
Company, (ii) the merger or consolidation of the Company with or into any other
corporation or other entity (other than a merger with a company owned or
controlled by the Company), (iii) the acquisition by the Company of the assets
or stock of another business entity in which the Company may be involved, or
(iv) a joint venture, licensing or marketing agreement or arrangement, however
structured.
(ii) The Fee shall be paid in cash at the closing
of the particular Transaction, regardless of whether the Transaction involves
installment payments or the consideration paid includes securities or a
combination of securities and cash; provided, however, that in the event that
the Transaction is a marketing or license or other agreement pursuant to which a
stream of revenue or cash receipts may be generated or other Transaction where
it is impossible to determine the value of the consideration to be paid or
received or in the event that there are contingent payments, the Fee shall be
paid with respect to each payment at the same time as the payment is made or
received, as the case may be, regardless of when the payment is received as long
as the original agreement pursuant to which the payment is made was entered into
during the five (5) year period commencing on the Effective Date. No
modification of payment or other terms of any agreement shall impair the
Underwriter's right to the Fee. In the event that the Transaction involves a
merger or sale of assets or tender offer or sale of stock where the
consideration is paid to any or all of the Company's stockholders, the
consideration paid to such stockholders shall be included in the consideration
paid or received for purposes of computing the Fee. All references to the
Company in the context of a Transaction shall include ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.,
any of its present or future subsidiaries or any affiliate of the Company,
regardless of whether such party shall pay or receive the consideration paid in
the Transaction.
- 18 -
(iii) In determining the value of the consideration
paid or received, the following provisions shall apply:
(A) Any securities which are regularly traded
on a securities exchange or in the over-the-counter market shall be valued at
the average of the closing prices in the case of securities listed on the New
York or American Stock Exchange or the Nasdaq Stock Market (or the closing bid
price if there are no transactions on any of such days) or the average of the
closing bid prices, as reported by Nasdaq or the National Quotation Bureau, Inc.
or similar recognized reporting agency, in the case of securities not traded on
such exchanges or in such markets on the ten (10) trading days prior to the
earlier of (I) the date of the agreement or (II) in the event that a press
release or other announcement is made by the Company and/or the Introduced Party
concerning the Transaction and the consideration provided for in the agreement
includes the transfer of a fixed number of securities, the date of such press
release or announcement.
(B) Any debt securities which are not
regularly traded on a securities exchange or on the over-the-counter market
shall be valued at the principal amount thereof if such obligations bear a
stated interest rate or, if no interest rate is stated, at the present value of
the payments due, discounted using an interest rate equal to the prime rate of
Chemical Bank in effect on the second business day prior to the closing date.
(C) The consideration received in a joint
venture shall be based on the consideration paid to the joint venture by the
Introduced Party plus any additional consideration paid by or on behalf of the
joint venture partner to the Company.
(D) In the event that the Transaction involves
the receipt by the Company of property or equipment the consideration shall be
fair value of the property and equipment.
(E) In the event that the fair market value of
any property cannot be determined pursuant to the application of Paragraph
5(b)(iii) of this Agreement and the Company and the Underwriter shall not be
able to agree on a value, the value shall be determined by an appraiser jointly
selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph 5(b)
to the contrary, if the Company shall, within one hundred eighty (180) days
immediately following the expiration of five (5) years from the Effective Date,
consummate a Transaction with an Introduced Party which was introduced by the
Underwriter to the Company during such five (5) year period, the Company shall
pay the Underwriter the Fee in the same manner as is otherwise provided in this
Paragraph 5(b).
6. Conditions to the Obligations of the Underwriter. The obligation of
Underwriter to purchase and pay for the Securities shall be subject to the
accuracy in all material respects, as of the date of this Agreement and each
Closing Date (whether the Closing Date with respect to the Firm Units or an
Option Closing Date with respect to the Option Units), as if made on such
Closing Date, of the representations and warranties of the Company contained in
this Agreement and the following additional conditions:
- 19 -
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have become
effective not later than 5:30 P.M., Eastern Time, on the date of this Agreement,
or such later time or date as shall have been consented to by you in writing
(the "Effective Date").
(ii) On the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Securities under the blue sky laws of any jurisdiction (whether or not a
jurisdiction specified by the Underwriter) shall have been issued, and no
proceeding for that purpose shall have been initiated or shall be threatened or
contemplated by the Commission or the authorities of any such jurisdiction.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the Registration
Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date, with the same effect as if made on
the Closing Date, and the Company shall have complied with all the agreements
and satisfied all the obligations required to be performed or satisfied by it at
or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and the
Prospectus shall contain all statements required to be stated therein in
accordance with the Securities Act and the Regulation and the Registration
Statement and the Prospectus shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, since the
Effective Date, there shall not have occurred any event required to be set forth
in an amended or supplemented Prospectus that has not been so set forth (except
any such statement or omission based upon information furnished in writing by or
on behalf of the Underwriter for inclusion in the Registration Statement).
(d) No Material Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, (i) there shall have been
no material adverse changes with respect to the officers, directors, operations,
capitalization, contractual obligations, legal proceedings, proposed use of
proceeds from the sale of the Securities, business, plans or prospects, net
assets or liabilities or obligations, properties, or any other aspect of the
financial condition or results of operations of the Company or the Subsidiary,
(ii) neither the Company nor the Subsidiary shall have entered into any material
transaction not in the ordinary course of business, (iii) neither the Company
nor the Subsidiary shall have paid or declared any dividends or other
distributions on its capital stock, (iv) the conduct of the business and
operations of the Company and the Subsidiary shall not have been materially
interfered with by strike, fire, flood, hurricane, accident or other calamity
(whether or not insured), or by any court or governmental action, order or
decree, and the properties of the Company and the Subsidiary shall not have
sustained any material loss or damage (whether or not insured) as a result of
any such occurrence, and (v) except as set forth in the Prospectus, there are no
actions, suits, proceedings or investigations pending before any arbitrator,
court or governmental agency, authority or body
- 20 -
or, to the Company's Knowledge, threatened, to which the Company or the
Subsidiary is a party or of which the business or property of the Company or the
Subsidiary is the subject and which, if adversely decided, could reasonably be
expected to have a material adverse affect on the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company or the Subsidiary, and there have been no material adverse development
in any such suits, actions, proceedings or investigations.
(e) NASD. The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Securities by the Underwriter. No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date, for any member firm of the NASD to execute transactions (as
principal or as agent) in the Securities, Common Stock or Warrants and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the Underwriter's or the Company's Knowledge, shall be
contemplated by the Commission or the NASD. The Company represents at the date
of this Agreement, and shall represent as of the Closing Date or Option Closing
Date, as the case may be, that it has no Knowledge that any such action is in
fact contemplated by the Commission or the NASD.
(f) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and all proceedings taken in
connection with the authorization, issuance, or sale of the Securities as herein
contemplated, shall be reasonably satisfactory in form and substance to you.
(g) Officers' Certificate. The Company shall have furnished to
the Underwriter a certificate of the President and of the Chief Financial
Officer of the Company, dated the day of the Closing Date, to the effect that
each signer of such certificate has examined the Registration Statement, the
Prospectus, and this Agreement, and confirming, in form satisfactory to the
Underwriter, that the compliance by the Company of the conditions set forth in
Paragraphs 6(a) through (d) of this Agreement have been satisfied.
(h) Opinion of Company Counsel. The Company shall have
furnished to the Underwriter the opinion of Pepe and Hazard, LLP, counsel for
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to counsel to the Underwriter and substantially in the form of
Exhibit A attached hereto. In rendering the opinion, such counsel may rely as to
matters of fact, to the extent they deem proper, upon certificates of the
Company's officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is
executed and as of the Closing Date, ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, PC, independent
public accountants for the Company, shall have furnished to you a letter
addressed to the Underwriter and dated the date of this Agreement or the Closing
Date, as applicable, in form and substance previously approved by the
Underwriter and its counsel.
(j) Agreements with Stockholders. The Underwriter shall have
received the agreements, in form and substance satisfactory to the Underwriter,
as contemplated by Paragraph 3(u) of this Agreement.
- 21 -
(k) Change in Capitalization. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any material adverse change or decrease in
the capital stock or long-term debt obligations of the Company or any decreases
in stockholders' equity, net assets or current net assets of the Company or any
material adverse change in the financial position, revenues, expenses or results
of operations of the Company or the Subsidiary, each as compared with the
amounts shown in the most recent financial statements included in the
Registration Statement, except as disclosed in the Prospectus, that makes it
impractical or inadvisable in the reasonable judgment of the Underwriter to
proceed with the Public Offering or the delivery of the Securities, as the case
may be, as contemplated in the Prospectus.
(l) Other Agreements. The Company shall have executed and
delivered to the Underwriter the Warrant Agreement and the Unit Purchase Option
to purchase one hundred twenty thousand (120,000) Units.
(m) Opinion of Underwriter's Counsel. The Underwriter shall
have received an opinion from Esanu Katsky ▇▇▇▇▇▇ & Siger, LLP, counsel for the
Underwriter, as to the organization of the Company, the validity of the
Securities, the form of the Registration Statement and the Prospectus, and such
other related matters as you may request, and such counsel shall have been
furnished by the Company such papers and information as they request to enable
them to pass upon such matters. It is understood that such counsel will express
no opinion with respect to the financial statements and other financial,
accounting, and statistical data included in the Registration Statement and the
Prospectus. In rendering the foregoing opinion, such counsel shall be entitled
to rely upon the opinion delivered to the Underwriter pursuant to Paragraph 6(h)
of this Agreement as to matters of Federal securities law, and may rely as to
matters of fact upon such certificates and other documents and information as
they may reasonably request for purposes of such opinion.
(n) Other Information. Prior to the Closing Date, the Company
shall have furnished to the Underwriter such further information, certificates,
and documents in connection with the Company's obligations set forth in this
Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriter hereunder may be terminated by you at, or
at any time prior to, the Closing Date. Notice of such termination shall be
given to the Company in writing, or by facsimile transmission or telephone and
confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Underwriter and each person who controls any
Underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act, or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact made by the Company in this Agreement, (ii)
any untrue statement or alleged untrue statement of a material
- 22 -
fact made by the Company contained in the Registration Statement, or any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any
amendment thereof or supplement thereto, or in any blue sky application or other
document executed by the Company specifically for that purpose (or based upon
written information furnished by the Company) filed in any state or other
jurisdiction in order to qualify any of the Securities or other Securities under
the securities laws thereof (any such application, document or information being
referred to as a "Blue Sky Application"); or (iii) the omission or alleged
omission to state in any such Registration Statement, Preliminary Prospectus or
Prospectus, or amendment thereof or supplement thereto, or Blue Sky Application
a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein or omitted therefrom in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of you or such Underwriter specifically for use in
connection with the preparation thereof, and further provided, however, that the
foregoing indemnity with respect to any untrue statement, alleged untrue
statement, omission, or alleged omission contained in any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such loss, claims any of, damage, or liability purchased any of the
securities that are the subject thereof (or to the benefit of any person who
controls such Underwriter), if a copy of the Prospectus was not delivered to
such person with or prior to the written confirmation of the sale of such
security to such person. This indemnity agreement will be in addition to any
liability that the Company may otherwise have.
(b) Indemnification by Underwriter. Underwriter agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed or signs the Registration Statement, and each person who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Securities Act, the Exchange
Act, or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or any amendment thereof or supplement thereto, or in a Blue Sky
Application, or (ii) the omission or the alleged omission to state in any such
Registration Statement, Preliminary Prospectus or Prospectus, amendment thereof
or supplement thereto, or Blue Sky Application a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
in each case to the extent, but only to the extent, that the same was made
therein or omitted therefrom in reliance upon and in conformity with written
information furnished to the Company by or on behalf of you or such Underwriter
specifically for use in the preparation thereof, and agrees to reimburse each
such indemnified party for any legal or other expenses reasonably incurred by it
in connection with investigating or defending against any such loss, claim,
damage, liability or action. This indemnity agreement will be in addition to any
liability that the Underwriter may otherwise have.
(c) Claims. Within five (5) days after receipt by an
indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of the
commencement of any action, such
- 23 -
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; the failure so to notify the indemnifying
party shall relieve the indemnifying party from any liability under this
Paragraph 7 as to the particular item for which indemnification is then being
sought, unless such indemnifying party has otherwise received actual notice of
the action at least thirty (30) days before any answer or response is required
by the indemnifying party in its defense of such action, but will not relieve it
from any liability that it may have to any indemnified party otherwise than
under this Paragraph 7. If any such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof; provided, that if the defendants in any such action include
both the indemnified party and the indemnifying party and either (i) the
indemnifying party or parties agree, or (ii) representation of both the
indemnifying party or parties and the indemnified party or parties by the same
counsel is inappropriate under applicable standards of professional conduct
because of actual or potential conflicting interests between them, then the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defense and to otherwise participate in the defense of such
action. The indemnifying party will not be liable to such indemnified party
under this Paragraph 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel approved by the
indemnifying party for all indemnified parties), (ii) the indemnifying party
shall not have employed counsel to represent the indemnified party within a
reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall an
indemnifying party be liable under this Paragraph 7 for any settlement, effected
without its written consent, which consent shall not be unreasonably withheld,
of any claim or action against an indemnified party.
(d) Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) an indemnified
party makes a claim for indemnification pursuant to Paragraphs 7(a) or (b) of
this Agreement (subject to the limitations thereof) but 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 that the provisions of this Paragraph 7 provide for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any indemnified or indemnifying party in
circumstances for which indemnification is provided under Paragraphs 7(a) or (b)
of this Agreement, then, and in each such case, the Company and the Underwriter
shall contribute to the aggregate losses, claims, damages, or liabilities to
which they may be subject (after contribution from all others) in such
proportion so that the Underwriter is responsible for that portion represented
by the percentage that the underwriting discount appearing on the cover page of
the Prospectus bears to the Public Offering Price appearing thereon, and the
Company is responsible for the remaining portion; provided, however, that if
such allocation is not permitted by applicable law, then the relative fault of
the Company and the Underwriter in connection with the statements or omissions
that resulted in such losses, liabilities, claims, and damages and other
relevant equitable considerations shall
- 24 -
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company or by the Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Paragraph 7(d) were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriter and their respective controlling
persons in the aggregate were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Paragraph 7(d). For
purposes of this Paragraph 7(d), the term "damages" shall include any legal or
other expenses reasonably incurred by the indemnified party in connection with
investigating or defending against or appearing as a third party witness in any
action or claim that is the subject of the contribution provisions of this
Paragraph 7(d). Notwithstanding the provisions of this Paragraph 7(d), an
Underwriter and its controlling persons collectively shall not be required to
contribute any amount in excess of the difference between the total price of the
Securities purchased by the Underwriter, directly or indirectly, from the
Company pursuant to this Agreement and the amount of any damages that such
Underwriter and its controlling persons collectively have been required to pay
by reason of such untrue statement or omission other than pursuant to this
Paragraph 7(d). No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For the purposes of this Paragraph 7(d), any person who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contributions
as the Underwriter and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company within Section 15 of the Securities Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as the Company.
The foregoing contribution agreement shall in no way
affect the contribution liabilities of any person having liability under Section
11 of the Securities Act other than the Company and the Underwriter and persons
controlling the Company or the Underwriter.
After receipt by any party to this Agreement of
notice of the commencement of any action, suit, or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof within a reasonable time thereafter, but the failure so to
notify the contributing party will not relieve the contributing party from any
liability that it may have to any party other than for contribution pursuant to
this Paragraph 7(d). Any notice given pursuant to any other provision of this
Paragraph 7 shall be deemed to be like notice pursuant to this Paragraph 7(d).
If any such action, suit or proceeding is brought against any party, and such
person notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified, subject to the
provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 7, and
the covenants, representations and warranties of the Company set forth in this
Agreement, shall remain operative and in full force
- 25 -
and effect regardless of (i) any investigation made by the Underwriter or on
their behalf or by or on behalf of any person who controls any Underwriter, by
the Company or any controlling person of the Company or any director or any
officer of the Company, (ii) acceptance of the Securities and payment therefor,
or (iii) any termination of this Agreement, and shall survive the delivery of
the Securities, and any successor to the Company or to any Underwriter or any
person who controls any Underwriter or the Company, as the case may be, shall be
entitled to the benefit of such respective indemnity and contribution
agreements.
8. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement, or at
such date after the effective time of the Registration Statement as you, in your
discretion, shall first release the Securities for sale to the public; provided,
however, that the provisions of Paragraphs 4, 6, and 7 of this Agreement shall
at all times be in full force and effect. For the purposes of this Paragraph 8,
the Securities shall be deemed to have been released for sale to the public upon
release by you after effectiveness of the Registration Statement of a newspaper
advertisement relating to the Securities or upon release by you thereafter of
telegrams advising securities dealers of the effectiveness of the Registration
Statement, whichever shall first occur.
9. Termination. This Agreement may be terminated, in your absolute
discretion, by notice given to the Company prior to the Closing Date if the
Company shall have failed, refused, or been unable, prior to the Closing Date,
to perform any material agreement required to be performed by it hereunder, or
if any other condition of the Underwriter's obligations hereunder required to be
fulfilled by the Company is not fulfilled. In addition, this Agreement may be
terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (a) material governmental restrictions (not in
force and effect on the date of this Agreement) have been imposed on trading in
securities on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market; (b) the determination by you that there shall have
occurred a material adverse change, beyond normal fluctuations, in general
financial market or economic conditions from such conditions on the date of this
Agreement; (c) a material interruption in mail or telecommunications service or
other general means of communications within the United States after the
execution and delivery of this Agreement; (d) a banking moratorium has been
declared by Federal or New York state authorities; (e) an outbreak of major
international hostilities or other national or international calamity has
occurred; (f) the passage by the Congress of the United States or by any state
legislative body of any act or measure, or the adoption of any orders, rules, or
regulations by any governmental body or executive or any authoritative
accounting institute or board, that you believe will have a Material Adverse
Effect on the business, financial condition, or financial statements of the
Company or the distribution of the Securities or market for the Securities; or
(g) any material adverse change has occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business. Any such termination shall be without liability of
any party to any other party, except as provided in Paragraph 7 in this
Agreement and except that the Company shall remain obligated to pay costs and
expenses pursuant to Paragraph 4 in this Agreement. If you elect to prevent this
Agreement from becoming effective, or to terminate this Agreement, as provided
in this Paragraph 9, you shall promptly notify the Company by telecopier or
telephone, and confirm by letter, and the Underwriter shall not be under any
liability to the Company.
- 26 -
10. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained in
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, any Underwriter or the Company, or
any of your or their respective officers or directors or controlling persons,
and will survive delivery of and payment for the Securities and the Unit
Purchase Option.
11. Notices. All notices and other communications hereunder (unless
otherwise expressly provided for in this Agreement) shall be in writing and
shall be deemed given when delivered in person or by overnight courier service
or Express Mail, on the business day (before 5:00 P.M.) transmitted if sent by
facsimile transmission or similar means of communication if receipt if confirmed
or if transmission is confirmed as otherwise provided in this Paragraph 11, or
the fifth (5th) day after mailing if mailed if sent by registered or certified
mail (return receipt requested) to the party to receive the same at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to the Company: ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.,Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, President
With a copy to: Pepe & Hazard, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
617-695-9255-Fax
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
If to the Underwriter: HD ▇▇▇▇▇ & Co., Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman
With a copy to: Esanu Katsky ▇▇▇▇▇▇ & Siger, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ P.C.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. The terms
"successor" and "successors and assigns" as used in this Agreement shall not
include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire
understanding between the parties to this Agreement and supersedes any prior or
contemporaneous oral or prior written agreement, understandings or letter of
intent, and may not be modified or amended nor may any right be waived except by
a writing signed by all parties in the case of a modification or
- 27 -
amendment or the party to be charged in the case of a waiver. No course of
conduct or dealing and no trade custom or practice shall be construed to modify
any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken together
shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements executed and to be performed wholly within such State.
Please confirm, by signing and returning to the Company
counterparts of this Underwriting Agreement, that the foregoing correctly sets
forth the understanding between the Company and you, whereupon this Agreement
will constitute a binding agreement among us.
Very truly yours,
▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, INC.
By:
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, President
Confirmed and Accepted as of
the date first above-written:
HD ▇▇▇▇▇ & CO, INC.
By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman
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Exhibit A
Opinion of Company Counsel
1. The Company and the Subsidiary (a) has been duly incorporated and is
a validly existing corporation in good standing under the laws of the state of
its incorporation, with full corporate power and authority to own and operate
its properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (b) on the Effective Date has authorized and
outstanding capital stock as set forth in the Prospectus, and (c) is duly
licensed or qualified as a foreign corporation in Massachusetts and all other
jurisdictions in which by reason of owning or leasing real property in such
jurisdiction it is required to be so licensed or qualified except where failure
to be so qualified or licensed would have no Material Adverse Effect.
2. All of the outstanding shares of Common Stock are duly and validly
authorized and issued and outstanding, fully paid and non-assessable, conform to
the description set forth in the Prospectus and do not have any, and were not
issued in violation of any, preemptive rights under the Company's certificate of
incorporation or by-laws or any other agreement known to such counsel.
3. The Company has authorized and reserved for issuance the shares of
Common Stock issuable (a) upon exercise of the outstanding options or warrants
(other than the Warrants) in accordance with the terms of the applicable options
or warrants, (b) upon exercise of the Warrants, including Warrants issued upon
exercise of the Unit Purchase Option, pursuant to the terms of the Warrants and
the Warrant Agreement, and (c) upon exercise of the Unit Purchase Option, and
when issued upon such exercise, such shares of Common Stock will be duly and
validly authorized and issued, fully paid and non-assessable and not subject to
any preemptive rights or rights of first refusal pursuant to the Company's
certificate of incorporation or by-laws or other agreement known to such
counsel.
4. The shares of Common Stock included in the Units offered pursuant to
the Prospectus (a) are duly and validly authorized and issued, fully paid and
non-assessable, (b) have not been issued in violation of the pre-emptive rights
or rights of first refusal pursuant to the Company's certificate of
incorporation or any agreement known to such counsel and (c) are not subject to
any liens, encumbrances, claims, security interests, stockholders agreements,
voting trusts or restrictions on voting or transfer other than as disclosed in
the Prospectus or as may be imposed under Federal and state securities laws.
5. The Warrants and the Unit Purchase Option, when issued as provided
in this Agreement and/or the Unit Purchase Option, will constitute the valid,
binding and enforceable obligations of the Company, subject to bankruptcy,
insolvency and other laws of general applications affecting the enforceability
of creditors' rights and subject to the discretionary nature of any remedies in
the nature of equitable relief and except that no opinion is given with respect
to the indemnification and contribution provisions of the Underwriter's
Warrants.
6. The shares of Common Stock and Warrants included in the Units
offered pursuant to the Prospectus, when issued pursuant to this Agreement upon
payment of the consideration provided for in this Agreement, will, to such
counsel's knowledge, be free of all liens, encumbrances, claims, security
interests, restrictions (other than those disclosed in the
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Prospectus or imposed by Federal or state securities laws), stockholders'
agreements and voting trusts resulting from agreements known to such counsel to
which the Company is a party.
7. The shares of Common Stock issuable upon exercise of the Unit
Purchase Option and upon exercise of the Warrants issuable upon exercise of the
Unit Purchase Option have been duly and validly authorized for issuance, and
when issued pursuant to the terms of the Unit Purchase Option and/or the Warrant
Agreement, as the case may be, will be validly issued, fully paid and
non-assessable; the Warrants issuable upon exercise as provided in the Unit
Purchase Option, will constitute the valid and binding obligations of the
Company, subject to bankruptcy, insolvency and other laws of general
applications affecting the enforceability of creditors' rights and subject to
the discretionary nature of any remedies in the nature of equitable relief in
any legal or equitable action.
8. Except as set forth in or contemplated by the Prospectus, to such
counsel's knowledge, as of the date of this Agreement, there were no outstanding
options, warrants or other rights providing for the issuance of any class of
capital stock of the Company, or any security convertible into, or exchangeable
for, any shares of any class of capital stock of the Company.
9. To such counsel's knowledge, neither the filing of the Registration
Statement nor the offering of the Units as contemplated by this Agreement gives
rise to any registration rights or other rights, other than those which have
been waived or satisfied, relating to the registration under the Act of any
shares of Common Stock.
10. The certificates evidencing the shares of Common Stock and Warrants
are in proper legal form.
11. To such counsel's knowledge, no consents, approvals, authorizations
or orders of agencies, officers or other regulatory authorities are necessary
for the valid authorization, issue or sale of the Securities pursuant to this
Agreement, except such as may be required under the Securities Act, the Exchange
Act or state securities or blue sky laws or pursuant to the NASD's rules,
regulations and policies or as required under the regulations of the Nasdaq
SmallCap Market.
12. This Agreement, the Warrant Agreement and the Unit Purchase Option
have been duly authorized and executed by the Company and constitute the valid
and binding agreements of the Company, enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency and other laws of general
applications affecting the enforceability of creditors' rights and subject to
the discretionary nature of any remedies in the nature of equitable relief and
except that no opinion is given with respect to the provisions of Paragraph 7 of
this Agreement.
13. The Company has corporate power and authority to authorize, issue
and sell the Securities on the terms and conditions set forth in this Agreement,
the Warrant Agreement, the Unit Purchase Option, as the case may be, and in the
Registration Statement and in the Prospectus, and the execution and delivery of
this Agreement, the consummation of the transactions contemplated by this
Agreement, the Warrant Agreement and the Unit Purchase Option and compliance by
the Company with the terms of this Agreement, the Warrant Agreement and the Unit
Purchase Agreement will not conflict with, or constitute a default under, the
certificate of incorporation or by-laws of the Company or any indenture,
mortgage, deed or trust, note or any
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other agreement or instrument known to such counsel to which the Company or the
Subsidiary is a party or by which they or their respective businesses or their
properties are bound, or, to such counsel's knowledge, any law, order, rule or
regulation, writ, injunction or decree of any government, governmental
instrumentality, or court having jurisdiction over the Company, the Subsidiary
or their respective businesses or properties.
14. Such counsel knows of no actions, suits or proceedings at law or in
equity of a material nature pending, or to such counsel's knowledge, threatened,
against the Company before or by any state commission, regulatory body, or
administrative agency or other governmental body, wherein an unfavorable ruling,
decision or finding would materially adversely affect the business or financial
condition of the Company or which question either (a) the validity of the
issuance of the Securities, the execution of the Underwriting Agreement, the
Warrant Agreement or the Unit Purchase Option by the Company, or (b) any action
taken or to be taken by the Company pursuant to the Underwriting Agreement, the
Warrant Agreement or the Unit Purchase Option, which are not disclosed in or
contemplated by the Prospectus.
15. The Registration Statement has become effective under the Act.
Furthermore, the Registration Statement and the Prospectus (except as
to the financial statements and other financial, statistical and accounting
information contained therein or omitted therefrom, as to which no opinion is
expressed), comply as to form in all material respects with the requirements of
the Act and the rules and regulations (the "Rules") of the Commission under the
Securities Act. In passing upon the form of such documents, such counsel has
assumed the correctness and completeness of the statements made or included
therein by the Company and take no responsibility for the accuracy, completeness
or fairness of the statements contained therein except insofar as such
statements relate to the description of the Securities or relate to such
counsel. However, in the course of the preparation by the Company of the
Registration Statement and the Prospectus, such counsel had conferences with
officers and directors of the Company in connection with the preparation of the
Registration Statement and Prospectus, and, without independently verifying the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and relying on the Company's officers
regarding materiality, no facts have come such counsel's attention which gave
such counsel reason to believe that the Registration Statement, as of the
effective date thereof (except as to the financial statements and other
financial, statistical and accounting information contained therein or omitted
therefrom, as to which no opinion is expressed), contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or that the Prospectus
(except as to the financial statements and other financial, statistical and
accounting information contained therein or omitted therefrom, as to which no
opinion is expressed) contained any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such counsel
does not know of any documents which are required to be filed as exhibits to the
Registration Statement which have not been so filed.
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