Exhibit 1
FORM OF
UNDERWRITING AGREEMENT
Between
GIGABEAM CORPORATION
and
HCFP/▇▇▇▇▇▇▇ SECURITIES LLC
Dated: ____________, 2004
Table of Contents
Page
----
1. Purchase and Sale of Securities...............................................................1
1.1 Firm Securities......................................................................1
1.1.1 Purchase of Firm Securities.................................................1
1.1.2 Delivery and Payment........................................................2
1.2 Over-Allotment Option................................................................2
1.2.1 Option Securities...........................................................2
1.2.2 Exercise of Option..........................................................2
1.2.3 Payment and Delivery........................................................2
1.3 Representative's Purchase Option.....................................................3
1.3.1 Purchase Option.............................................................3
1.3.2 Payment and Delivery........................................................3
2. Representations and Warranties of the Company.................................................3
2.1 Filing of Registration Statement.....................................................3
2.1.1 Pursuant to the Act.........................................................3
2.1.2 Pursuant to the Exchange Act................................................4
2.2 No Stop Orders, Etc..................................................................4
2.3 Disclosures in Registration Statement................................................4
2.3.1 Securities Act Representation...............................................4
2.3.2 Disclosure of Contracts.....................................................4
2.3.3 Prior Securities Transactions...............................................5
2.4 Changes After Dates in Registration Statement........................................5
2.4.1 No Material Adverse Change..................................................5
2.4.2 Recent Securities Transactions, Etc.........................................5
2.5 Independent Accountants..............................................................5
2.6 Financial Statements.................................................................5
2.7 Authorized Capital; Options; Etc.....................................................6
2.8 Valid Issuance of Securities; Etc....................................................6
2.8.1 Outstanding Securities......................................................6
2.8.2 Securities Sold Pursuant to this Agreement..................................6
2.9 Registration Rights of Third Parties.................................................7
2.10 Validity and Binding Effect of Agreements............................................7
2.11 No Conflicts, Etc....................................................................7
2.12 No Defaults; Violations..............................................................7
2.13 Corporate Power; Licenses; Consents..................................................8
2.13.1 Conduct of Business.........................................................8
2.13.2 Transactions Contemplated Herein............................................8
2.14 Title to Property; Insurance.........................................................8
2.15 Litigation; Governmental Proceedings.................................................8
2.16 Good Standing........................................................................9
2.17 Taxes................................................................................9
2.18 Employees' Options...................................................................9
2.19 Transactions Affecting Disclosure to NASD............................................9
2.19.1 Finder's Fees...............................................................9
2.19.2 Payments Within Twelve Months...............................................9
2.19.3 Use of Proceeds............................................................10
2.19.4 Insiders' NASD Affiliation.................................................10
Table of Contents (cont.)
Page
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2.20 Foreign Corrupt Practices Act.......................................................10
2.21 Bulletin Board [and Exchange] Eligibility...........................................10
2.22 Intangibles.........................................................................10
2.23 Relations With Employees............................................................11
2.23.1 Employee Matters...........................................................11
2.23.2 Employee Benefit Plans.....................................................11
2.24 Officers' Certificate...............................................................11
2.25 Warrant Agreement...................................................................12
2.26 Lock-Up Agreements..................................................................12
2.27 Subsidiaries........................................................................12
2.28 Environmental Matters...............................................................12
2.29 Product Liability Insurance.........................................................12
2.30 Conversion of 10% Notes.............................................................12
2.31 Related Party Transactions..........................................................12
2.32 Standard & Poor's Listing...........................................................12
2.33 Regulatory Compliance...............................................................12
2.34 Board of Directors..................................................................12
2.35 No Stop Orders......................................................................13
2.36 Non Non-Competition Obligations.....................................................13
3. Covenants of the Company.....................................................................13
3.1 Amendments to Registration Statement................................................13
3.2 Federal Securities Laws.............................................................13
3.2.1 Compliance.................................................................13
3.2.2 Filing of Final Prospectus.................................................13
3.2.3 Exchange Act Registration..................................................13
3.3 Blue Sky Filings....................................................................13
3.4 Delivery to the Underwriters of Prospectuses........................................14
3.5 Events Requiring Notice to the Representative.......................................14
3.6 Review of Financial Statements......................................................14
3.7 Exchange Maintenance................................................................14
3.8 Standard & Poor's and Secondary Market Trading......................................14
3.9 Warrant Solicitation and Registration of Common Stock Underlying
the Warrants........................................................................15
3.9.1 Warrant Solicitation Fees..................................................15
3.9.2 Registration of Common Stock...............................................15
3.10 Reports to the Representative.......................................................15
3.10.1 Periodic Reports, Etc......................................................15
3.10.2 Transfer Sheets and Weekly Position Listings...............................16
3.10.3 Secondary Market Trading Memorandum........................................16
3.11 Agreements between the Representative and the Company...............................16
3.11.1 Merger and Acquisition Agreement...........................................16
3.11.2 Financial Advisory Agreement...............................................16
3.11.3 Representative's Purchase Option...........................................16
3.12 Disqualification of Form SB-2 or Form S-1 (or other appropriate form)...............16
3.13 Payment of Expenses.................................................................17
3.13.1 General Expenses...........................................................17
3.13.2 Non-Accountable Expenses...................................................17
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Table of Contents (cont.)
Page
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3.14 Application of Net Proceeds.........................................................18
3.15 Delivery of Earnings Statements to Security Holders.................................18
3.16 Key Person Life Insurance...........................................................18
3.17 Stabilization.......................................................................18
3.18 Internal Controls...................................................................18
3.19 Accountants and Lawyers.............................................................18
3.20 Transfer Agent......................................................................18
3.21 NASD................................................................................19
3.22 Sale of Securities..................................................................19
4. Conditions of the Underwriters' Obligations..................................................19
4.1 Regulatory Matters..................................................................19
4.1.1 Effectiveness of Registration Statement....................................19
4.1.2 NASD Clearance.............................................................19
4.1.3 No Blue Sky Stop Orders....................................................19
4.2 Company Counsel Matters.............................................................19
4.2.1 Effective Date Opinion of Counsel..........................................19
4.2.2 Closing Date and Option Closing Date Opinion of Counsels...................20
4.2.3 Reliance...................................................................20
4.2.4 [Intentionally Omitted]....................................................20
4.3 Cold Comfort Letter.................................................................20
4.4 Officers' Certificates..............................................................21
4.4.1 Officers' Certificate......................................................21
4.4.2 Secretary's Certificate....................................................21
4.5 No Material Changes.................................................................22
4.6 Delivery of Agreements..............................................................22
4.7 Opinion of Counsel for the Underwriters.............................................22
4.8 Unaudited Financials................................................................22
5. Indemnification..............................................................................23
5.1 Indemnification of Underwriters.....................................................23
5.1.1 General....................................................................23
5.1.2 Procedure..................................................................23
5.1.3 Indemnification of the Company.............................................24
5.2 Contribution........................................................................24
5.2.1 Contribution Rights........................................................24
5.2.2 Contribution Procedure.....................................................25
6. Default by an Underwriter....................................................................25
6.1 Default Not Exceeding 10% of Firm Securities or Option Securities...................25
6.2 Default Exceeding 10% of Firm Securities or Option Securities.......................25
6.3 Postponement of Closing Date........................................................26
7. Right to Appoint Representative..............................................................26
8. Additional Covenants.........................................................................26
8.1 Board Composition and Board Designations............................................26
8.2 Management Rights...................................................................27
8.3 Employment and Compensation Matters.................................................27
8.4 Press Releases......................................................................27
9. Representations and Agreements to Survive Delivery...........................................28
10. Effective Date of This Agreement and Termination Thereof.....................................28
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Table of Contents (cont.)
Page
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10.1 Effective Date......................................................................28
10.2 Termination.........................................................................28
10.3 Notice..............................................................................28
10.4 Expenses............................................................................28
10.5 Indemnification.....................................................................29
11. Miscellaneous................................................................................29
11.1 Notices.............................................................................29
11.2 Headings............................................................................29
11.3 Amendment...........................................................................30
11.4 Entire Agreement....................................................................30
11.5 Binding Effect......................................................................30
11.6 Governing Law, Jurisdiction.........................................................30
11.7 Execution in Counterparts...........................................................30
11.8 Waiver, Etc.........................................................................30
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INDEX OF DEFINITIONS
Term Section
---- -------
Act.....................................................................2.1.1
AMEX.....................................................................2.21
Closing Date............................................................1.1.2
Code ..................................................................2.23.2
Commission..............................................................2.1.1
Common Stock............................................................1.1.1
Company..........................................................Introductory
Paragraph
Debentures...............................................................2.26
Effective Date..........................................................1.2.2
ERISA..................................................................2.23.2
ERISA Plans............................................................2.23.2
Exchange Act............................................................2.1.2
Filing Date............................................................2.19.2
Financial Consulting Agreement.........................................3.13.1
Firm Securities.........................................................1.1.1
Insiders.................................................................2.26
Intangibles..............................................................2.22
Merger and Acquisition Agreement.......................................3.12.1
NASD...................................................................2.19.1
Option Closing Date.....................................................1.2.2
Option Securities.......................................................1.2.1
Over-allotment Option...................................................1.2.1
Preferred Stock..........................................................2.26
Preliminary Prospectus..................................................2.1.1
Prospectus..............................................................2.1.1
Public Securities.......................................................1.2.1
Registration Statement..................................................2.1.1
Regulations.............................................................2.1.1
Secondary Market Trading Memorandum....................................3.11.3
Securities..............................................................1.3.1
Subsidiary(ies)..........................................................2.27
Transfer Agent...........................................................3.21
Unaudited Financials......................................................4.8
Underwriter......................................................Introductory
Paragraph
Representative's Purchase Option........................................1.3.1
Representative's Securities.............................................1.3.1
Representative's Shares.................................................1.3.1
Representative's Warrants...............................................1.3.1
Warrant.................................................................1.1.1
Warrant Agreement........................................................2.25
v
GIGABEAM CORPORATION
1,200,000 SHARES OF COMMON STOCK
AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
New York, New York
_________, 2004
HCFP/▇▇▇▇▇▇▇ Securities, LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, GigaBeam Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with HCFP/▇▇▇▇▇▇▇ Securities, LLC
(being referred to herein variously as "you," "HCFP" or the "Representative")
and with the other underwriters named on Schedule I hereto for which HCFP is
acting as Representative (the Representative and the other Underwriters being
collectively called the "Underwriters" or, individually, an "Underwriter") as
follows:
1. Purchase and Sale of Securities.
1.1 Firm Securities.
1.1.1 Purchase of Firm Securities. On the basis of
the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company agrees to issue and sell, severally
and not jointly, to the several Underwriters an aggregate of 1,200,000 shares of
the Company's common stock, par value $.001 per share ("Common Stock") at a
purchase price (net of discounts and commissions) of $4.646 per share, and
1,200,000 Redeemable Common Stock Purchase Warrants ("Warrant(s)") at a purchase
price (net of discounts and commissions) of $.046 per Warrant. Each Warrant will
entitle the holder thereof to purchase one share of Common Stock at a purchase
price of $5.05 per share during the period beginning on the Effective Date (as
hereinafter defined) and ending on the fifth anniversary of the Effective Date.
The foregoing shares of Common Stock and Warrants are referred to herein as the
"Firm Securities." The Underwriters, severally and not jointly, agree to
purchase from the Company the number of Firm Securities set forth opposite their
respective names on Schedule I attached hereto and made a part hereof.
1
1.1.2 Delivery and Payment. Delivery and payment for
the Firm Securities shall be made at 10:00 A.M., New York time, on or before the
third business day following the date that the Firm Securities commence trading
or at such earlier time as the Representative shall determine, or at such other
time as shall be agreed upon by the Representative and the Company, at the
offices of counsel to the Representative or at such other place as shall be
agreed upon by the Representative and the Company. The hour and date of delivery
and payment for the Firm Securities are called the "Closing Date." Payment for
the Firm Securities shall be made on the Closing Date by wire transfer in
immediately available funds, payable to the order of the Company upon delivery
to you of certificates (in form and substance reasonably satisfactory to the
Underwriters) representing the Firm Securities for the account of the
Underwriters. The certificates representing the Firm Securities shall be
registered in such name or names and in such authorized denominations as the
Representative may request in writing at least two full business days prior to
the Closing Date. The Company will permit the Representative to examine and
package the Firm Securities for delivery at least one full business day prior to
the Closing Date. The Company shall not be obligated to sell or deliver the Firm
Securities except upon tender of payment by the Representative for all the Firm
Securities.
1.2 Over-Allotment Option.
1.2.1 Option Securities. For the purposes of covering
any over-allotments in connection with the distribution and sale of the Firm
Securities, the Underwriters are hereby granted an option to purchase up to an
additional 180,000 shares of Common Stock and/or 180,000 Warrants from the
Company ("Over-allotment Option"). Such additional 180,000 shares of Common
Stock and 180,000 Warrants are hereinafter referred to as the "Option
Securities." The Firm Securities and the Option Securities, together with the
shares of Common Stock issuable upon exercise of the Warrants, are hereinafter
referred to collectively as the "Public Securities." The purchase price to be
paid for the Option Securities will be the same price per Option Security as the
price per Firm Security set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option
granted pursuant to Section 1.2.1 hereof may be exercised by the Representative
as to all (at any time) or any part (from time to time) of the Option Securities
within 45 days after the Effective Date. The Underwriters will not be under any
obligation to purchase any Option Securities prior to the exercise of the
Over-allotment Option. The Over-allotment Option granted hereby may be exercised
by the giving of oral notice to the Company by the Representative, which must be
confirmed in writing by overnight mail or facsimile transmission setting forth
the number of Option Securities to be purchased and the date and time for
delivery of and payment for the Option Securities (the "Option Closing Date"),
which will not be later than five full business days after the date of the
notice or such other time as shall be agreed upon by the Company and the
Representative, at the offices of the Representative or at such other place as
shall be agreed upon by the Company and the Representative. Upon exercise of the
Over-allotment Option, the Company will become obligated to convey to the
Underwriters, and, subject to the terms and conditions set forth herein, the
Underwriters will become obligated to purchase, the number of Option Securities
specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option
Securities will be at the Representative's election by wire transfer in
immediately available funds, payable to the order of the Company at the offices
of the Representative or at such other place as shall be agreed upon by the
Representative and the Company upon delivery to you of certificates representing
such securities for the Underwriters. The certificates representing the Option
Securities to be delivered will be in such denominations and registered in such
names as the Representative requests not less than two full business days prior
to the Closing Date or the Option Closing Date, as the case may be. The Company
will permit the Representative to examine and package the Option Securities for
delivery not less than one full business day prior to such Closing Date.
2
1.3 Representative's Purchase Option.
1.3.1 Purchase Option. The Company hereby agrees to
issue and sell to the Representative (and/or its designees) on the Closing Date
for an aggregate purchase price of $100, an option ("Representative's Purchase
Option") for the purchase of an aggregate of 120,000 shares of Common Stock
("Representative's Shares") at an initial exercise price of 110% of the initial
offering price of a share of common stock (i.e, $5.50 per share of Common Stock)
and/or 120,000 Warrants ("Representative's Warrants") at an initial exercise
price of 110% of the initial offering price of a Warrant (i.e., $.055 per
Warrant). Each of the Representative's Shares and the Representative's Warrants
is identical to the Common Stock and Warrants constituting the Firm Securities.
The Representative's Purchase Option shall be exercisable, in whole or part, for
a period of four years commencing one year from the Effective Date. The
Representative's Purchase Option, the Representative's Shares, the
Representative's Warrants and the shares of Common Stock issuable upon exercise
of the Representative's Warrants are hereinafter referred to collectively as the
"Representative's Securities." The Public Securities and the Representative's
Securities are hereinafter referred to collectively as the "Securities."
1.3.2 Payment and Delivery. Delivery and payment for
the Representative's Purchase Option shall be made on the Closing Date. The
Company shall deliver to the Underwriters, upon payment therefor, certificates
for the Representative's Purchase Option in the name or names and in such
authorized denominations as the Representative may request.
2. Representations and Warranties of the Company. The Company
represents and warrants to the Underwriters as follows:
2.1 Filing of Registration Statement.
2.1.1 Pursuant to the Act. The Company has filed with
the Securities and Exchange Commission ("Commission") a registration statement
and an amendment or amendments thereto, on Form S-1 (No. 333-116020), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Public Securities under the Securities Act of 1933, as
amended ("Act"), which registration statement and amendment or amendments have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations ("Regulations") of the Commission under the Act.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Regulations), is hereinafter called the
"Registration Statement," and the form of the final prospectus dated the
Effective Date or such later date as may be determined by the Representative
(or, if applicable, the form of final prospectus filed with the Commission
pursuant to Rule 424 of the Regulations), is hereinafter called the
"Prospectus." The Registration Statement has been declared effective by the
Commission on the date hereof.
3
2.1.2 Pursuant to the Exchange Act. The Company has
filed with the Commission a registration statement on Form 8-A (No.
____________) providing for the registration under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), of the Common Stock and Warrants. Such
registration of the Common Stock and Warrants has been declared effective by the
Commission on the date hereof.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or has instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
2.3.1 Securities Act Representation. At the time the
Registration Statement becomes effective and at the Closing Date and the Option
Closing Date, if any, the Registration Statement and the Prospectus and any
amendment or supplement thereto, and will conform in all material respects to
the requirements of the Act and the Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. When any Preliminary Prospectus was first
filed with the Commission (whether filed as part of the Registration Statement
or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when
any amendment thereof or supplement thereto was first filed with the Commission,
such Preliminary Prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section 2.3.1 does
not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished (or not furnished in the case of
an omission) to the Company with respect to the Underwriters by the
Representative expressly for use in the Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
2.3.2 Disclosure of Contracts. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate in all material respects and presents fairly the information required
to be disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement that have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and that is (i) referred to in the Prospectus, or
(ii) material to the Company's business, has been duly and validly executed by
the Company and, to the Company's knowledge, the other parties thereto, is in
full force and effect and is enforceable against the Company and, to the
Company's knowledge, the other parties thereto in accordance with its terms,
except (x) as such enforceability may be limited by bankruptcy, insolvency,
moratorium, fraudulent transfer, fraudulent conveyance, reorganization or
similar laws affecting creditors' rights generally, (y) as enforceability of any
indemnification or contribution provision may be limited under the federal and
state securities laws, and (z) that the remedy of specific performance and
injunctive and
4
other forms of equitable relief may be subject to the equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
None of such contracts or instruments has been assigned by the Company, and
neither the Company nor, to the Company's knowledge, any other party is in
default thereunder and, to the Company's knowledge, no event has occurred that,
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 or will result in a violation of any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company or any of its assets or businesses,
including, without limitation, those relating to environmental laws and
regulations.
2.3.3 Prior Securities Transactions. No securities of
the Company have been sold by the Company or by or on behalf of, or for the
benefit of, any person or persons controlling, controlled by, or under common
control with the Company within the three years prior to the date hereof, except
as disclosed in the Registration Statement.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, except as otherwise specifically stated therein, (i) there
has been no material adverse change in the condition, financial or otherwise, or
in the results of operations, business or business prospects of the Company and
(ii) there have been no transactions entered into by the Company, other than
those in the ordinary course of business, that are material with respect to the
condition, financial or otherwise, or to the results of operations, business or
business prospects of the Company.
2.4.2 Recent Securities Transactions, Etc. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.
2.5 Independent Accountants. BDO ▇▇▇▇▇▇▇, LLP ("BDO"), whose
report is filed with the Commission as part of the Registration Statement, are
independent accountants as required by the Act and the Regulations. BDO has not,
during the periods covered by the financial statements included in the
Prospectus, provided to the Company any prohibited non-audit services, as such
term is used in Section 10A(g) of the Exchange Act.
2.6 Financial Statements. The financial statements, together
with the notes thereto and supporting schedules included in the Registration
Statement and Prospectus, present fairly the financial position and the results
of operations of the Company at the dates and for the periods to which they
apply; and such financial statements have been prepared in conformity with
United States generally accepted accounting principles, consistently applied
throughout the periods involved; and the supporting schedules, if any, included
in the Registration Statement present fairly the information required to be
stated therein. The pro forma financial information set forth in the
Registration Statement and Prospectus reflects all significant assumptions and
adjustments relating to the business and operations of the Company.
5
2.7 Authorized Capital; Options; Etc. The Company had at the
date or dates indicated in the Prospectus duly authorized, issued and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. Based on the assumptions and adjustments stated in the Registration
Statement and the Prospectus, the Company will have on the Closing Date the
adjusted stock capitalization set forth therein. Except as set forth in the
Registration Statement and the Prospectus, on the Effective Date and on the
Closing Date there will be no outstanding or authorized subscriptions, options,
warrants or other rights to purchase or otherwise acquire, or preemptive rights
with respect to the issuance or sale of any Common Stock of the Company,
including any obligations to issue any shares pursuant to anti-dilution
provisions, or any security convertible into shares of Common Stock of the
Company, or any contracts or commitments to issue or sell shares of Common Stock
or any such options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability
solely by reason of being such holders; and none of such securities were issued
in violation of the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. The outstanding
options and warrants to purchase shares of Common Stock constitute valid and
binding obligations of the Company, enforceable in accordance with their terms.
The authorized Common Stock and outstanding options and warrants to purchase
shares of Common Stock conform in all material respects to all statements
relating thereto contained in the Registration Statement and the Prospectus. The
offers and sales by the Company of the outstanding Common Stock, options and
warrants to purchase shares of Common Stock, and securities convertible into
shares of Common Stock, were at all relevant times registered under the Act and
registered or qualified under the applicable state securities or Blue Sky laws
or exempt from such registration or qualification requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The
Securities have been duly authorized and, when issued and paid for, will be
validly issued, fully paid and non-assessable; the holders thereof are not and
will not be subject to personal liability solely by reason of being such
holders; the Securities are not and will not be subject to the preemptive rights
of any holders of any security of the Company or similar contractual rights
granted by the Company; and all corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. The Securities conform in all material respects to all statements with
respect thereto contained in the Registration Statement. When issued, the
Representative's Purchase Option, the Representative's Warrants and the Warrants
will constitute valid and binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of securities of
the Company called for thereby and the Representative's Purchase Option, the
Representative's Warrants and the Warrants will be enforceable against the
Company in accordance with their respective terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
6
2.9 Registration Rights of Third Parties. Except as set forth
in the Prospectus, no holders of any securities of the Company or of any options
or warrants of the Company or other rights exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in the Registration Statement.
2.10 Validity and Binding Effect of Agreements. This Agreement
and the Warrant Agreement (as hereinafter defined) have been duly and validly
authorized by the Company and constitute, and the Representative's Purchase
Option, the Financial Advisory Agreement and the Merger and Acquisition
Agreement have been duly and validly authorized by the Company and, when
executed and delivered, will constitute, the valid and binding agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and
performance by the Company of this Agreement, the Representative's Purchase
Option, the Warrant Agreement, the Financial Advisory Agreement and the Merger
and Acquisition Agreement, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
hereof and thereof do not and will not, with or without the giving of notice or
the lapse of time or both, (i) result in a breach of, or conflict with any of
the terms and provisions of, or constitute a default under, or result in the
creation, modification, termination or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to the terms of
any indenture, mortgage, deed of trust, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which any of the property or assets of the
Company is subject, except which could not reasonably be expected to have a
material adverse effect on the Company; (ii) result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company;
(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 or any of its properties or businesses, except
where such violation could not reasonably be expected to have a material adverse
effect on the Company; or (iv) have a material adverse effect on any permit,
license, certificate, registration, approval, consent, license or franchise of
or concerning the Company.
2.12 No Defaults; Violations. Except as described in the
Prospectus, no material default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the properties or assets of the Company is
subject. Except as described in the Prospectus, the Company is not in violation
of any term or provision of its Certificate of Incorporation or By-Laws or in
violation of any material franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses.
7
2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all
requisite corporate power and authority, and has all necessary and material
authorizations, approvals, orders, licenses, certificates and permits of and
from all applicable governmental regulatory officials and bodies to own or lease
its properties and conduct its business as described in the Prospectus, and the
Company is and has been doing business in compliance with all such material
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local laws, rules and regulations. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's business as currently contemplated are correct in
all material respects and do not omit to state a material fact.
2.13.2 Transactions Contemplated Herein. The Company
has all corporate power and authority to enter into this Agreement and to carry
out the provisions and conditions hereof, and all consents, authorizations,
approvals and orders required in connection therewith have been obtained. No
consent, approval, authorization or order of, and no filing with, any court,
government agency or other body is required for the valid authorization,
issuance, sale and delivery, of the Securities and the consummation of the
transactions and agreements contemplated by this Agreement, the Warrant
Agreement, the Representative's Purchase Option, the Financial Advisory
Agreement and the Merger and Acquisition Agreement and the Prospectus, except
with respect to applicable federal and state securities laws.
2.14 Title to Property; Insurance. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than (i) those referred to
in the Prospectus, (ii) liens for taxes not yet due and payable or (iii) those
which do not materially effect the value of such property and do not materially
interfere with the use made of such property by the Company. The Company has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar business.
2.15 Litigation; Governmental Proceedings. Except as set forth
in the Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of, the Company that might materially and adversely affect the financial
position, value or the operation of the properties or the business of the
Company, or that questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal,
domestic or foreign, naming the Company and enjoining the Company from taking,
or requiring the Company to take, any action, or to which the Company, its
properties or business is bound or subject.
8
2.16 Good Standing. The Company has been duly organized and is
validly existing as a corporation and is in good standing under the laws of the
state of its incorporation. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which ownership
or leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
material adverse effect on the financial position or value or the operation of
the properties or the business of the Company.
2.17 Taxes. The Company has filed all returns (as hereinafter
defined) required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof. The Company has
paid all undisputed portions of all taxes (as hereinafter defined) shown as due
on such returns that were filed and, except as set forth on Schedule 2.17, has
paid all taxes imposed on or assessed against the Company. The provisions for
taxes payable, if any, shown on the financial statements filed with or as part
of the Registration Statement are sufficient for all accrued and unpaid taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to the
Underwriter, (i) to the Company's knowledge, no issues have been raised (and are
currently pending) by any taxing authority in connection with any of the returns
or taxes asserted as due from the Company, and (ii) no waivers of statutes of
limitation with respect to the returns or collection of taxes have been given by
or requested from the Company. The term "taxes" mean all federal, state, local,
foreign, and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments,
or charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto. The term "returns"
means all returns, declarations, reports, statements, and other documents
required to be filed in respect to taxes.
2.18 Employees' Options. Except as set forth on Schedule 2.18,
no shares of Common Stock (underlying outstanding options to purchase Common
Stock) are eligible for sale pursuant to Rule 701 promulgated under the Act in
the 12-month period following the Effective Date.
2.19 Transactions Affecting Disclosure to NASD.
2.19.1 Finder's Fees. Except as set forth on Schedule
2.19.1, the Company has not received any notice of claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's,
consulting or origination fee with respect to the introduction of the Company to
the Underwriters or the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company that may affect the Underwriters' compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
2.19.2 Payments Within Twelve Months. Except as set
forth on SCHEDULE 2.19.2, and other than payments to the Representative, the
Company has not made any direct or indirect payments (in cash, securities or
otherwise) to (i) any person, as a finder's fee, investing fee or otherwise, in
consideration of such person raising capital for the Company or introducing to
the Company persons who provided capital to the Company, (ii) any NASD member,
or (iii) any person or entity that has any direct or indirect affiliation or
association with any NASD member within the 12-month period prior to the date on
which the Registration Statement was filed with the Commission ("Filing Date")
or thereafter, assuming the accuracy of the information contained in the NASD
questionnaires received from each of the Company's security holders.
9
2.19.3 Use of Proceeds. None of the net proceeds of
the offering will be paid by the Company to any participating NASD member or any
affiliate or associate of any participating NASD member, except as specifically
authorized herein.
2.19.4 Insiders' NASD Affiliation. Except as set
forth on SCHEDULE 2.19.4, no officer or director of the Company or owner of any
of the Company's unregistered securities has any direct or indirect affiliation
or association with any NASD member. The Company will advise the Representative
and the NASD if prior to the Closing Date or Option Closing Date, if any, it
learns that any officer, director or stockholder of the Company is or becomes an
affiliate or associated person of an NASD member participating in the offering.
2.20 Foreign Corrupt Practices Act. None of the Company or any
of its officers, directors, or, to its knowledge, any of its employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or any political party or candidate for office (domestic or foreign)
or other person who was, is, or may be in a position to help or hinder the
business of the Company (or assist it in connection with any actual or proposed
transaction) that (i) might subject the Company to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Prospectus or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
2.21 Bulletin Board [AND EXCHANGE] Eligibility. As of the
Effective Date, the Public Securities will have been approved for quotation on
the OTC Bulletin Board [AND FOR LISTING ON __________________] ("Exchange").
2.22 Intangibles. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patents and patent applications, copyrights and other rights
(collectively, "Intangibles") described as being licensed to or owned by it in
the Registration Statement. Except as described in the Prospectus, there is no
claim or action by any person pertaining to, or proceeding pending or, to the
Company's knowledge, threatened relating to, and the Company has not received
any notice of conflict with the asserted rights of others, that challenges the
exclusive right of the Company with respect to, any Intangibles used in the
conduct of the Company's business. To the Company's knowledge, after due
inquiry, the Intangibles and the Company's current products, services and
processes do not infringe on any Intangibles held by any third party. To the
Company's knowledge, no others have infringed upon the Intangibles of the
Company.
10
2.23 Relations With Employees.
2.23.1 Employee Matters. The Company is in compliance
in all material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. To the Company's
knowledge, there are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state and local laws and regulations. To the
Company's knowledge, there is no unfair labor practice charge or complaint
against the Company pending before the National Labor SRelations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or any predecessor entity, and none has ever
occurred. To the Company's knowledge, no question concerning representation
exists respecting the employees of the Company and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 Employee Benefit Plans. Other than as set
forth in the Registration Statement, the Company neither maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a, "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
to, and has at no time maintained or contributed to, a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended ("Code"), that could subject the Company to any material tax penalty for
prohibited transactions and that has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan that is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multi-employer
plan."
2.24 Officers' Certificate. Any certificate signed by any duly
authorized officer of the Company and delivered directly to you or to your
counsel shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby and as of the date given.
2.25 Warrant Agreement. The Company has entered into a warrant
agreement with respect to the Warrants and the Representative's Warrants
substantially in the form filed as an exhibit to the Registration Statement
("Warrant Agreement") with Continental Stock Transfer & Trust Company, providing
for, among other things, (i) no redemption of the Warrants without the consent
of the Representative and (ii) for the payment of a warrant solicitation fee as
contemplated by Section 3.9 hereof.
11
2.26 Lock-Up Agreements. Except as set forth on SCHEDULE 2.26,
the Company has caused to be duly executed legally binding and enforceable
agreements pursuant to which all of the officers and directors of the Company
and all holders of the outstanding Common Stock of the Company or warrants or
options to purchase, or other securities convertible into, shares of Common
Stock (including their family members and affiliates) (collectively, the
"Insiders"), agree not to sell any shares of Common Stock or warrants or options
to purchase, or other securities convertible into Common Stock owned by them
(either pursuant to Rule 144 of the Regulations or otherwise) for a period of 12
months following the Effective Date except with the prior written consent of the
Representative.
2.27 Subsidiaries. Except as set forth on SCHEDULE 2.27, the
Company does not own an interest in any corporation, partnership, limited
liability company, joint venture, trust or other business entity. The Company
has no subsidiaries other than those subsidiaries set forth on SCHEDULE 2.27,
each of which is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation (each a "Subsidiary" and
collectively the "Subsidiaries"). The Company owns all of the capital stock of
the Subsidiaries free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth in the Prospectus.
The representations and warranties made by the Company in this Agreement shall
also apply and be true with respect to each Subsidiary, taken as a whole with
the Company and all other Subsidiaries, as if each representation and warranty
contained herein made specific reference to the Subsidiaries each time the term
"Company" was used.
2.28 Environmental Matters. The Company has complied in all
material respects with all applicable environmental laws.
2.29 Product Liability Insurance. The Company maintains
product liability insurance of the type and in the amounts typically maintained
by similar companies operating in the industry in which the Company operates.
2.30 Conversion of 10% Notes. As of the Effective Date, all of
the Company's outstanding 10% convertible promissory notes (in the aggregate
principal amount of $2,500,000) held by Ameristock, Inc. and/or its affiliates
will have automatically converted into 500,000 shares of Common Stock by such
notes' terms.
2.31 Related Party Transactions. There are no business
relationships or related party transactions involving the Company or any other
person required to be described in the Prospectus that have not been described
as required.
2.32 Standard & Poor's Listing. The Company has secured
coverage in Standard & Poor's Corporation Records Corporate Description,
effective as of the Effective Date.
2.33 Regulatory Compliance. The Company's products, operations
and ownership are in compliance in all material respects with all federal, state
and agency standards, rules, regulations and requirements that are applicable to
the Company as of the Effective Date, including but not limited to those
promulgated by the Federal Communications Commission.
2.34 Board of Directors. The Board of Directors of the Company
is comprised of the persons set forth on SCHEDULE 2.33. The qualifications of
the persons serving as Board members and the overall composition of the Board
comply with the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules promulgated thereunder
and with the listing requirements of the Nasdaq SmallCap Market (including those
requirements that have been finalized or issued as of the date hereof with a
date certain for effectiveness, but which are not yet effective). At least one
member of the Board qualifies as a "financial expert" as such term is defined
under the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules promulgated thereunder.
12
2.35 No Stop Orders. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or Prospectus or
any part thereof.
2.36 Non Non-Competition Obligations. No director, officer or
other employee of the Company is subject to any noncompetition agreement or
non-solicitation agreement with any employer or prior employer that could
materially affect his ability to be an employee, officer and/or director of the
Company.
3. Covenants of the Company. The Company covenants and agrees as
follows:
3.1 Amendments to Registration Statement. The Company will
deliver to the Representative, prior to filing, any amendment or supplement to
the Registration Statement or Prospectus proposed to be filed after the
Effective Date and not file any such amendment or supplement to which the
Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus
is required to be delivered under the Act, the Company will use all reasonable
efforts to comply with all requirements imposed upon it by the Act, the
Regulations and the Exchange Act and by the regulations under the Exchange Act,
as from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Public Securities in accordance with the provisions
hereof, and the Prospectus. If at any time when a Prospectus relating to the
Public Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Underwriters, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will
file the Prospectus (in form and substance reasonably satisfactory to the
Representative) with the Commission pursuant to the requirements of Rule 424 of
the Regulations.
3.2.3 Exchange Act Registration. For a period of five
years from the Effective Date, the Company will use its best efforts to maintain
the registration of the Common Stock and Warrants under the provisions of
Section 12 of the Exchange Act.
3.3 Blue Sky Filings. The Company will endeavor in good faith,
in cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Public Securities for offering and
sale under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may be required
by the laws of such jurisdiction.
13
3.4 Delivery to the Underwriters of Prospectuses. The Company
will deliver to each of the several Underwriters, without charge, from time to
time during the period when the Prospectus is required to be delivered under the
Act or the Exchange Act such number of copies of each Preliminary Prospectus and
the Prospectus as such Underwriter may reasonably request.
3.5 Events Requiring Notice to the Representative. The Company
will notify the Representative immediately and confirm the notice in writing (i)
of the effectiveness of the Registration Statement and any amendment thereto,
(ii) of the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceeding for that purpose, (iii) if it becomes
aware of the issuance by any state securities commission of any proceedings for
the suspension of the qualification of the Public Securities for offering or
sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the mailing and delivery to the Commission
for filing of any amendment or supplement to the Registration Statement or
Prospectus, (v) of the receipt of any comments or request for any additional
information from the Commission, and (vi) of the happening of any event during
the period described in Section 3.4 hereof that, in the judgment of the Company,
makes any statement of a material fact made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Commission
or any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years
from the Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to participate to review (as
described in Statement on Audited Standards No. 71 -- Interim Financial
Information) (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 Form 10-Q or Form 10-QSB quarterly
reports and the mailing of any quarterly financial information to stockholders.
3.7 Exchange Maintenance. For a period of five years from the
date hereof, the Company will use its best efforts to maintain the listing by
the OTCBB of the Common Stock, and, if outstanding, the Warrants.
3.8 Standard & Poor's and Secondary Market Trading. The
Company will take all necessary action to maintain coverage in Standard & Poor's
Corporation Records Corporate Descriptions for a period of three years from the
Effective Date, including the payment of any necessary fees and expenses and the
delivery to Standard & Poor's of updated quarterly information. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market trading exemption in such states as may be reasonably
requested by the Representative, including the payment of any necessary fees and
expenses and the filing of requisite forms (e.g., Form 25101(b) for secondary
market trading in the State of California) on the Effective Date.
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3.9 Warrant Solicitation and Registration of Common Stock
Underlying the Warrants.
3.9.1 Warrant Solicitation Fees. The Company hereby
engages HCFP, on a non-exclusive basis, as its agent for the solicitation of the
exercise of the Warrants. The Company, at its cost, will (i) assist HCFP with
respect to such solicitation, if requested by HCFP and will (ii) provide to
HCFP, and direct the Company's transfer and warrant agent to provide to HCFP,
lists of the record and, to the extent known, beneficial owners of the Company's
Warrants. Commencing one year from the Effective Date, the Company will pay to
HCFP a commission of five percent of the Warrant exercise price for each Warrant
exercised, payable on the date of such exercise, on the terms provided for in
the Warrant Agreement, if allowed under the rules and regulations of the NASD
and only if HCFP has provided bona fide services to the Company in connection
with the exercise of Warrants and has received written confirmation from the
holder that HCFP has solicited such exercise. In addition to soliciting the
exercise of Warrants, either orally or in writing, such services also may
include disseminating information supplied to HCFP by the Company, either orally
or in writing, to Warrantholders about the Company or the market for the
Company's securities, and assisting in the processing of the exercise of
Warrants. HCFP may engage sub-agents reasonably acceptable to the Company in its
solicitation efforts. The Company will disclose the arrangement to pay such
solicitation fees to HCFP in any prospectus used by the Company in connection
with the registration of the shares of Common Stock underlying the Warrants.
3.9.2 Registration of Common Stock. The Company
agrees that so long as the Warrants are exercisable, it shall file with the
Commission post-effective amendments to the registration statement as necessary
to maintain effectiveness of the Registration Statement (or new Registration
Statements covering the Warrants and the Common Stock issuable upon exercise
thereof) and it shall take such action as is necessary to qualify and/or
maintain qualification for sale, in those states in which the Warrants were
initially offered by the Company, the Common Stock issuable upon exercise of the
Warrants. The Company shall maintain the effectiveness of such registration
statement and keep current a prospectus thereunder and maintain such
qualification until the expiration of the Warrants in accordance with the
provisions of the Warrant Agreement. The provisions of this Section 3.9.2 may
not be modified, amended or deleted without the prior written consent of the
Underwriter.
3.10 Reports to the Representative.
3.10.1 Periodic Reports, Etc. For a period of five
years from the Effective Date, the Company will promptly furnish to the
Representative copies of such financial statements and other periodic and
special reports as the Company from time to time files with any governmental
authority or furnishes generally to holders of any class of its securities, and
promptly furnish to the Representative (i) a copy of each periodic report the
Company shall be required to file with the Commission, (ii) a copy of every
press release and every news item and article with respect to the Company or its
affairs that was released by the Company and (iii) a copy of each Form 8-K or
Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company.
15
3.10.2 Transfer Sheets and Weekly Position Listings.
Until the earlier of (i) the date the Company's securities are listed on the New
York Stock Exchange or the Nasdaq National Market, and (ii) the third
anniversary of the Closing Date, the Company will furnish to the Representative
at the Company's sole expense such transfer sheets and position listings of the
Company's securities as the Representative may request, including the daily,
weekly and monthly consolidated transfer sheets of the transfer agent of the
Company and the weekly position listings of the Depository Trust Company.
3.10.3 Secondary Market Trading Memorandum. The
Company hereby requests that the Underwriters' legal counsel deliver to the
Underwriters, at the Effective Date, a written memorandum detailing those states
in which the Common Stock and the Warrants may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Memorandum") and that such counsel update such memorandum as reasonably
requested by the Representative. The Company shall pay to the Underwriters'
legal counsel a one-time fee of $5,000 for such services.
3.11 Agreements between the Representative and the Company.
3.11.1 Merger and Acquisition Agreement. On the
Closing Date, the Company will enter into a Merger and Acquisition Agreement
with HCFP in the form filed with the Commission as an exhibit to the
Registration Statement providing for a finder's fee to be paid to HCFP if the
Company participates in any merger, consolidation, or other transaction in which
HCFP introduced the Company to the other party for a period of three years from
the Closing Date ("Merger and Acquisition Agreement").
3.11.2 Financial Advisory Agreement. On the Closing
Date, the Company will enter into a Financial Advisory Agreement with HCFP in
the form filed with the Commission as an exhibit to the Registration Statement
pursuant to which HCFP shall receive a consulting fee of $60,000 per year for a
six-month period following the Effective Date ("Financial Consulting
Agreement"). These fees shall be paid in advance on the Closing Date.
3.11.3 Representative's Purchase Option. On the
Closing Date, the Company will execute and deliver the Representative's Purchase
Option to HCFP or its designees in the form filed as an exhibit to the
Registration Statement.
3.12 Disqualification of Form SB-2 or Form S-1 (or other
appropriate form). For a period equal to seven (7) years from the date hereof,
the Company will not take any action or actions that may prevent or disqualify
the Company's use of Form SB-2 or Form S-1 (or other appropriate form) for the
registration of the Warrants and the Representative's Securities and the
securities issuable upon exercise of those securities under the Act.
16
3.13 Payment of Expenses.
3.13.1 General Expenses. The Company hereby agrees to
pay on the Closing Date and, to the extent not paid on the Closing Date, on the
Option Closing Date, all expenses incident to the performance of the obligations
of the Company under this Agreement, including but not limited to (i) the
preparation, printing, filing, delivery and mailing (including the payment of
postage with respect to such mailing) of the Registration Statement, the
Prospectus and the Preliminary Prospectuses and the printing and mailing of this
Agreement and related documents, including the cost of all copies thereof and
any amendments thereof or supplements thereto supplied to the Underwriters in
quantities as may be reasonably required by the Underwriters, (ii) the printing,
engraving, issuance and delivery of the shares of Common Stock, the Warrants and
the Representative's Purchase Option, including any transfer or other taxes
payable thereon, (iii) the qualification of the Public Securities under state or
foreign securities or Blue Sky laws, including the filing fees under such Blue
Sky laws, the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," and all amendments and supplements thereto, the fees (equal to
$35,000, of which $15,000 has been previously paid) and disbursements of the
Underwriters' counsel, and fees and disbursements of local counsel, if any,
retained for such purpose (provided that all such disbursements have been
approved in advance by the Company) and a one-time fee of $5,000 payable to
Underwriters' counsel for the preparation of the Secondary Market Trading
Memorandum pursuant to Section 3.11.3 hereof, (iv) costs associated with
applications for assignments of a rating of the Public Securities by qualified
rating agencies, if applicable, (v) filing fees, costs and expenses (including
fees and disbursements for the Underwriters' counsel) incurred in registering
the offering with the NASD, (vi) costs of placing "tombstone" advertisements in
The Wall Street Journal, The New York Times or other publications to be selected
by the Representative, the total costs of such advertisements not to exceed
$12,000, (vii) fees and disbursements of the transfer and warrant agent, (viii)
the Company's expenses associated with "due diligence" meetings arranged by the
Representative, (ix) the preparation, binding and delivery of two transaction
"bibles" for the Representative, (x) fees and expenses for any listing of the
Public Securities on any securities exchange or any coverage or listing in
Standard & Poor's and (xi) all other costs and expenses incident to the
performance of its obligations hereunder that are not otherwise specifically
provided for in this Section 3.14.1. The Company also agrees to engage and pay
for an investigative search firm of the Representative's choice (International
Business Research (U.S.A.), Inc.) to conduct an investigation of the officers
and directors of the Company, which amount will be credited against the
Representative's non-accountable expense allowance if the offering is
consummated as provided herein. The Representative may deduct from the net
proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein and elsewhere in this
Agreement to be paid by the Company to the Representative and/or to third
parties.
3.13.2 Non-Accountable Expenses. The Company further
agrees that, in addition to the expenses payable pursuant to Section 3.14.1, it
will pay to the Representative a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Firm Securities (but not the Option Securities), of which $50,000 has been paid
to date, and the Company will pay the balance on the Closing Date by certified
or bank cashier's check or, at the election of the Representative, by deduction
from the proceeds of the offering contemplated herein. If the offering
contemplated by this Agreement is not consummated for any reason whatsoever then
the following provisions shall apply: The Company's liability for payment to the
Representative of the non-accountable expense allowance shall be equal to the
sum of the Representative's actual out-of-pocket expenses (including, but not
limited to, counsel fees, "road-show" and due diligence expenses). The
Representative shall retain such part of the non-accountable expense allowance
previously paid as shall equal such actual out-of-pocket expenses. If the amount
previously paid is insufficient to cover such actual out-of-pocket expenses, the
Company shall remain liable for and promptly pay any other actual out-of-pocket
expenses. If the amount previously paid exceeds the amount of actual
out-of-pocket expenses, the Representative shall promptly remit to the Company
any such excess.
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3.14 Application of Net Proceeds. The Company will apply the
net proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use of Proceeds" in the Prospectus. The
Company hereby agrees that, without the express prior written consent of the
Representative, the Company will not apply any net proceeds from the offering to
pay (i) any debt for borrowed funds or (ii) any debt or obligation owed to any
Insider, except as described in the "Use of Proceeds" section of the Prospectus.
3.15 Delivery of Earnings Statements to Security Holders. The
Company will make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the Effective Date, an earnings statement (which need not be
certified by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Rule 158(a) under
Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
3.16 Key Person Life Insurance. The Company will maintain key
person life insurance in an amount not less than $5,000,000 on the life of ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and $2,000,000 on the life of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, to be in effect as of
the Effective Date, and pay the annual premiums therefor and name the Company as
the sole beneficiary thereof for at least three years following the Effective
Date.
3.17 Stabilization. Neither the Company, nor, to its
knowledge, any of its employees, directors or stockholders has taken or will
take, directly or indirectly, any action designed to or that has constituted or
that might reasonably be expected to cause or result in, under the Exchange Act,
or otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.18 Internal Controls. The Company maintains and will
continue to maintain a system of internal accounting controls that comply with
the requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (and the rules promulgated
thereunder) and which are sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.19 Accountants and Lawyers. For a period of five years from
the Effective Date, the Company shall retain independent public accountants and
securities lawyers reasonably acceptable to the Representative. BDO ▇▇▇▇▇▇▇ LLP
and Blank Rome LLP are acceptable to the Representative.
3.20 Transfer Agent. For a period of five years from the
Effective Date, the Company shall retain a transfer agent ("Transfer Agent") for
the Common Stock and Warrants reasonably acceptable to the Representative.
Continental Stock Transfer & Trust Company is acceptable to the Representative.
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3.21 NASD. The Company shall advise the Representative if it
is aware that any 5% or greater stockholder of the Company becomes an affiliate
or associated person of an NASD member participating in the distribution of the
Company's Public Securities.
3.22 Sale of Securities. Subject to Section 2.26 hereof, the
Company agrees not to permit or cause a private or public sale or private or
public offering of any of its securities (in any manner, including pursuant to
Rule 144 under the Act) owned nominally or beneficially by the Insiders for the
time periods set forth in Section 2.26 following the Effective Date without
obtaining the prior written consent of the Representative. By way of
clarification and avoidance of doubt, except with the prior consent of the
Representative, the Company agrees that for a period of twelve months following
the Effective Date, it will not permit the sale by any holder of shares of
Common stock or securities convertible into Common Stock prior to the Effective
Date who agreed with the Company not to sell such securities for a period of
twelve months following the Effective Date.
4. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy (in all material respects) of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Date and the Option Closing Date, if any, to the accuracy of
the statements of officers of the Company made pursuant to the provisions hereof
and to the performance by the Company of its obligations hereunder and to the
following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement. The
Registration Statement has been declared effective on the date of this Agreement
and, at each of the Closing Date and the Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for such purpose shall have been instituted or shall
be pending or, to the Company's knowledge, contemplated by the Commission and
any request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, counsel to
the Underwriters.
4.1.2 NASD Clearance. By the Effective Date, the
Representative shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending
the sale of the Securities in any jurisdiction designated by the Representative
pursuant to Section 3.3 hereof shall have been issued on or before either the
Closing Date or the Option Closing Date, and no proceedings for that purpose
shall have been instituted or, to the Company's knowledge, shall be
contemplated.
4.2 Company Counsel Matters.
4.2.1 Effective Date Opinion of Counsel. On the
Effective Date, the Representative shall have received the opinions of each of
Blank Rome LLP, general counsel to the Company, dated the Effective Date, and
Levy, Sonnet & ▇▇▇▇▇▇, FCC counsel to the Company, addressed to the
Representative and in form and substance satisfactory to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
counsel to the Representative.
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4.2.2 Closing Date and Option Closing Date Opinion of
Counsels. On each of the Closing Date and the Option Closing Date, if any, the
Representative shall have received the opinions of each of Blank Rome LLP and
Levy, Sonnet & ▇▇▇▇▇▇, dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Representative and in form and substance
satisfactory to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, counsel to the Underwriters, confirming as of
the Closing Date and, if applicable, the Option Closing Date, the respective
statements made by it in its opinion delivered on the Effective Date.
4.2.3 Reliance. In rendering such opinion, such
counsel may rely (i) as to matters involving the application of laws other than
the laws of the United States and jurisdictions in which they are admitted, to
the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriter's counsel, familiar with the applicable laws, and (ii)
as to matters of fact, to the extent they deem proper, on certificates or other
written statements of officers of departments of various jurisdiction having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Underwriters' counsel if requested. The opinion of counsel for the
Company shall include a statement to the effect that it may be relied upon by
counsel for the Underwriters in its opinion delivered to the Underwriters.
4.2.4 [Intentionally Omitted].
4.3 Cold Comfort Letter. At the time this Agreement is
executed, and at each of the Closing Date and the Option Closing Date, if any,
you shall have received a letter, addressed to the Representative and in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to you and
to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, counsel for the Underwriters, from BDO ▇▇▇▇▇▇▇, dated,
respectively, as of the date of this Agreement and as of the Closing Date and
the Option Closing Date, if any:
(i) confirming that they are independent
accountants with respect to the Company within the meaning of the Act and the
applicable Regulations;
(ii) stating that, based on the performance of
procedures specified by the American Institute of Certified Public Accountants
for a review of the latest available unaudited interim financial statements of
the Company (as described in Statement on Auditing Standards ("SAS") No. 100 --
"Interim Financial Information"), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
that would lead them to believe that at a date not later than five days prior to
the Effective Date, Closing Date or Option Closing Date, as the case may be,
there was any change in the capital stock or long-term debt of the Company, or
any decrease in the stockholders' equity of the Company as compared with amounts
shown in the March 31, 2004 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any decrease, setting forth the amount of such
decrease, and (c) during the period from April 1, 2004 to a specified date not
later than five days prior to the Effective Date, Closing Date or Option Closing
Date, as the case may be, there was any decrease in revenues, net earnings or
net earnings per share of Common Stock, in each case as compared with the
corresponding period in the preceding year and as compared with the
corresponding period in the preceding quarter, other than as set forth in or
contemplated by the Registration Statement, or, in the case of clauses (b) and
(c), if there was any such change or decrease, setting forth the amount of such
decrease;
20
(iii) stating that they have compared specific
dollar amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company set forth
in the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, and work sheets, of the Company with the results obtained
from the application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and found them to
be in agreement; and
(iv) statements as to such other matters
incident to the transaction contemplated hereby as you may reasonably request
and as are typically included in auditor's "comfort letters" to underwriters.
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing
Date and the Option Closing Date, if any, the Representative shall have received
a certificate, that is true and correct in fact, of the Company signed by the
Chairman of the Board or the President and the Secretary of the Company, dated
the Closing Date or the Option Closing Date, as the case may be, respectively,
to the effect that the Company has performed all covenants and complied with all
conditions (subject to any materiality qualifications in any such covenants and
conditions and in the representations and warranties) required by this Agreement
to be performed or complied with by the Company prior to and as of the Closing
Date, or the Option Closing Date, as the case may be, and that the conditions
set forth in Section 4.5 hereof have been satisfied as of such date and that, as
of Closing Date and the Option Closing Date, as the case may be, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct. In addition, the Representative will have received such other
and further certificates of officers of the Company as the Representative may
reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing
Date and the Option Closing Date, if any, the Representative shall have received
a certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation of the Company are true
and complete, have not been modified and are in full force and effect, (ii) that
the resolutions relating to the public offering contemplated by this Agreement
are in full force and effect and have not been modified, (iii) all
correspondence between the Company or its counsel and the Commission and (iv) as
to the incumbency of the officers of the Company. The documents referred to in
such certificate shall be attached to such certificate.
21
4.5 No Material Changes. Prior to and on each of the Closing
Date and the Option Closing Date, if any, (i) there shall have been no material
adverse change or development involving a prospective material change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company, taken as a whole, (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or any Initial Stockholders or affecting any of
the Company's property or business before or by any court or federal or state
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus, (vi) no stop order shall
have been issued under the Act and no proceedings therefor shall have been
initiated or threatened by the Commission, and (vii) the Registration Statement
and the Prospectus and any amendments or supplements thereto contain all
material statements that are required to be stated therein in accordance with
the Act and the Regulations and conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.6 Delivery of Agreements. The Company has delivered to the
Representative an executed copy of the Representative's Purchase Option, the
Merger and Acquisition Agreement and the Financial Consulting Agreement.
4.7 Opinion of Counsel for the Underwriters. 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 and to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, counsel to the Underwriters, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel for the Underwriters shall
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
4.8 Unaudited Financials. The Company shall have furnished to
the Underwriter a copy of the latest available unaudited interim financial
statements for the period ended June 30, 2004 ("Unaudited Financials") of the
Company which have been read by BDO ▇▇▇▇▇▇▇ LLP, as stated in their letter dated
as of the Closing Date to be furnished pursuant to Section 4.3 hereof.
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5. Indemnification.
5.1 Indemnification of Underwriters.
5.1.1 General. Subject to the conditions set forth
below, the Company agrees to indemnify and hold harmless each of the
Underwriters, their respective directors, officers and employees and each
person, if any, who controls any such Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all legal or other expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, whether arising out of any
action between any of the Underwriters and the Company or between any of the
Underwriters and any third party or otherwise) to which they or any of them may
become subject under the Act, the Exchange Act or any other statute or at common
law or otherwise or under the laws of foreign countries, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in (i) the Registration Statement or the Prospectus (as from time to
time each may be amended and supplemented); (ii) in any post-effective amendment
or amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
Representative's Purchase Option; or (iii) any application or other document or
written communication (in this Section 5 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Units under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, Nasdaq or any securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished (or not furnished in
the case of an omission) to the Company with respect to an Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application, as the case may be. The Company agrees promptly to notify
the Representative of the commencement of any litigation or proceedings against
the Company or any of its officers, directors or controlling persons in
connection with the issue and sale of the Securities or in connection with the
Registration Statement or Prospectus.
5.1.2 Procedure. If any action is brought against an
Underwriter or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, such Underwriter shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and fees of
counsel (subject to the reasonable approval of such Underwriter) and payment of
actual expenses. Such Underwriter or controlling person shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the employment of such counsel at the expense of the Company
shall have been authorized in writing by the Company in connection with the
defense of such action, or (ii) the Company shall not have employed counsel to
have charge of the defense of such action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the reasonable fees and expenses of not more than one additional
firm of attorneys selected by the Underwriter and/or controlling person shall be
borne by the Company. Notwithstanding anything to the contrary contained herein,
if the Underwriter or controlling person shall assume the defense of such action
as provided above, the Company shall have the right to approve the terms of any
settlement of such action, except where such settlement provides for the full
release of the Company.
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5.1.3 Indemnification of the Company. Each
Underwriter, severally and not jointly, agrees to indemnify and hold harmless
the Company, its directors, officers and employees and agents who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all loss, liability, claim, damage and expense
described in the foregoing indemnity from the Company to the several
Underwriters, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereto or in any application, in reliance upon, and in strict
conformity with, written information furnished (or not furnished in the case of
an omission or alleged omission) to the Company with respect to such Underwriter
by or on behalf of the Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereto or in any such application. In case any action shall be
brought against the Company or any other person so indemnified based on any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or any application, and in respect of which
indemnity may be sought against any Underwriter, such Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the several Underwriters
by the provisions of Section 5.1.2.
5.2 Contribution.
5.2.1 Contribution Rights. In order to provide for
just and equitable contribution under the Act in any case in which (i) any
person entitled to indemnification under this Section 5 makes claim for
indemnification pursuant hereto but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case, or (ii)
contribution under the Act, the Exchange Act or otherwise may be required on the
part of any such person in circumstances for which indemnification is provided
under this Section 5, then, and in each such case, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company and the Underwriters, as incurred, in such proportions
that the Underwriters are responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover page of the
Prospectus bears to the initial offering price appearing thereon and the Company
is responsible for the balance; provided, that, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 5.3.1, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Public Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each director, officer and employee of an Underwriter or the Company,
as applicable, and each person, if any, who controls an Underwriter or the
Company, as applicable, within the meaning of Section 15 of the Act shall have
the same rights to contribution as the Underwriters or the Company, as
applicable.
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5.2.2 Contribution Procedure. Within fifteen days
after receipt by any party to this Agreement (or its representative) of notice
of the commencement of any action, suit or proceeding, such party will, if a
claim for contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The contribution provisions contained in
this Section are intended to supersede, to the extent permitted by law, any
right to contribution under the Act, the Exchange Act or otherwise available.
The Underwriters' obligations to contribute pursuant to this Section 5.3 are
several and not joint.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Securities or Option
Securities. If any Underwriter or Underwriters shall default in its or their
obligations to purchase the Firm Securities or the Option Securities, if the
over-allotment option is exercised, hereunder, and if the number of the Firm
Securities or Option Securities with respect to which such default relates does
not exceed in the aggregate 10% of the number of Firm Securities or Option
Securities that all Underwriters have agreed to purchase hereunder, then such
Firm Securities or Option Securities to which the default relates shall be
purchased by the non-defaulting Underwriters in proportion to their respective
commitments hereunder.
6.2 Default Exceeding 10% of Firm Securities or Option
Securities. In the event that the default addressed in Section 6.1 above relates
to more than 10% of the Firm Securities or Option Securities, you may in your
discretion arrange for yourself or for another party or parties to purchase such
Firm Securities or Option Securities to which such default relates on the terms
contained herein. If within one business day after such default relating to more
than 10% of the Firm Securities or Option Securities you do not arrange for the
purchase of such Firm Securities or Option Securities, then the Company shall be
entitled to a further period of one business day within which to procure another
party or parties satisfactory to you to purchase said Firm Securities or Option
Securities on such terms. In the event that neither you nor the Company arrange
for the purchase of the Firm Securities or Option Securities to which a default
relates as provided in this Section 6, this Agreement may be terminated by you
or the Company without liability on the part of the Company (except as provided
in Sections 3.15 and 5 hereof) or the several Underwriters (except as provided
in Section 5 hereof); provided, however, that if such default occurs with
respect to the Option Securities, this Agreement will not terminate as to the
Firm Securities; and provided further that nothing herein shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for damages occasioned by its default hereunder.
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6.3 Postponement of Closing Date. In the event that the Firm
Securities or Option Securities to which the default relates are to be purchased
by the non-defaulting Underwriters, or are to be purchased by another party or
parties as aforesaid, you or the Company shall have the right to postpone the
Closing Date or Option Closing Date for a reasonable period, but not in any
event exceeding five business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus that in the
opinion of counsel for the Underwriter may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 6 with like effect as if it had originally been a party to
this Agreement with respect to such Securities.
7. Right to Appoint Representative. In the event HCFP has not exercised
its option to designate a member of the Company's Board of Directors in
accordance with Section 8.1(b) below, for a period of three years from the
Effective Date, upon notice from HCFP to the Company, HCFP shall have the right
to send a representative (who need not be the same individual from meeting to
meeting) to observe each meeting of the Board of Directors of the Company;
provided that such representative shall sign a Regulation FD compliant
confidentiality agreement which is reasonably acceptable to HCFP and its counsel
in connection with such representative's attendance at meetings of the Board of
Directors; and provided further that upon written notice to HCFP, the Company
may exclude the representative from meetings (i) for the portions of the meeting
held in "executive session" and (ii) where, in the written opinion of counsel
for the Company, the representative's presence would jeopardize the
attorney-client privilege. The Company agrees to give HCFP written notice of
each such meeting and to provide HCFP with an agenda and minutes of the meeting
no later than it gives such notice and provides such items to the other
directors, and reimburse the representative of HCFP for its reasonable
out-of-pocket expenses incurred in connection with its attendance at the
meeting, including but not limited to, food, lodging and transportation.
8. Additional Covenants.
8.1 Board Composition and Board Designations.
(a) For a period of five years from the Effective
Date, the Company shall ensure that (i) the qualifications of the persons
serving as board members and the overall composition of the board comply with
the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules promulgated thereunder and with the
listing requirements of the OTCBB and Exchange and (ii) at least one member of
the board of directors qualifies as a "financial expert" as such term is defined
under the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules promulgated thereunder.
(b) For a period of three years from the Effective
Date, the Company will appoint a designee of HCFP (reasonably acceptable to the
Company) as a member of the Board of Directors of the Company. Such designee
shall receive no more or less compensation than is paid to other non-management
directors of the Company. To the extent permitted by law, the Company will agree
to indemnify HCFP and its designee for the actions of such designee as a
director of the Company. In addition, the Company will obtain and maintain a
liability insurance policy affording coverage for the acts of its officers and
directors in an amount not less than $3,000,000 and will include HCFP's designee
as an insured under such policy.
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8.2 Management Rights. During the three-year period commencing
on the Effective Date, HCFP shall have the right ("Management Right") to serve
as managing underwriter, managing placement agent or managing arranger for any
financing for the Company or any subsidiary or successor of the Company with
aggregate gross proceeds of less than $25,000,000 (each, a "Proposed Financing")
on terms then competitive in the market for transactions of such type. If HCFP
elects not to exercise its Management Right with respect to any Proposed
Financing, and for any financing for which HCFP would be entitled to the
Management Right but for the fact that its gross proceeds are $25 million or
more, HCFP shall be entitled to (i) act as a co-managing underwriter,
co-managing agent or co-managing arranger for such financing ("Co-Manager") or
at such other level as HCFP shall reasonably elect and (ii) assist the Company
in identifying, selecting and negotiating with the lead underwriter, agent or
arranger for such financing. HCFP, in its discretion, also shall be afforded the
opportunity to purchase, place or arrange, as a member of the underwriting
syndicate, selling group or arranging group for such financing, the largest
allocation provided to any member thereof. In addition, during the three-year
period following the Effective Date, HCFP shall have the right to purchase for
its own account or to sell for the account of the Insiders any securities sold
by the Insiders pursuant to Rule 144, including pursuant to a 10b-5(1) trading
plan.
8.3 Employment and Compensation Matters. Prior to the
Effective Date, the Company will have entered into employment agreements with
each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, the terms of which shall be
satisfactory to the Representative, including a covenant not to compete for a
period of two years after termination of employment. The Company agrees that for
a period of three years from the Effective Date, all compensation and other
arrangements between the Company and its officers, directors and affiliates
shall be approved by the Compensation Committee of the Company's Board of
Directors, a majority of the members of which shall have no affiliation or other
relationship with the Company other than as directors.
8.4 Press Releases. The Company will not issue a press release
or engage in any other publicity until 25 days after the Effective Date without
the Representative's prior written consent.
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9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates and such representations, warranties and
agreements of the Underwriters and Company, including the indemnity agreements
contained in Section 5 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Underwriters,
the Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the several
Underwriters until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of the later of the Closing Date or the
Option Closing Date, if any, at which time the representations, warranties and
agreements shall terminate and be of no further force and effect.
10. Effective Date of This Agreement and Termination Thereof.
10.1 Effective Date. This Agreement shall become effective on
the Effective Date at the time that the Registration Statement is declared
effective.
10.2 Termination. The Underwriters shall have the right to
terminate this Agreement at any time prior to any Closing Date, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Representative's opinion will in the immediate future materially
disrupt, general securities markets in the United States; or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been fixed, or maximum ranges for prices for securities shall have
been required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction, or (iii) if
the United States shall have become involved in a war other than in Afghanistan
or Iraqi or there are other major hostilities in or outside those countries, or
(iv) if a banking moratorium has been declared by a New York State or federal
authority, or (v) if a moratorium on foreign exchange trading has been declared
which materially adversely impacts the United States securities market, or (vi)
if the Company shall have sustained a material loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if either
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall no longer serve the Company in his
present capacity, or (viii) if the Company has breached any of its
representations, warranties or obligations hereunder (subject to any materiality
qualifications contained therein), or (ix) if the Underwriter shall have become
aware after the date hereof of such a material adverse change in the condition
(financial or otherwise), business, or prospects of the Company, or such adverse
material change in general market conditions as in the Representative's
reasonable judgment would make it impracticable to proceed with the offering,
sale and/or delivery of the Securities or to enforce contracts made by the
Underwriters for the sale of the Securities.
10.3 Notice. If you elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section 9,
the Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
10.4 Expenses. In the event that this Agreement shall not be
carried out for any reason whatsoever, within the time specified herein or any
extensions thereof pursuant to the terms hereof, the obligations of the Company
to pay the expenses related to the transactions contemplated herein shall be
governed by Section 3.14 hereof.
28
10.5 Indemnification. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 shall not be in any way effected by, such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Miscellaneous.
11.1 Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telecopied and confirmed
If to the Representative:
HCFP/▇▇▇▇▇▇▇ Securities LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company:
GigaBeam Corporation
▇▇▇▇▇-▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to:
Blank Rome LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
11.2 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
29
11.3 Amendment. This Agreement may be amended only by a
written instrument executed by each of the parties hereto.
11.4 Entire Agreement. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
11.5 Binding Effect. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Representative, the other Underwriter,
the Company and the controlling persons, directors and officers referred to in
Section 5 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained.
11.6 Governing Law, Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflicts of law. The Company hereby
agrees that any action, proceeding or claim against it arising out of or
relating in any way to this Agreement shall be brought and enforced in the
courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any such process or summons to be served upon the Company may be served
by transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
10.1 hereof. Such mailing shall be deemed personal service and shall be legal
and binding upon the Company in any action, proceeding or claim. The parties
agree that the prevailing party(ies) in any such action shall be entitled to
recover from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
11.7 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
11.8 Waiver, Etc. The failure of any of the parties hereto at
any time to enforce any of the provisions of this Agreement shall not be deemed
or construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto thereafter to enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
30
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
GIGABEAM CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
Accepted as of the date first
above written.
New York, New York
HCFP/▇▇▇▇▇▇▇ SECURITIES LLC
By:____________________________
Name:__________________________
Title:_________________________
31
SCHEDULE I
GIGABEAM CORPORATION
Underwriter Number of Firm Securities to be Purchased
----------- -----------------------------------------
HCFP/▇▇▇▇▇▇▇ Securities, LLC
32