EXHIBIT 1.1
833,000 Shares of Common Stock
and
833,000 Redeemable Common Stock Purchase Warrants
of
ROSEDALE DECORATIVE PRODUCTS LTD.
UNDERWRITING AGREEMENT
Atlanta, Georgia
_______________, 1998
▇.▇. ▇▇▇▇▇▇ & Company, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Rosedale Decorative Products Ltd.,a corporation organized under the laws of
the Province of Ontario, Canada (the "COMPANY"), confirms its agreement with
▇.▇. ▇▇▇▇▇▇ & Company, L.L.C. ("▇.▇. ▇▇▇▇▇▇"), and each of the other
underwriters named in Schedule I hereto (collectively, the "UNDERWRITERS" which
term shall also include any underwriter substituted as hereinafter provided in
SECTION 11), for whom ▇.▇. ▇▇▇▇▇▇ is acting as representative (in such capacity,
▇.▇. ▇▇▇▇▇▇ shall hereinafter be referred to as the "REPRESENTATIVE"), with
respect to the sale by the Company, and the purchase by the Underwriters, acting
severally and not jointly, of Eight Hundred Thirty-Three Thousand (833,000)
shares (the "SHARES") of the Company's common stock, no par value per share (the
"COMMON STOCK"), and Eight Hundred Thirty-Three Thousand (833,000) Redeemable
Common Stock Purchase Warrants (the "REDEEMABLE WARRANTS") ("FIRM SECURITIES"),
each of the Redeemable Warrants entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $______ per share pursuant to a
warrant agreement (the "WARRANT AGREEMENT") between the Company and the warrant
agent, set forth in Schedule II, and with respect to the grant by the Company to
the Underwriters, acting severally and not jointly, of the option described in
SECTION 2(b) hereof to purchase all or any part of 124,950 additional Shares and
124,950 Redeemable Warrants (the "ADDITIONAL SECURITIES") for the purpose of
covering over-allotments, if any. The aforesaid Firm Securities together with
all or any part of the Additional Securities are hereinafter collectively
referred to as the "SECURITIES." The Company also proposes to issue and sell to
the Underwriters for an approximate price of $_____ ($0.001 per warrant), non-
callable warrants entitling the Underwriters' to purchase from the Company an
Underwriters' Warrant (the "UNDERWRITERS' WARRANT") for the purchase of an
aggregate of 833,000 Shares (the "UNDERWRITERS' SHARES") and 833,000 Redeemable
Common Stock Purchase Warrants (the "UNDERWRITERS' WARRANTS"). The shares of
Common Stock issuable upon exercise of the Redeemable Warrants and the
Underwriters' Warrants are hereinafter sometimes referred to as the "WARRANT
SHARES." The Shares, the Redeemable Warrants, the Common Stock and
Underwriters'
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Shares, Underwriters' Warrants, and the Warrant Shares are more fully described
in the Registration Statement (as defined in Subsection 1(a) hereof) and the
Prospectus (as defined in Subsection 1(a) hereof) referred to below. Unless the
context otherwise requires, all references to the "Company" shall include all
subsidiaries (as defined in Subsection 1(e) hereof) referred to below and
identified in the Prospectus, as if separately stated herein. All
representations, warranties and opinions of counsel shall cover such
subsidiaries.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with each of the Underwriters as of the date hereof,
and as of the Closing Date and any Option Closing Date, (as defined in
Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "COMMISSION") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "ACT"), a registration statement, and
an amendment or amendments thereto, on Form SB-2 (File No. 333-_______) under
the Act (the "REGISTRATION STATEMENT"), including a prospectus subject to
completion relating to the Shares and Redeemable Warrants which registration
statement and any amendment or amendments have been prepared by the Company in
material compliance with the requirements of the Act and the rules and
regulations of the Commission under the Act. The term "Registration Statement"
as used in this Agreement means the registration statement (including all
financial schedules and exhibits), as amended at the time it becomes effective,
or, if the registration statement became effective prior to the execution of
this Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed, that
a post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Preliminary Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part thereof and no proceedings
for a stop order have been instituted or are pending or, to the best knowledge
of the Company, threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed in
all material respects with the requirements of the Act and the Rules and
Regulations, and neither the Preliminary
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Prospectus, the Registration Statement or Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
written information furnished to the Company with respect to the Underwriters by
or on behalf of the Underwriters expressly for use in such Preliminary
Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date and
during such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will contain all material statements which are
required to be stated therein in material compliance with the Act and the Rules
and Regulations, and will in all material respects conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement,
nor any amendment thereto, at the time the Registration Statement or such
amendment is declared effective under the Act, will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Option Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information supplied to the Company in writing by or
on behalf of the Underwriters expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is now, and at the
Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the Province of Ontario, Canada
Other than the Company's Subsidiaries (as defined in Section (e)), the Company
does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity; provided, that the
foregoing shall not be applicable to the investment of the net proceeds from the
sale of the Securities in short-term, low-risk investments as set forth under
"Use of Proceeds" in the Prospectus. The Company is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so register
or qualify does not have a material adverse effect on the condition (financial
or other), business, properties, net worth or results of operations of the
Company and the subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT").
The Company has all requisite power and authority (corporate and other), and has
obtained any and all necessary material applications, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; the Company
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
material federal, state, local and foreign laws, rules and regulations; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the
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aggregate, would have a Material Adverse Effect. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(e) The Company's subsidiaries (collectively, the "SUBSIDIARIES")
include Rosedale Wallcoverings & Fabrics, Inc. and Ontario Paint & Wallpaper
Ltd. Each Subsidiary is a corporation duly organized, validly existing and in
good standing in the jurisdiction of its incorporation, with full corporate
power and authority to own, lease and operate its properties and to conduct its
business, and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or qualification,
except where the failure so to register or qualify does not, singly or in the
aggregate, have a Material Adverse Effect; all of the outstanding shares of
capital stock of each of the Subsidiaries, have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the Company directly,
or indirectly through one of the other Subsidiaries, free and clear of any lien,
adverse claim, security interest, equity or other encumbrance.
(f) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Securities, the Additional
Securities, Underwriters Shares, the Underwriter's Warrants, and the Warrant
Shares and all other securities issued or issuable by the Company conform or,
when issued and paid for, will conform in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Additional Securities, the Underwriters' Shares,
and the Underwriter's Warrants to be issued and sold by the Company hereunder,
and the Warrant Shares issuable upon exercise of the Redeemable Warrants and the
Underwriter's Warrants and payment therefor, are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof and thereof, will be validly issued, fully paid and non-assessable and
will conform in all material respects to the descriptions thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Additional Securities, the
Underwriters' Shares, and the Underwriter's Warrants, and the Warrant Shares has
been duly and validly taken; and the certificates representing the Securities,
the Underwriter's Warrants, and the Warrant Shares will be in due and proper
form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities to be sold by the Company hereunder, the Underwriters will acquire
good and marketable
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title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. There has been no
material adverse change or development involving a prospective change in the
condition, financial or otherwise, or in the earnings, business affairs,
position, prospects, value, operation, properties, business, or results of
operation of the Company, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company,
conforms in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(h) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chartered Accountants, whose report is
filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act.
(i) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and taxes payable under Chapters 21 through 24 of the Internal Revenue Code of
1986 (the "CODE"), (ii) has furnished all tax and information returns it is
required to furnish pursuant to the Code, and has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have knowledge
of any tax deficiency or claims outstanding, proposed or assessed against it
(other than certain state or local tax returns, as to which the failure to file,
singly or in the aggregate, would not have a Material Adverse Effect.)
(j) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts which it reasonably believes to be
necessary for its business, including, but not limited to, personal and product
liability insurance covering all personal and real property owned or leased by
the Company against fire, theft, damage and all risks customarily insured
against.
(k) There is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
pending (to the knowledge of the Company) or threatened against (or
circumstances known to the Company that may give rise to the same), or involving
the properties or business of the Company which: (i) is required to be disclosed
in the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
respects); or (ii) singly or in the aggregate would have a Material Adverse
Effect.
(l) The Company has full legal right, power and authority to enter
into this Agreement, the Underwriters' Warrant and the Warrant Agreement and to
consummate the transactions provided for in such agreements; and this Agreement,
the Underwriters' Warrant and the Warrant Agreement have each been duly and
properly authorized, executed and delivered by the
Page 5
Company. Each of this Agreement, the Underwriters' Warrant and the Warrant
Agreement, constitutes a legal, valid and binding agreement of the Company,
subject to due authorization, execution and delivery by the Representative
and/or the Underwriters, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriters' Warrant,
and the Warrant Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, nor the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest defect or other restriction or equity of any kind
whatsoever upon any property or assets (tangible or intangible) of the Company
pursuant to the terms of: (i) the Articles of Incorporation or By-Laws of the
Company; (ii) any material license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which the Company is bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, other than conflicts that, singly
or in the aggregate, will not have a Material Adverse Effect; or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(m) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriters' purchase and distribution of the
Securities to be sold by the Company hereunder; or (ii) the issuance and
delivery of the Underwriters' Warrant, the Underwriters' Shares, the
Underwriter's Warrants, the Redeemable Warrants or the Warrant Shares.
(n) All executed agreements or copies of executed agreements filed as
exhibits to the Registration Statement to which the Company is a party or by
which the Company may be bound or to which any of its assets, properties or
businesses may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute the legal, valid and binding agreements
of the Company, enforceable against it in accordance with its respective terms.
The descriptions contained in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Act and the Rules
and Regulations and there are no material contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
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(o) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not: (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money in any material amount; (ii) entered into any transaction
other than in the ordinary course of business; (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock;
or (iv) made any changes in capital stock, material changes in debt (long or
short term) or liabilities other than in the ordinary course of business,
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
(p) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, no default exists in the due
performance and observance of any material term, covenant or condition of any
license, contract, indenture, mortgage, installment sales agreement, lease, deed
of trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets (tangible or intangible) of the Company is subject or affected.
(q) To the best knowledge of the Company, the Company has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance in all material respects with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours.
(r) To the best knowledge of the Company, since its inception, the
Company has not incurred any liability arising under or as a result of the
application of the provisions of the Act.
(s) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company does not presently
maintain, sponsor or contribute to, and never has maintained, sponsored or
contributed to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan" or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(l) 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, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA.
(t) The Company is not in violation in any material respect of any
domestic or foreign laws, ordinances or governmental rules or regulations to
which it is subject, except to the extent that any such violation would not,
singly or in the aggregate, have a Material Adverse Effect.
(u) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within twelve (12) months of the date hereof or to require the Company to file a
registration
Page 7
statement under the Act during such twelve (12) month period, except such
registration rights as have been waived or disclosed in the Prospectus.
(v) Neither the Company, nor, to the Company's best knowledge, any of
its employees, directors, principal stockholders or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(w) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing; and (ii) except as set forth in the Prospectus, is not obligated
or under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service ▇▇▇▇, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(x) Except as described in the Prospectus, to the best of the
Company's knowledge, the Company owns and has the unrestricted right to use all
material trade secrets, trademarks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "INTELLECTUAL
PROPERTY") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(z) The Company has obtained such duly executed legally binding and
enforceable agreements as required by the Representative pursuant to which the
Company's President and certain
Page 8
Directors and affiliates described in the Prospectus, have agreed not to,
directly or indirectly, offer to sell, sell, grant any option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber any of their shares
of Common Stock or other securities of the Company (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for certain periods of up to 60 months subject to earlier release upon
the Company's achievement of certain performance thresholds, following the
effective date of the Registration Statement without the prior written consent
of the Representative. The Company will cause the Transfer Agent, as defined
below, to ▇▇▇▇ an appropriate legend on the face of stock certificates
representing all of such shares of Common Stock and other securities of the
Company.
(aa) Except as disclosed in the Prospectus, the Company has not
incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the NASD.
(bb) The Securities have been approved for quotation on the Nasdaq
SmallCap Market of the Nasdaq Stock Market, Inc., subject to official notice of
issuance.
(cc) Neither the Company nor to the Company's best knowledge any of
its respective officers, employees, agents or any other person acting on behalf
of the Company, has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company;
or (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices ▇▇▇ ▇▇▇▇, as amended.
(dd) Except as set forth in the Prospectus, and to the best knowledge
of the Company, no officer, director or principal stockholder of the Company, or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any such person or entity or the
Company, has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services,
except with respect to the beneficial ownership of not more than 1% of the
outstanding shares of capital stock of any publicly-held entity; or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Relationships and Related Transactions," there are no existing
agreements, arrangements, understandings or transactions, or
Page 9
proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or principal stockholder of the
Company, or any affiliate or associate of any such person or entity, which is
required to be disclosed pursuant to Rule 404 of Regulation S-B.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(ff) The Company has entered into an employment agreements with ▇▇▇▇
Fine and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as described in the Prospectus. Unless waived by the
Representative, the Company shall use its reasonable efforts at reasonable cost
to obtain key-man life insurance policies in the amount of not less than
$1,000,000 on the life of Mr. Fine and ▇▇. ▇▇▇▇▇▇▇▇, which policies shall be
owned by the Company and shall name the Company as the sole beneficiary
thereunder.
(gg) No securities of the Company have been sold by the Company since
its date of incorporation, except as disclosed in Part II of the Registration
Statement.
(hh) The minute books of the Company have been made available to
Underwriter's Counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Shareholders of the Company since the date of its
incorporation.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES, ADDITIONAL SECURITIES
AND AGREEMENT TO ISSUE UNDERWRITERS' WARRANT.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agree to purchase from the Company at the price per
share and the price per warrant set forth below, that proportion of the number
of Common Stock and Redeemable Warrants set forth in Schedule I opposite the
name of such Underwriter that such number of Common Stock and Redeemable
Warrants bears to the total number of shares of Common Stock and Redeemable
Warrants, respectively, subject to such adjustment as the Underwriters in their
discretion shall make to eliminate any sales or purchases of fractional
Securities, plus any additional numbers of Securities which such Underwriter may
become obligated to purchase pursuant to the provisions of SECTION 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional 124,950
Shares from the Company and 124,950 Redeemable Warrants at the prices set forth
below. The option granted hereby will expire 45 days after the date of this
Agreement, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Additional Securities upon notice by the
Representative to the Company setting forth the number of Additional Securities
as to which the Underwriters are then exercising the option and the time and
date of payment and delivery for such Additional Securities. Any such time and
date of delivery shall be determined by the Underwriters, but shall not be later
than seven full business days after
Page 10
the exercise of said option, nor in any event prior to the Closing Date, as
defined in paragraph (c) below, unless otherwise agreed to between the
Representative and the Company. In the event such option is exercised, each of
the Underwriters, acting severally and not jointly, shall purchase such number
of Additional Securities then being purchased which shall have been allocated to
such Underwriter by the Representative, and which such Underwriter shall have
agreed to purchase, subject in each case to such adjustments as the Underwriters
in their discretion shall make to eliminate any sales or purchases of fractional
Securities. Nothing herein contained shall obligate the Underwriters to make
any over-allotments. No Additional Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of counsel to the
Representative in Atlanta, Georgia, or at such other place as shall be agreed
upon by the Underwriters and the Company. Such delivery and payment shall be
made at 10:00 a.m. (New York City time) on ___________, 1998 or at such other
time and date as shall be designated by the Representative but not less than
three (3) nor more than five (5) business days after the effective date of the
Registration Statement (such time and date of payment and delivery being
hereafter called "CLOSING DATE"). In addition, in the event that any or all of
the Additional Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for such Additional Securities
shall be made at the above-mentioned office or at such other place and at such
time (such time and date of payment and delivery being hereinafter called
"OPTION CLOSING DATE") as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Firm
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Firm Securities and the Additional Securities, if any, to the order of the
Company as the case may be by certified check in New York Clearing House funds
or, at the election of the Representative, all or a portion of the funds may be
paid by Bank wire transfer of funds or by Representative's commercial check.
Certificates for the Firm Securities and the Additional Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates or the Depository Trust Corporation electronic notifications, as
the case may be, for the Securities and the Additional Securities, if any, shall
be made available to the Underwriters at the above-mentioned office or such
other place as the Underwriters may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
The purchase price of the Common Stock and Redeemable Warrants to
be paid by each of the Underwriters, severally and not jointly, to the Company
for the Securities purchased under Clauses (a) and (b) above will be $______ per
Share and $______ per Redeemable Warrant (which price is net of the
Underwriters' discount and commissions). The Company shall not be obligated to
sell any Securities hereunder unless all Firm Securities to be sold by the
Company are purchased hereunder. The Company agrees to issue and sell 833,000
shares of the Common Stock and the Company agrees to issue and sell 833,000
Redeemable Warrants to the Underwriters in accordance herewith.
Page 11
(d) On the Closing Date, the Company shall issue and sell to the
Underwriters the Underwriters' Warrant at a purchase price of $________, which
warrant shall entitle the holders thereof to purchase an aggregate of 833,000
Shares and 833,000 Warrants. The Underwriters' Warrant shall be exercisable for
a period of four (4) years commencing one (1) year from the closing date of the
Registration Statement at an initial exercise price equal to one hundred fifty
percent (150%) of the initial public offering price of the Shares and Redeemable
Warrants. The Underwriter's Warrant shall be substantially in the form filed as
an Exhibit to the Registration Statement. Payment for the Underwriters' Warrant
shall be made on Closing Date. The Company has reserved and shall continue to
reserve a sufficient number of Shares for issuance upon exercise of the
Underwriters' Warrant.
3. PUBLIC OFFERING OF THE SECURITIES. As soon after the Registration
Statement becomes effective and as the Representative deems advisable, but in no
event more than three (3) business days after such effective date, the
Underwriters shall make a public offering of the securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Underwriters may allow such concessions and
discounts upon sales to other dealers as set forth in the Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act (i)
before termination of the offering of the Securities by the Underwriters, which
the Underwriters shall not previously have been advised and furnished with a
copy, or (ii) to which the Underwriters shall have objected or (iii) which is
not in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriters and confirm by notice in writing: (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
Page 12
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriters) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriters pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriters notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriters or ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, P.C. ("UNDERWRITERS' COUNSEL") shall reasonably object.
(e) The Company shall cooperate in good faith with the Underwriters,
and Underwriters' Counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriters may
reasonably designate, and shall cooperate with the Underwriters and
Underwriters' Counsel in the making of such applications, and filing such
documents and shall furnish such information as may be required for such
purpose; PROVIDED, HOWEVER, the Company shall not be required to: (i) qualify as
a foreign corporation or file a general consent to service of process in any
such jurisdiction; or (ii) qualify or "blue sky" in any state which requires a
lock-up of inside securities for a period greater than five (5) years (or such
earlier date if the Representative has exercised the Underwriters' Warrant). In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriters agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to
Page 13
Underwriters' Counsel, and the Company will furnish to the Underwriters a
reasonable number of copies of such amendment or supplement.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period commencing on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof and
provided that the Company is required to file reports with the Commission under
Section 12 of the Exchange Act, the Company will provide the Representative's
director Designee or Attendee, as defined herein, copies of the below described
documents prior to release where applicable and will furnish to its stockholders
and to the Underwriter as soon as practicable, annual reports (including
financial statements audited by independent public accountants):
(i) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(iii) every press release and every material news item or
article of interest to the financial community in respect of the Company and any
future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature concerning
the Company and any future subsidiaries or their respective businesses which the
Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time;
(vi) such other information as may be requested with reference
to the property, business, stockholders and affairs of the Company and its
subsidiaries.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
Page 14
(i) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent and a Warrant Agent, which may be the same entity, and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer and Warrant Agent) for its Common
Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or pursuant to the
Underwriters' direction, without charge, at such place as the Underwriters may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriters may reasonably
request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(1) The Company shall apply the net proceeds from the sale of the
Securities in substantially the manner, and subject to the provisions, set forth
under "Use of Proceeds" in the Prospectus. Except for the redemption of the
Company's outstanding Convertible Preferred Stock as disclosed in the
Prospectus, no portion of the net proceeds will be used directly or indirectly
to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required (including but not limited to a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available internally prepared financial statements
of the Company.
(o) For a period of five (5) years from the Closing Date (or such
earlier date if the Representative has exercised the Underwriters' Warrant), the
Company shall furnish to the Underwriters at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Securities upon the
Representative's reasonable request; (ii) a list of holders of Securities upon
the Representative's reasonable request; (iii) a list of, if any, the securities
positions of participants in the Depository Trust Company upon the
Representative's reasonable request.
(p) For a period of five (5) years after the effective date of the
Registration Statement (or such earlier date if the Representative has exercised
the Underwriters' Warrant), the Company shall use its best efforts to cause one
(1) individual (the "DESIGNEE") selected by the Representative to be elected to
the Board of Directors of the Company (the "BOARD"), if requested
Page 15
by the Representative. Alternatively, the Representative shall be entitled to
appoint an individual who shall be permitted to attend all meetings of the Board
(the "ADVISOR") and to receive all notices and other correspondence and
communications sent by the Company to members of the Board. Upon election to
the Board, the Designee shall be entitled to call special meetings of the Board
and to serve on the Audit and Compensation Committees. The Designee may be
removed by the Board only for "justifiable cause" as that term is defined in the
Employment Contracts between the Company and ▇▇▇▇ Fine and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇. The
Company shall reimburse the Representative's Designee or Advisor for his or her
out-of-pocket expenses reasonably incurred and authorized in advance by the
Company in connection with his or her attendance of the Board meetings and a fee
equal to the amount paid to the other outside directors of the Company. The
Designee or Advisor shall also be entitled to participate in any Stock Option
Plans of the Company for non-employees. To the extent permitted by law, the
Company agrees to indemnify and hold the Designee (as a director or Advisor) and
the Representative harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or Advisor and in the
event the Company maintains a liability insurance policy affording coverage for
the action of its officer and directors, to include such Designee and the
Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years from the
date hereof, or (ii) the sale to the public of the Warrant Shares, the Company
will use its best efforts not to take any action or actions which may prevent or
disqualify the Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or
other appropriate form) for the registration under the Act of the Warrant
Shares.
(r) For a period of five (5) years from the date hereof, the Company
shall use its best efforts at its cost and expense to maintain the listing of
the Securities on the Nasdaq SmallCap Market or NASDAQ National Market System if
the Company meets all of the requirements and qualifications promulgated by the
NASD.
(s) On or before the effective date of the Registration Statement,
the Company shall retain or make arrangements to retain a financial public
relations firm and a publicist reasonably satisfactory to the Representative
which shall be continuously engaged from such engagement date to a date 24
months from the effective date of the Registration Statement. Upon the
expiration of such two (2) year period, such engagement shall continue until the
expiration of any lock-up period provided for in the Lock-Up Agreement(s) with
certain officers and directors of the Company subject to the Company's right to
terminate any such firm with the consent of the Underwriter's director Designee.
Further, the Company shall engage for a period of two years at least three firms
(one of which shall be the Representative and one of which shall be Standard &
Poor's Stock Reports Professional Edition) which are reasonably acceptable to
the Representative to provide industry research and advice to the Company. Upon
the expiration of such two-year period, such engagement shall continue until the
expiration of any lock-up period provided hereunder, subject to the Company's
right to terminate any such firm with the consent of the Underwriters' director
designee.
(t) The Company shall (i) file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and (ii)
promptly take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and/or ▇▇▇▇▇'▇ OTC Manual and to continue
such inclusion for a period of not less than five (5) years, as soon as
Page 16
practicable, but in no event more than five (5) business days' after the
effective date of the Registration Statement.
(u) Following the Effective Date of the Registration Statement and
for a period of five (5) years thereafter (or such earlier date if the
Representative has exercised the Underwriters' Warrant), the Company shall, at
its sole cost and expense, prepare and file such blue sky trading applications
with such jurisdictions as the Representative may reasonably request after
consultation with the Company, and on the Representative's request, furnish the
Underwriters with a secondary trading survey prepared by securities counsel to
the Company.
(v) The Company shall not amend or alter any term of any written
employment agreement nor Lock-Up Agreement between the Company and any executive
officer, director or affiliate, during the term thereof, in a manner more
favorable to such employee or entity, without the express written consent of the
Representative until such time as the Underwriters' Warrant has been exercised
in full.
(w) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, which consent shall not be unreasonably withheld, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(x) Commencing one (1) year from the date hereof, upon the exercise
of any Warrant, the exercise of which was solicited by the Underwriters in
accordance with the applicable rules and regulations of the NASD prevailing at
the time of such solicitation, the Company shall pay to the soliciting
Underwriter a fee of 5% of the aggregate exercise price of such Warrant (the
"WARRANT SOLICITATION FEE") within five (5) business days of such exercise, so
long as the Underwriters provided bona fide services in exchange for the Warrant
Solicitation Fee and the Underwriters have been specifically designated in
writing by the holders of the Warrants as the broker. The Company further
agrees that it will not solicit the exercise of any Warrant other than through
the Underwriters, unless either: (i) the Underwriters cannot legally solicit the
exercise of the Warrants at the time of such solicitation; (ii) the
Representative declines, in writing, to solicit the exercise of the Warrants
within five (5) business days of such a written request by the Company; or (iii)
the Representative consents to the solicitation of the exercise of the Warrants
by the Company or another entity.
(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
(z) For a period of twenty-four (24) months commencing on the
Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Warrant), except with the written consent of the Underwriters,
which consent shall not be unreasonably withheld, the Company will not issue or
sell, directly or indirectly, any shares of its capital stock, or sell or grant
options, or warrants or rights to purchase any shares of its capital stock,
except pursuant to (i) this Agreement, (ii) the Underwriters' Warrants, (iii)
warrants and options of the Company heretofore issued and described in the
Prospectus, and (iv) the grant of options and the issuance of shares issued
Page 17
upon exercise of options issued or to be issued under a stock option plan to be
adopted in the future by the Company with terms that are reasonable for a public
entity the size of the Company which is described in the Prospectus; except
that, during such period, the Company may issue up to ______ shares pursuant to
certain employee stock options as is described in the Prospectus, and issue
securities in connection with an acquisition, merger or similar transaction,
provided that such securities are not publicly registered or issued pursuant to
Regulation S of the Act, and the acquirer of the securities is not granted
registration rights with respect thereto which are effective prior to 24 months
after the Effective Date and until the Underwriters' Warrant is exercised, the
Underwriter grants its consent. Notwithstanding anything to the contrary set
forth in the prior sentence, the Company may not issue any class or series of
Preferred Stock for a period of 24 months from the Effective Date without the
unanimous vote or consent of all members of the Board of Directors of the
Company. Prior to the Effective Date, the Company will not issue any options or
warrants without the prior written consent of the Underwriters.
(aa) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the 12 months following the Closing Date without
the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or other), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect the
condition (financial or other), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not pay or declare any
dividend or other distribution on its Common Stock or its other securities or
redeem or repurchase any of its Common Stock or other securities.
(cc) The Company, for a period of twenty-four (24) months following
the Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Warrant), shall not redeem any of its securities, except as
disclosed in the Registration Statement, and shall not pay any dividends or make
any other cash distribution in respect of its securities in excess of the amount
of the Company's current or retained earnings derived after the Effective Date
without obtaining the Underwriters' prior written consent, which consent shall
not be unreasonably withheld. The Underwriters shall either approve or
disapprove such contemplated redemption of securities or dividend payment or
distribution within five (5) business days from the date the Underwriters
receive written notice of the Company's proposal with respect thereto; a failure
of the Underwriters to respond within the five (5) business day period shall be
deemed approval of the transaction.
(dd) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is
Page 18
permitted only in accordance with management's general or specific
authorization; (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences, and (v) all quarterly reports filed on Form 10-Q
shall be reviewed by the Company's accountant in accordance with SAS 71.
(ee) The Company, for a period of twenty-four (24) months following
the Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Warrant), shall implement the following procedures:
(i) Thirty days prior to fiscal year end, the President will
present to the Board of Directors a business plan to be adopted by the Board of
Directors at fiscal year end. The business plan will include the following:
a) quarterly projections - including balance sheet,
profit/loss statement and cash flow statements with underlying
assumptions
b) upon board approval, this document becomes the
annual budget
(ii) No later than the 20th day of each month, the Company
will provide the Board with comparative financial statements for the previous
month showing actual balance sheet, profit/loss and cash flow vs. budget with
written explanations for deviation in excess of $50,000 or 10% of line item
presented.
(iii) Monthly Board meetings (which may be by telephone) by the
25th of each month to include discussion of the Monthly Report and approval of
any changes to the business plan based on change of circumstances.
(iv) Implementation of a compensation committee, which will be
headed by an outside director and include one of the Underwriters' Designee
Directors, to make recommendations to the Board for compensation for all outside
consultants, officers and outside directors.
(v) Implementation of an audit committee which will have as
its members the Underwriter's Designee Director and one outside Director.
If the Company fails to comply with or breaches any provisions of this
Section 4 of this Agreement, after 30 days written notice from the
Representative of such default or breach, the Underwriters may cause the Company
to retain one or more consultants, accountants or other professionals to assist
the Company in curing the breach or failure and the Company will reimburse such
third party directly for costs and expenses incurred.
(ff) Financial Advisory Agreement. On the Closing Date, the Company
shall execute a Financial Advisory Agreement with you for services, which shall
include without limitation (i) advising the Company in connection with possible
acquisitions (ii) facilitating shareholder communications and relations,
including the preparation of the Company's annual report and (iii) advising and
assisting the Company with long-term financial planning, corporate
Page 19
reorganization, expansion and capital structure and other financial matters.
Such agreement shall have a term of two years and provide for compensation of
$2,000 per month which amount shall be prepaid in full on the Closing Date. The
Financial Advisory Agreement shall further provide that during the term of such
agreement, in the event that you (i) introduce, negotiate or arrange on the
Company's behalf a non-public equity financing or (ii) arrange on the Company's
behalf a non-public debt financing or (iii) arrange for the purchase or sale of
assets, or for a merger acquisition or joint venture for the Company, then the
Company will compensate you (based on the Transaction Value, as defined below)
for such services in an amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000;
3% on the amount from $2,000,001 to $3,000,000;
2% on the amount from $3,000,001 to $4,000,000;
1% on the amount from $4,000,001 to $5,000,000;
1% on the amount in excess of $5,000,000.
"TRANSACTION VALUE" shall mean the aggregate value of all cash,
securities and other property (i) paid to the Company, its affiliates or their
shareholders in connection with any transaction referred to above involving any
investment in or acquisition of the Company or any affiliates (or the assets of
either), (ii) paid by the Company or any affiliate in any such transaction
involving an investment in or acquisition of another party or its equity
holdings by the Company or any affiliate, or (iii) paid or contributed by the
Company or any affiliate and by the other party or parties in the event of any
such transaction involving a merger, consolidation, joint venture or similar
joint enterprise or undertaking. The value of any such securities (whether debt
or equity) or other property shall be the fair market value thereof as
determined by mutual agreement of the Company and the Underwriters or by an
independent appraiser jointly selected by the Company and the Underwriters.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation: (i) the fees and expenses
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing, filing, delivery and
mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements, the Agreement Among Underwriters, Underwriters
Questionnaires, Powers of Attorney and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters in
quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon; (iv) disbursements and fees of Underwriters' Counsel in connection with
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Page 20
Investments Survey," if any, which Underwriters' Counsel blue sky fees
(exclusive of filing fees and disbursements) shall be $1,000 for each state in
which application for registration or qualification is made up to an aggregate
of $15,000 for all states which Underwriter's Counsel files and inclusive of the
Blue Sky Memorandum described above; (v) fees and expenses of the transfer
agent; (vi) the fees payable to the NASD; (vii) the fees and expenses incurred
in connection with the listing of the Securities on the Nasdaq SmallCap Market
and any other fees for application and admission to a registered Stock Exchange
for which the Underwriter requires the Company to register its Securities;
(viii) fees and expenses for any tombstone advertisements reasonably requested
by the Representative; (ix) Closing Binders; and (x) Lucite cubes containing a
miniature definite Prospectus. All fees and expenses payable to the
Underwriters shall be payable at the Closing Date or Option Closing Date, as
applicable.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of SECTION 6, SECTION 10(A) or SECTION 12, the Company shall
reimburse and indemnify the Underwriters for all of their out-of-pocket expenses
reasonably incurred in connection with the transactions contemplated hereby.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this SECTION 5, it will pay to the
Underwriters a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Securities, none
of which has been paid to date to the Underwriters. The Company will pay the
remainder of the non-accountable expense allowance on the Closing Date by direct
payment to third parties for fees and expenses including, but not limited to,
fees and expenses of Underwriter's Counsel and the balance by deduction from the
proceeds of the offering contemplated herein. In the event the Underwriters
elect to exercise the over-allotment option described in Section 2(b) hereof,
the Company further agrees to pay to the Underwriters on the Option Closing Date
(by deduction from the proceeds of the offering) a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Additional Securities.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option Closing
Date, if any, of each of its covenants and obligations hereunder and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Underwriters, and, at
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriter and Underwriters' Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the price of the
Securities and any price-related information previously omitted from
Page 21
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to the Underwriters of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriters' opinion, is material or omits to state a
fact which, in the Underwriters' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriters' reasonable opinion, is material, or omits to
state a fact which, in the Underwriters' reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date and each Option Closing Date, as
the case may be, the Underwriters shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Underwriters reasonably may request
and such counsel shall have received such papers and information as they request
to enable them to pass upon such matters.
(d) At the Closing Date and the Option Closing Date the Underwriters
shall have received an opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq., counsel to the
Company, dated the Closing Date, or Option Closing Date, as the case may be,
addressed to the Underwriter and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Company: (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of the Province of
Ontario, Canada with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) to the best knowledge of such counsel, the Company
is duly registered or qualified as a foreign corporation in all jurisdictions in
which by reason of maintaining an office in such jurisdiction or by owning or
leasing real property in such jurisdiction it is required to be so registered or
qualified except where failure to register or qualify does not have, singly or
in the aggregate, a Material Adverse Effect; and (C) to the best knowledge of
such counsel, the Company has not received any notice of proceedings relating to
the revocation or modification of any such registration or qualification.
(ii) The Registration Statement, each Preliminary Prospectus
that has been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, schedules and other
financial and statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form SB-2 have been satisfied by the Company. Such counsel shall state that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the
Page 22
independent public accountants for the Company and representatives of the
Underwriters at which the contents of the Registration Statement, the Prospectus
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the attention
of such counsel which lead them to believe that either the Registration
Statement or any amendment thereto at the time such Registration Statement or
amendment became effective or the Prospectus as of the date thereof contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or to make the statements therein in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data included in
the Registration Statement or Prospectus or with respect to statements or
omissions made therein in reliance upon information furnished in writing to the
Company on behalf of any Underwriter expressly for use in the Registration
Statement or the Prospectus).
(iii) To the best of such counsel's knowledge, the Company has
a duly authorized, issued and outstanding capitalization as set forth in the
Prospectus as of the date indicated therein, under "Capitalization." The
Shares, Redeemable Warrants, the Underwriters' Warrants, and the Warrant Shares
conform in all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof, to counsel's
best knowledge, are not subject to personal liability by reason of being such
holders, and none of such securities were issued in violation of the preemptive
rights of any holder of any security of the Company.
(iv) The issuance of the Shares, Redeemable Warrants and the
Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. To the best of such
counsel's knowledge, the Securities are not and will not be subject to the
preemptive or similar contractual rights of any shareholder of the Company. All
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. The certificates representing
the Shares and Redeemable Warrants are in due and proper form.
(v) Based solely on telephonic, verbal confirmation provided
to such counsel by the staff of the Commission, the Registration Statement and
all post-effective amendments, if any, have become effective under the Act, and,
if applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued and to the best of such counsel's knowledge, no proceedings for that
purpose have been instituted or are pending or threatened or contemplated under
the Act; and any required filing of the Prospectus pursuant to Rule 424(b) has
been made.
(vi) To the best of such counsel's knowledge, (A) there are no
material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Page 23
Registration Statement and the Prospectus and filed as exhibits thereto, and (B)
the descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto regarding such material contracts or other
documents to which the Company is a party or by which it is bound, are accurate
in all material respects and fairly represent the information required to be
shown by Form SB-2 and the Rules and Regulations.
(vii) This Agreement, the Underwriters' Warrant, the Warrant
Agreement, and the Financial Advisory Agreement have each been duly and validly
authorized, executed and delivered by the Company, and assuming that it is a
valid and binding agreement of the Underwriters, so as the case may be,
constitutes a legal, valid and binding agreement of the Company enforceable as
against the Company in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law or pursuant to public policy).
(viii) Neither the execution or delivery by the Company of this
Agreement, the Underwriters' Warrant, and the Warrant Agreement, nor its
performance hereunder or thereunder, nor its consummation of the transactions
contemplated herein or therein, nor the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, nor the issuance of the securities conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under, or
result in the creation or imposition of any material lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon any property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the Articles of Incorporation of the
Company, or (B) to the best knowledge of such counsel, and except to the extent
it would not have a Material Adverse Effect on the Company, any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of its
respective activities or properties.
(ix) No consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body, (other
than such as may be required under state securities laws, as to which no opinion
need be rendered) is required in connection with the issuance by the Company of
the Securities pursuant to the Prospectus and the Registration Statement, the
performance of this Agreement, the Underwriters' Warrant, the Financial Advisory
Agreement and the Warrant Agreement by the Company, and the taking of any action
by the Company contemplated hereby or thereby, which has not been obtained.
(x) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for twelve months from the date hereof.
(xi) After the public offering, the Securities will be
eligible for listing on the Nasdaq SmallCap Market.
Page 24
In rendering such opinion such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of the Province of Ontario, Canada 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
in substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws, and (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; PROVIDED, that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion, the
Underwriters and they are justified in relying thereon.
(e) At each Option Closing Date, if any, the Underwriters shall have
received the an opinion of counsel to the Company, each dated the Option Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel confirming as of Option Closing Date the statements made
by such firm, in their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the Option Closing
Date, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this SECTION 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
(g) Prior to the Closing Date and each Option Closing Date, if any:
(i) there shall have been no material adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects or the
business activities of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness; (iv)
no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or
to its knowledge threatened against the Company, or affecting any of its
properties or businesses before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the
Page 25
chief financial or chief accounting officer of the Company, dated the Closing
Date or Option Closing Date, as the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and neither the
Preliminary Prospectus nor any supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and except
as otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Option Closing Date as the case may be, other
than in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (B) the Company has not paid or declared any
dividends or other distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of business; (D) there
has not been any change in the capital stock or any increase in long-term debt
or any increase in the short-term borrowings (other than any increase in the
short term borrowings in the ordinary course of business) of the Company; (E)
the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (F) there is no litigation which is pending or
threatened against the Company which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates
shall have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriters shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
Page 26
(j) At the time this Agreement is executed, the Representative shall
have received a letter, dated such date, addressed to the Representative in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriters, from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chartered Accountants:
(i) confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chartered Accountants with respect to the financial statements
and supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date of the
latest available unaudited interim consolidated financial statements), a reading
of the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
consolidated financial statements of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements of the Company included in the Registration
Statement, or (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change in the
capital stock, or any increase in total borrowings of the Company, or any
decrease in the stockholders' equity or working capital of the Company as
compared with amounts shown in the financial statements included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from December
27, 1997 to a specified date not more than five (5) days prior to the effective
date of the Registration Statement, there was any decrease in revenue, net
earnings or increase in net income or earnings per common share of the Company,
in each case as compared with the corresponding period of the prior year other
than as set forth in or contemplated by the Registration Statement, or, if there
was any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of Securities, percentages of revenue and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures did not
constitute an examination in
Page 27
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may reasonably request.
(k) At the Closing Date and each Option Closing Date, the
Underwriters shall have received from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chartered
Accountants, a letter, dated as of the Closing Date, or Option Closing Date, as
the case may be, to the effect that they reaffirm that statements made in the
letter furnished pursuant to SUBSECTION (j) of this Section, except that the
specified date referred to shall be a date not more than five days prior to the
Closing Date and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further effect that they have carried out procedures as
specified in clause (iii) of subsection (j) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Underwriters and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (iii).
(l) On each of the Closing Date and the Option Closing Date, if any,
there shall have been duly tendered to the Underwriters for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
SECTION 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriters may terminate this
Agreement or, if the Underwriters so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in SECTION 11 hereof and each person, if any, who
controls any Underwriter ("CONTROLLING PERSON") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other federal or state statutory
laws or regulations at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus (except
that the indemnification contained in this paragraph with respect to any
preliminary prospectus shall not inure to the benefit of the Underwriter or to
the benefit of
Page 28
any person controlling the Underwriter on account of any loss, claim, damage,
liability or expense arising from the sale of the Securities by the Underwriter
to any person if a copy of the Prospectus, as amended or supplemented, shall not
have been delivered or sent to such person within the time required by the Act,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, as amended and supplemented, and such correction
would have eliminated the loss, claim, damage, liability or expense), the
Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of the
Company issued or issuable upon exercise of the Underwriters' Warrant; or (iii)
in any application or other document or written communication (in this SECTION 8
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be, or (iv) any failure of the Company to comply
with any provision of this Underwriting Agreement resulting in a claim or loss
to the Underwriters.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of Section 20 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to the Underwriters but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto in any
post-effective amendment, new registration statement or prospectus, or in any
blue sky application or any other such application made in reliance upon, and in
strict conformity with, written information furnished to the Company with
respect to any Underwriter by such Underwriter expressly for use in such
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any post-effective amendment, new
registration statement or prospectus, or in any such application, provided that
such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any such application, provided,
further, that the liability of each Underwriter to the Company shall be limited
to the amount of the net proceeds of the Offering received by the Company. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend and the last paragraph of the cover page in the Prospectus have been
furnished by the Underwriters expressly for use therein and any
Page 29
information furnished by or on behalf of the Underwriter filed in any
jurisdiction in order to qualify the Securities under State Securities laws or
filed with the Commission, the NASD or any securities exchange constitute the
only information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus and the Underwriters hereby confirm that such
statements and information are true and correct.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this SECTION 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this SECTION 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise avoided). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing the indemnified party or parties shall have the right to employ its or
their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnifying party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this SECTION 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; PROVIDED HOWEVER, that
such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this SECTION 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the
Page 30
one hand, and the party to be indemnified on the other hand from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company
is the contributing party and the Underwriters are the indemnified party the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses) bear to
the total underwriting discounts and commissions received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subdivision (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subdivision (d), the
Underwriters shall not be required to contribute any amount in excess of the
amount of the net proceeds of the Offering received by the Company. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this SECTION 7, each person,
if any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in SECTION 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriters.
Page 31
9. EFFECTIVE DATE. This Agreement shall become effective: (i) upon the
execution and delivery hereof by the parties hereto; or (ii) if, at any time
this Agreement is executed and delivered, it is necessary for the Registration
Statement or a post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, when notification of the effectiveness
of the Registration Statement or such post-effective amendment has been released
by the Commission and communicated to the Company and Representative. Until
such time as this Agreement shall have become effective, it may be terminated by
the Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
10. TERMINATION.
(a) The Underwriters shall have the right to terminate this Agreement
(i) if any calamitous domestic or international event or act or occurrence has
materially disrupted, or in the Underwriters' 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, the
Nasdaq National Market, or in the over-the-counter market shall have been
suspended or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v) if
a moratorium in foreign exchange trading has been declared; or (vi) if the
Company shall have sustained a material adverse loss, whether or not insured, by
reason of fire, flood, accident or other calamity that materially impairs the
investment quality of the Securities; or (vii) if there shall have been such
material adverse change in the conditions or prospects of the Company, involving
a change not contemplated by the Registration Statement.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to SECTIONS 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
SECTION 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of SECTION 6, SECTION 10 or SECTION 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "DEFAULTED SECURITIES"), the Underwriters
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other Underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Underwriters shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters; or
Page 32
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to postpone
the Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing Date
or any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Underwriters option, by notice from the Underwriters to the Company,
terminate the Underwriters' several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to SECTION 5 and SECTION 7 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. NOTICES. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at ▇.▇. ▇▇▇▇▇▇ & Company, L.L.C., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, P.C., One Buckhead
Plaza, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed to the
Company at the address on the signature page.
14. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provisions herein contained. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
15. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the choice of law or conflict of laws principles.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
Page 33
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
ROSEDALE DECORATIVE PRODUCTS LTD.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
By:
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN
ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL UNDERWRITERS
NAMED IN SCHEDULE I HERETO:
▇.▇. ▇▇▇▇▇▇ & Company, L.L.C., as
Representative of the Several Underwriters
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Page 34
SCHEDULE I
UNDERWRITER NUMBER OF SECURITIES
----------- --------------------
▇.▇. ▇▇▇▇▇▇ & Company, L.L.C. 833,000 Shares of Common Stock
833,000 Redeemable Common Stock
Purchase Warrants
Page 35
SCHEDULE II
Warrant Agent: Continental Stock Transfer & Trust Corporation
New York, NY
Page 36