EXHIBIT 1.01
______SHARES OF COMMON STOCK
AND ______ REDEEMABLE WARRANTS
ISONICS CORPORATION
UNDERWRITING AGREEMENT
San Jose, California
November ___, 1996
Pryor, McClendon, Counts & Co., Inc.
National Securities Corporation
As Representatives of the Several Underwriters
c/o Pryor, McClendon, Counts & Co., Inc.
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Ladies and Gentlemen:
Isonics Corporation, a California corporation (the "Company"), hereby
agrees with Pryor, McClendon, Counts & Co., Inc. ("▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇") and
National Securities Corporation ("National") and each of the underwriters named
in Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 11), for
whom ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National are acting as representatives (in such
capacity, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National shall hereinafter be referred to jointly
as "you" or the "Representatives") with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective amount of shares (the "Shares") set forth in said Schedule A of the
Company's common stock, no par value per share (the "Common Stock"), and
redeemable common stock purchase warrants (the "Warrants"), each to purchase one
share of Common Stock, set forth in Schedule A hereto. The aggregate
______Shares and _____ Warrants will be separately tradeable upon issuance and
are hereinafter referred to as the "Firm Securities." Each Warrant is
exercisable commencing on _________, 1996 and until 5:30 p.m., New York City
time on _________________, 2001, unless previously redeemed by the Company, at
an initial exercise price of $____ per share of Common Stock. The Warrants may
be redeemed by the Company at a redemption price of $.05 per Warrant at any time
after _________, 1997 on thirty (30) days' prior written notice, provided that
the closing sale price of the Common Stock equals or exceeds $_________ per
share (subject to adjustment under certain circumstances), for any twenty (20)
consecutive trading days immediately preceding the date of the notice of
redemption, all in accordance with the terms and conditions of the Warrant
Agreement (herein defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional __________________________ shares of Common Stock
and ____________________ Warrants for the purpose of covering over-allotments,
if any. Such _________________ shares of Common Stock and ___________________
Warrants, which must be purchased together on the basis of one share and one
Warrant, are hereinafter collectively to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representatives'
Warrants") pursuant to the Representatives' Warrant Agreement (the
"Representatives' Warrant Agreement") for the purchase of an additional
________________ shares of Common Stock and/or ___________________ Warrants. The
shares of Common Stock and Warrants issuable upon exercise of the
Representatives' Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the Representatives'
Warrants and the Representative's Securities (collectively, hereinafter referred
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
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represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date and the Option Closing Date, if any, as
follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-13289) including any
related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Firm Securities, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
Regulations (as defined below) of the Commission under the Act. The Company will
not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any preliminary prospectus,
the Registration Statement or the Prospectus and no proceedings for a stop order
suspending the effectiveness of the Registration Statement have been instituted,
or, to the Company's knowledge, are threatened. Each of any preliminary
prospectus, the Registration Statement and the Prospectus at the time of filing
thereof conformed in all material respects with the requirements of the Act and
Regulations, and none of any preliminary prospectus, the Registration Statement
or the Prospectus at the time of filing thereof contained an untrue statement of
a material fact or omitted
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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
(i) statements made 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, or (ii) statements made in the initial preliminary
prospectus which were revised in any subsequent preliminary prospectus or the
Registration Statement and Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined in Section 2(c)
hereof) and each Option Closing Date (as defined in Section 2(b) hereof), if
any, 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, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, 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, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
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not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of the respective states of their incorporation. The Company does not own
or control, directly or indirectly, any corporation, partnership, trust, joint
venture or other business entity other than the subsidiaries listed in Exhibit
21 of the Registration Statement. Each of the Company and its subsidiaries is
duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material and
adverse effect on the condition, financial or otherwise, or the business
affairs, operations, properties, or results of operations of the Company and its
subsidiaries, taken as a whole (the "Business"). Each of the Company and its
subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus, except where the failure to
have such authorizations, approvals, orders, licenses, certificates, franchises
or permits would not have a material and adverse effect on the Business; the
Company and each of its subsidiaries have been doing business in compliance in
all material respects with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and foreign
laws, rules and regulations; and neither the Company nor any of its subsidiaries
has received any notice of proceedings relating to the
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revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the Business. 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) At the dates as of which such information is set forth in the
Prospectus, the Company had a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" 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 it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Securities 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 shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or arrangements
and the options or other rights granted and exercised thereunder as set forth in
the Prospectus conforms in all material respects with the requirements of the
Act. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and 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.
(f) The Securities 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,
will be validly issued, fully paid and nonassessable and will conform in all
material respects to the description 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 has been duly and validly taken; and the certificates
representing the Securities 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 or the Representatives, as the case may be,
will acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect, or other
restriction or equity of any kind
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whatsoever. No stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and sale of
the Shares, the Option Shares and the Representatives' Warrants to be sold by
the Company as contemplated herein.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, changes in stockholders' equity and the results of operations of the
Company and its consolidated subsidiaries (of which there are none) at the
respective dates and for the respective periods to which they apply and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Regulations, consistently applied throughout the
periods involved. Except as disclosed in the Prospectus, there has been no
material adverse change or development involving a material prospective change
in the Business, whether or not arising in the ordinary course of business since
the date 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 and its subsidiaries taken as a
whole conform in all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. Financial information set forth
in the Prospectus under the headings "Prospectus Summary - Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited and unaudited financial
statements included in the Prospectus.
(h) The Company (i) has paid all federal, state, local,
franchise, and foreign taxes for which it is liable (except for immaterial non-
payments, if any), including, but not limited to, withholding taxes and amounts
payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as
amended (the "Code"), and has furnished all information returns it is required
to furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any material tax
deficiency or claims outstanding, proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(j) There is no action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation or governmental proceeding (including,
without limitation, any involving environmental or similar matters), domestic or
foreign, pending or threatened against (or
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circumstances that may give rise to the same), or involving the properties or
businesses of, the Company which (i) questions the validity of the capital stock
of the Company, this Agreement or the Representatives' Warrant Agreement, or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representatives' Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) could reasonably be expected to
materially and adversely affect the Business.
(k) The Company has the corporate power and authority to
authorize, issue, deliver, and sell the Securities and to enter into this
Agreement, the Warrant Agreement, and the Representatives' Warrant Agreement,
and to consummate the transactions provided for in such agreements; and this
Agreement, the Warrant Agreement and the Representatives' Warrant Agreement have
each been duly and properly authorized, executed, and delivered by the Company.
Each of this Agreement, the Warrant Agreement and the Representatives' Warrant
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms (except
as the enforceability thereof 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), and none of the
issue and sale of the Securities, execution, delivery or performance by the
Company of this Agreement, the Warrant Agreement, and the Representatives'
Warrant Agreement, the consummation by the Company of the transactions
contemplated herein and therein, or the conduct of the Company's businesses 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, as amended and
restated, (ii) any 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 it is
or may be bound or to which its properties or assets (tangible or intangible) is
or may be subject, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, in each of the above instances which could
reasonably be expected to materially and adversely affect the Business.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance and sale of the Securities
pursuant hereto, and the Prospectus and the Registration Statement, the
performance of this Agreement, the Warrant Agreement, and the Representatives'
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Warrant Agreement, and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive, first refusal or
other rights that any entity or person may have for the issue and/or sale of any
of the Securities, 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 the
Underwriters' purchase and distribution of the Firm Securities, the Option
Securities, and the Representatives' Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which 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 the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act 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.
(n) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could reasonably be expected to
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock, and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Firm Securities, the Option Securities
and the Representatives' Warrants hereunder and upon the exercise of options and
warrants described in the Registration Statement) of, or indebtedness material
to, the Company (other than in the ordinary course of business); (v) the Company
has not issued any securities or incurred any liability or obligation, primary
or contingent, for borrowed money; and (vi) there has not been any material
adverse change in the Business.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, and subject to the risks and uncertainties described in the
Prospectus under the headings entitled "Risk Factors ___ Protection of
Intellectual Property" and "Business ___ Patents and Proprietary Rights," (i)
the Company has sufficient trade names, licenses, approvals and governmental
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authorizations to conduct its business as now conducted; (ii) the expiration of
any trade names, licenses, approvals or governmental authorizations would not
have a material adverse effect on the Business; (iii) the Company has no
knowledge of any infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, copyrights, licenses, trade secret or other similar
rights of others; and (iv) there is no claim being made against the Company
regarding trademark, trade name, patent, copyright, license, trade secret or
other infringement which could reasonably be expected to have a material adverse
effect on the Business.
(p) No default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company are subject or affected, except for such defaults, if
any, which individually and in the aggregate would not have a material adverse
effect on the Business.
(q) To the Company's knowledge, there are no investigations
involving the Company by any governmental agency. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or to its knowledge threatened against or involving the
Company. No representation question exists respecting the employees of the
Company. No collective bargaining agreement, or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or to its knowledge is imminent.
(r) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(s) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will
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take, directly or indirectly, any action designed to or which has constituted or
which might be expected to cause or result in unlawful stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.
(t) Except for a security interest granted to Isoserve, Inc.
pursuant to a Security Agreement between Isoserve and the Company, the Company
has good and marketable title to, or valid and enforceable leasehold estates in,
all items of real and personal property stated in the Prospectus to be owned or
leased by it, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for taxes
not yet due and payable or for such as do not materially affect the value of the
Company's real and personal property, taken as a whole.
(u) To the Company's knowledge, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP ("▇▇▇▇▇
▇▇▇▇▇▇▇▇"), whose report is filed with the Commission as a part of the
Registration Statement, is an independent certified public accountant as
required by the Act and the Regulations.
(v) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which all persons or entities, other than
as set forth in the Prospectus, that directly or beneficially own Common Stock,
as of the effective date of the Registration Statement, have agreed not to,
directly or indirectly, offer, offer to sell, sell, grant any option for the
sale of, transfer, assign, pledge, hypothecate or otherwise encumber or dispose
of any shares of Common Stock or securities convertible into Common Stock,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Regulations
or otherwise) or dispose of any interest therein for a period from the date of
the Prospectus until and including the day of like number in the twelfth
consecutive month next following the date that the Registration Statement
becomes effective, without the prior written consent of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ (the
"Lock-up Agreements"). The Company will cause the Transfer Agent (as defined
herein) to place "stop transfer" orders on the Company's stock ledgers in order
to effect the Lock-up Agreements.
(w) Except as disclosed to the Representatives, there are no
claims, payments, arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company or any of its
officers, directors, stockholders, employees or affiliates that may affect the
Underwriters' compensation as determined by the Commission and the National
Association of Securities Dealers, Inc. (the "NASD").
(x) The Securities have been approved for quotation on the Nasdaq
SmallCap Market.
(y) Neither the Company nor any of its 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
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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 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). The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director
or stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 of the Regulations) of any of the foregoing persons or
entities 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, 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, there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, principal
shareholder (as such term is used in the Prospectus) of the Company, or any
affiliate or associate of any of the foregoing persons or entities which are
required to be disclosed in the Prospectus.
(aa) The Company is not, and does not intend to conduct its
business in a manner in which it would become an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(ab) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel (as defined in
Section 4(d) herein) shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(ac) The minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ad) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares in this
offering other than the Prospectus, the Registration Statement and the other
materials permitted by the Act. Except as described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company as part of the Registration Statement or to
require the
-10-
Company to file a registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any securities of the Company.
(ae) Except for the absence of policies which are disclosed in
the Prospectus, the Company maintains insurance by insurers of recognized
financial responsibility of the types and in the amounts as the Company believes
are prudent and adequate for the business in which it is engaged, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has delivered to the Underwriter's Counsel satisfactory
summaries of these insurance policies. The Company has no reason to believe that
it will not be able to renew existing insurance coverage with respect to the
Company as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business, in either case,
at a cost that would not have a material adverse effect on the financial
condition, operations, business, assets or properties of the Company. The
Company has not failed to file any material claims, has no material disputes
with its insurance company regarding any claims submitted under its insurance
policies, and has complied in material respects with all material provisions
contained in its insurance policies where the failure to could reasonably be
expected to have a material adverse effect on the Business.
2. Purchase, Sale and Delivery of the Securities.
----------------------------------------------
(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 agrees to purchase from the Company, at a price equal
to $_______________ per Share and $_____________ per Warrant, that number of
Firm Securities set forth in Schedule A opposite the name of such Underwriter,
subject to such adjustment as the Representatives in their discretion shall make
to eliminate any sales or purchases of fractional shares, plus any additional
numbers of Shares 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 all or any part of an
additional _______________ shares of Common Stock at a price of $__________ per
share of Common Stock and an additional ___________________ Warrants at a price
of $__________ per Warrant (which shares and Warrants may only be purchased
together on the basis of one share and one Warrant). The option granted hereby
will expire 45 days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the
Regulations, or (ii) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Regulations, and may be exercised in whole or in
part from time to time (but not on more than two (2) occasions) only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Securities upon notice by the
Representatives to the Company setting forth the number of Option Securities as
to which the
-11-
several Underwriters are then exercising the option and the time and date of
payment and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representatives,
but shall not be later than three full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter defined,
unless otherwise agreed upon by the Representatives and the Company. Nothing
herein contained shall obligate the Underwriters to exercise the over-allotment
option described above. No Option 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 Pryor,
McClendon, Counts & Co., Inc., 3 Penn Plaza, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, or at such other place as shall be agreed upon by
the Representatives and the Company. Such delivery and payment shall be made at
9:00 a.m. (New York time) on ______________, 1996, or at such other time and
date as shall be agreed upon by the Representatives and the Company, but no more
than four (4) business days after the date hereof (such time and date of payment
and delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above mentioned office of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ or at
such other place as shall be agreed upon by the Representatives and the Company
on each Option Closing Date as specified in the notice from the Representatives
to the Company. Delivery of the certificates for the Firm Securities and the
Option Securities, if any, shall be made to the Underwriters against payment by
the Underwriters of the purchase price for the Firm Securities and the Option
Securities, if any, to the order of the Company. In the event Option Securities
are to be purchased by the Underwriters, each of the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number of
Option Securities then being purchased which the number of Firm Securities set
forth in Schedule A hereto opposite the name of such Underwriter bears to the
total number of Firm Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option 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 three (3)
business days prior to Closing Date or the relevant Option Closing Date, as the
case may be. The certificates for the Firm Securities and the Option Securities,
if any, shall be made available to the Representatives at such office or such
other place as the Representatives 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.
(d) On the Closing Date, the Company shall issue and sell the
Representatives' Warrants to the Representatives at a purchase price of $0.0001
per warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of _________________ shares of Common Stock and _________________
Warrants. The Representatives' Warrants shall expire five (5) years after the
effective date of the Registration Statement and shall be exercisable for a
period of four (4) years commencing on the first anniversary of the effective
date of the Registration Statement at a price equaling one hundred twenty
percent (120%) of the initial public offering
-12-
price of the Shares. The Representatives' Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit 4.2 to the
Registration Statement. Payment for the Representatives' Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares and the Warrants. As soon after the
----------------------------------------------
Registration Statement becomes effective as the Representatives deem advisable,
the Underwriters shall make a public offering of the Shares and the Warrants
(other than to residents of or in any jurisdiction in which qualification of the
Shares and the Warrants is required and has not become effective) at the price
and upon the other terms set forth in the Prospectus. The Representatives may
from time to time increase or decrease the public offering price to such extent
as the Representatives, in their sole discretion, deem advisable and as
permitted by the Act and Regulations. The Underwriters may enter into one or
more agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
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 Act or Exchange Act before termination of the offering of the Shares
and the Warrants by the Underwriters of which the Representatives shall not
previously have been advised and furnished with a copy, or to which the
Representatives shall have objected or which is not in compliance with the Act,
the Exchange Act or the Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the 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 any preliminary
prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any 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 shall enter a stop order or
suspend such qualification at any time, the Company will use its best efforts to
obtain promptly the lifting of such order.
-13-
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) in accordance with the requirements of the
Act.
(d) The Company will give the Representatives 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 Regulations),
and will furnish the Representatives 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 amendment or supplement to which the
Representatives or Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representatives, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Representatives may reasonably
designate to permit the sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
-------- -------
corporation or become subject to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Representatives 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 required by the laws of such jurisdiction to
continue such qualification.
(f) During the time when a 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, as now and hereafter amended,
and by the 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 a 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 or supplement the Prospectus to comply with the Act, the Company will
notify the Representatives 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 satisfactory to Underwriters' Counsel,
and the Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the Underwriters may
request.
-14-
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning 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 Regulations, and to the Representatives, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the 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,
until and including the like day and month in 2001, the Company will furnish to
its stockholders, as soon as practicable, annual reports (including consolidated
financial statements of the Company and its consolidated subsidiaries audited by
independent public accountants) and will make available to its stockholders
consolidated unaudited quarterly reports (except for the last quarter of each
fiscal year) of earnings of the Company and its consolidated subsidiaries, and
will deliver to the Representatives:
(i) concurrently with furnishing such quarterly reports to
its stockholders, a consolidated statement of income of the Company
and its consolidated subsidiaries for each quarter in the form
furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a consolidated balance sheet of the Company and its
consolidated subsidiaries as at the end of the preceding fiscal year,
together with statements of consolidated operations, stockholders'
equity, and cash flows of the Company and its consolidated
subsidiaries for such fiscal year, accompanied by a copy of the report
thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all other
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, Nasdaq
or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by or on behalf
of the Company; and
(vi) any additional information of a public nature concerning
the Company and its Businesses which the Representatives may
reasonably request.
-15-
During such five-year period, the foregoing financial statements will
be accompanied by similar financial statements for any significant subsidiary
which is not consolidated.
(i) The Company will maintain a transfer agent (the "Transfer
Agent") and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent) for
the Securities and the Representatives' Warrants.
(j) The Company will furnish to the Representatives, without
charge, at such place as the Representatives may designate, copies of each
preliminary prospectus, the Registration Statement, the Prospectus and any pre-
effective or post-effective amendments thereto (two of which copies will be
signed and will include all financial statements and exhibits), in each case as
soon as available and in such quantities as the Representatives may reasonably
request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with true copies of
duly executed Lock-up Agreements. On or before the Closing Date, the Company
shall deliver instructions to the Transfer Agent authorizing it to place
appropriate stop transfer orders on the Company's ledgers.
(l) The Company shall use its best efforts to cause its
officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in, unlawful
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities substantially in the manner, and subject to the conditions, set
forth under "Use of Proceeds" in the Prospectus.
(n) 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 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 Regulations.
(o) The Company shall use its best efforts to cause the
Securities to be quoted on the Nasdaq SmallCap Market, and for a period of two
(2) years from the date hereof shall use its best efforts to maintain the
quotation of the Securities to the extent outstanding.
(p) For a period of two (2) years from the Closing Date, the
Company shall furnish to the Representatives, at the Company's sole expense,
monthly transfer sheets relating to the Common Stock and Warrants.
-16-
(q) For a period of five (5) years after the effective date of
the Registration Statement the Company shall, at the Company's sole expense,
take all reasonable and appropriate actions to qualify the Common Stock and
Warrants in all jurisdictions of the United States which do not require the
Company to qualify as a foreign corporation or to file a general consent to
service of process in order to permit secondary sales of such securities
pursuant to the Blue Sky laws of those jurisdictions.
(r) The Company (i) prior to the effective date of the
Registration Statement has filed a Form 8-A with the Commission providing for
the registration of the Common Stock and Warrants under the Exchange Act and
(ii) as soon as practicable will use its best efforts to take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions or ▇▇▇▇▇'▇ OTC Manual and to continue such inclusion for a period
of not less than five (5) years (or, if sooner, the date on which the Common
Stock and Warrants are listed on the New York Stock Exchange, American Stock
Exchange, or Nasdaq National Market).
(s) The Company agrees that for a period of twelve (12) months
following the effective date of the Registration Statement it will not, without
the prior written consent of Pryor, McClendon, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any Common Stock
or securities convertible into Common Stock, except for the issuance of shares
of Common Stock registered under the Act pursuant to the Registration Statement,
or except pursuant to incentive or benefit plans approved by the Board of
Directors of the Company, pursuant to options or warrants outstanding on the
Closing Date, or in connection with acquisitions of companies, products or
technologies.
(t) Until the completion of the distribution of the Securities
in connection with the initial public offering of the Securities, the Company
shall not without the prior written consent of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ or Underwriters'
Counsel, 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.
(u) For a period equal to the lesser of (i) five (5) years from
the date hereof, and (ii) the sale to the public of the Representative's
Securities (or the shares of Common Stock issuable upon exercise of the
Representative's Securities), the Company will not take any action or actions
which may prevent or disqualify the Company's use of an appropriate form for the
registration under the Act of the Representative's Securities (or the shares of
Common Stock issuable upon exercise of the Representative's Securities).
(v) The Company agrees that it shall use its best efforts, which
shall include, but shall not be limited to, the solicitation of proxies, to
elect one (1) designee agreed-upon by ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National to the
Company's Board of Directors for a period of five (5) years following the
Closing Date, provided that such designee is reasonably acceptable to the
Company and that such director may be excluded from consideration of certain
confidential matters which, in the good faith judgment of a majority of the
other directors, make such director's presence not appropriate.
-17-
(w) The Company agrees that within forty-five (45) days after
the Closing Date it shall retain a public relations firm which is reasonably
acceptable to ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National. Provided that such public relations
firm performs in a commercially reasonable and satisfactory manner, the Company
shall keep such public relations firm and any replacement for a total period of
two (2) years from the Closing Date. Any replacement public relations firm shall
be retained only with the consent of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National, which shall
not be unreasonably withheld.
(x) The Company agrees that any and all future transactions
between the Company and any of its officers, directors, principal stockholders
and the affiliates of the foregoing persons will be on terms no less favorable
to the Company than could reasonably be obtained in arm's length transactions
with independent third parties, and that any such transactions also be approved
by a majority of the Company's outside independent directors disinterested in
the transaction.
(y) The Company shall prepare and deliver, at the Company's sole
expense, to ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National within the one hundred and twenty
(120) day period after the later of the effective date of the Registration
Statement and the latest Option Closing Date, as the case may be, one bound
volume each containing all correspondence with regulatory officials, agreements,
documents and all other materials in connection with the offering to which such
Registration Statement relates as requested by the Underwriters' Counsel.
5. Payment of Expenses.
-------------------
(a) The Company hereby agrees to pay on each of the Closing Date
and each Option Closing Date (to the extent not previously paid) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below of this Section 5) incident to the performance of the obligations of the
Company under this Agreement, the Warrant Agreement, and the Representatives'
Warrant 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 duplication, mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Warrant Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreements, the 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 and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the certificates representing the
Securities, (iv) 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 word processing and mailing
the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum"
and "Legal Investments Survey," if any, and reasonable disbursements and fees of
counsel in connection therewith, (v) advertising costs and expenses,
-18-
including but not limited to the costs and expenses incurred by the Company and
the Representatives in connection with the "road show," information meetings and
presentations, bound volumes and prospectus memorabilia and reasonable
"tombstone" advertisement expenses, (vi) experts, (vii) the fees and expenses of
the transfer agent and registrar, (viii) the fees payable to the Commission and
the NASD, (ix) issue and transfer taxes, if any and (x) the fees and expenses
incurred in connection with the listing of the Securities on the Nasdaq Small
Cap Market and any other market or exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 11, the
Company shall reimburse and indemnify the Representatives for all of their
actual out-of-pocket expenses on an accountable basis, including the fees and
disbursements of Underwriters' Counsel, less any amounts already paid pursuant
to Section 5(c) hereof provided that ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and National shall notify
the Company of any single expense or any series of similar expenses which in the
aggregate exceed $5,000 (provided further that such notice requirement shall not
apply to ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇'▇ and National's actual out-of-pocket legal expenses).
(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
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $30,000 of which has been paid to date. In the event the
Representatives elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representatives on each
Option Closing Date (by certified or bank cashier's check or, at the
Representative's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Option 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 date hereof and
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 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 prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representatives, and, at the 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 threatened by the Commission and any request on the part
of the
-19-
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Regulations, the price of the Shares and Warrants and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Representatives 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 Regulations.
(b) The Representatives shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's reasonable opinion, is
material, or omits to state a fact which, in the Representative's reasonable
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
Representative's reasonable opinion, is material, or omits to state a fact
which, in the Representative's reasonable opinion, is material and is required
to be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, 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 Representatives may
reasonably request and Underwriters' Counsel shall have received from the
Company such papers and information as they request to enable them to pass upon
such matters.
(d) At the Closing Date, the Underwriters shall have received
the favorable opinion of Fenwick & West LLP ("Fenwick & West"), counsel to the
Company, dated the Closing Date, addressed to the Underwriters 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 its
jurisdiction of incorporation, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties
or the character of its operations requires such qualification or
licensing, except where the failure to be so qualified or
licensed would not have a material adverse effect on the
Company's business and (C) to such counsel's knowledge, has all
requisite corporate power and authority and has obtained any and
all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its
business as described in the Prospectus.
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(ii) except as described in the Prospectus and except for A&R
technology, a currently inactive subsidiary organized in the
former Soviet Union which, to such counsel's knowledge, does not
currently engage in any substantial activities, to such counsel's
knowledge, the Company does not own an interest in any
corporation, limited liability company, partnership, joint
venture, trust or other business entity;
(iii) to such counsel's knowledge, the Company has a duly
authorized, issued and outstanding capitalization as set forth in
the Prospectus, and any amendment or supplement thereto, under
"Capitalization" and "Description of Capital Stock," and to the
knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it
to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Warrant Agreement, the
Representatives' Warrant Agreement, and as described in the
Prospectus. The Securities and all other securities issued or
issuable by the Company which will be outstanding after the
Closing Date conform in all material respects to the 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 nonassessable; and none of such securities were issued in
violation of the preemptive rights known to such counsel of any
holders of any security of the Company. The Securities to be sold
by the Company hereunder, under the Warrant Agreement, and under
the Representatives' Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any
stockholder known to such counsel, have been duly authorized and,
when issued, paid for and delivered in accordance with their
terms, will be validly issued, fully paid and nonassessable and
will conform in all material respects to the description thereof
contained in the Prospectus; all corporate action required to be
taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Representatives'
Warrants and the Warrants constitute valid, binding and
enforceable obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby (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). Upon the issuance
and delivery pursuant to this Agreement of the Securities to be
sold by the Company, the Company will convey, against payment
therefor as provided herein, to the Underwriters and the
Representatives, respectively, good and marketable title to the
Securities
-21-
free and clear of any adverse claim, provided that the
Underwriters are purchasing such Securities in good faith and
without notice of any adverse claim;
(iv) based solely upon the oral advice of the Staff of the
Commission, the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop
order suspending the use of any preliminary prospectus, the
Registration Statement or Prospectus or any part of any thereof or
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or, to such counsel's knowledge,
threatened or contemplated under the Act;
(v) each of any preliminary prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements 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 the Regulations. Such counsel shall
state that such counsel has participated in conferences with
officers and other representatives of the Company and the
Representatives and representatives of the independent public
accountants for the Company, at which conferences the contents of
any preliminary prospectus, the Registration Statement, the
prospectus, and any amendments or supplements thereto 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 preliminary
prospectus, the Registration Statement and Prospectus, and any
amendments or supplements thereto, 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 Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of
such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein 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 Preliminary Prospectus, the
Registration Statement or Prospectus, and any amendments or
supplements thereto);
(vi) to such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described
in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described
in the Registration
-22-
Statement and the Prospectus and filed as exhibits thereto; (B)
the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other
agreements to which the Company is a party that are expressly
referred to in the Registration Statement and the Prospectus, are
accurate in all material respects; (C) there is not pending or
overtly threatened against the Company any action, arbitration,
suit, proceeding, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, which (x)
is required by the Regulations 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 material respects), (y) questions the validity of the
capital stock of the Company or this Agreement, the Warrant
Agreement, or the Representatives' Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; and (D) there is no action,
suit or proceeding pending or overtly threatened against the
Company before any court or arbitrator or governmental body,
agency or official in which there is a reasonable possibility of
an adverse decision which may result in a material adverse change
in the financial condition, business, operations or results of
operations of the Company, which could reasonably be expected to
materially adversely effect the present or prospective ability of
the Company to perform its obligations under this Agreement, the
Warrant Agreement or the Representatives' Warrant Agreement, or
which in any manner questions the validity or enforceability of
this Agreement, the Warrant Agreement or the Representatives'
Warrant Agreement;
(vii) the Company has the corporate power and authority to
enter into each of this Agreement, the Warrant Agreement, and the
Representatives' Warrant Agreement and to consummate the
transactions provided for therein; and each of this Agreement, the
Warrant Agreement, and the Representatives' Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each
of this Agreement, the Warrant Agreement, and the Representatives'
Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid
and binding obligation of the Company enforceable against the
Company in accordance with its terms (except as the enforceability
thereof 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, except as rights to indemnity or contribution may be
limited by applicable law, and except for other customary
exceptions set forth in such counsel's opinion), and to such
counsel's knowledge none of the Company's execution, delivery or
performance of this Agreement, the Warrant Agreement, and the
Representatives' Warrant Agreement, the
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consummation by the Company of the transactions contemplated
herein or therein, or the conduct of the Company's business as
described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto conflicts with or results in any
material breach or violation of any of the terms or provisions of,
or constitutes 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 or by-laws of the Company, as amended,
(B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument identified
by the Company to such counsel as material to the business of the
Company, to which the Company is a party or by which it is bound,
or (C) any federal, state or local statute, rule or regulation
known to such counsel to be applicable to the Company or any
judgment, decree or order known to such counsel 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, in each case where such conflict,
breach, violation or default would have a material adverse effect
on the Company's business;
(viii) 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 Blue Sky
laws, as to which no opinion need be rendered or under federal
securities laws, as to which no opinion need be rendered pursuant
to this subsection (viii)) is required in connection with the
issuance of the Securities pursuant to the Prospectus and the
Registration Statement, the performance of this Agreement, the
Warrant Agreement, and the Representatives' Warrant Agreement, and
the transactions contemplated hereby and thereby;
(ix) to such counsel's knowledge, the properties of the
Company conform in all material respects to the description
thereof contained in the Registration Statement and the
Prospectus;
(x) to the knowledge of such counsel, and except as disclosed
in the Registration Statement and the Prospectus, (A) the Company
is not in material breach of, or in material default under, any
term or provision of any license, contract, agreement, indenture,
mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, identified by the Company to such
counsel as material to the business of the Company, in
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each case where such breach or default would have a material
adverse effect on the business of the Company, and (B) the Company
is not in material violation of any term or provision of its
articles of incorporation or by-laws, as amended, or in material
violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation known to such counsel to be
applicable to the Company, in each case where such breach, default
or violation would have a material adverse effect on the Company's
business;
(xi) the statements in the Prospectus under "Dividend
Policy," "Description of Capital Stock," and "Shares Eligible for
Future Sale" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct
in all material respects;
(xii) the Common Stock has been accepted for quotation on the
Nasdaq SmallCap Market; and
(xiii) to such counsel's knowledge and based upon a review of
the outstanding securities and the contracts furnished to such
counsel by the Company, except as disclosed in the Registration
Statement and Prospectus no person, corporation, trust,
partnership, association or other entity has the 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.
In rendering such opinion, such counsel (A) need not express any
opinion as to matters involving the application of laws other than the laws,
rules and regulations of the United States (with such exceptions and limitations
as are set forth in such counsel's opinion) and the laws, rules and regulations
of the State of California; 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.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Fenwick & West, counsel to the Company, dated
the Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by Fenwick & West in its opinion delivered on the Closing
Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, 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,
-25-
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective material adverse change in the condition, financial or
otherwise, prospects, stockholders' equity 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) except as disclosed on the Registration Statement prospectus,
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 adverse to the Company; (iii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default has not been waived; (iv) except as disclosed in the
Registration Statement Prospectus, the Company shall not have issued any
securities (other than the Securities) or declared or paid any dividend or made
any distribution in respect of its capital stock of any class and there has not
been any change in the capital stock, or any material increase in the debt (long
or short term) or liabilities or obligations of the Company (contingent or
otherwise) except for the issuance of the Option Securities, the
Representatives' Warrants, and shares of Common Stock issued upon the exercise
of currently outstanding warrants or options, or options and warrants granted in
the ordinary course of business consistent with prior practice; (v) 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; (vi) no action, suit
or proceeding, at law or in equity, shall have been pending or overtly
threatened (or circumstances giving rise to same) against the Company, or
affecting any of its respective 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 of the Company, except as set forth in the Registration
Statement and Prospectus; and (vii) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed on
behalf of the Company by the principal executive officer of the Company, dated
the Closing Date or Option Closing Date, as the case may be, to the effect that
such executive has carefully examined the Registration Statement, the Prospectus
and this Agreement, and 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;
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(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof 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 after due
inquiry, are contemplated or threatened under the Act; and
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as described in or specifically
contemplated by the Registration Statement and Prospectus, (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 as described in the Registration
Statement and Prospectus or material 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 overtly threatened
(or circumstances giving rise to same) against the Company or any
affiliated party of any of the foregoing which is required to be
set forth in an amended or supplemented Prospectus which has not
been set forth, and (g) there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has not
been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters 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 and Underwriters' Counsel, from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the
Act and the applicable Rules and Regulations;
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(ii) stating that it is their opinion that the financial
statements 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 Regulations thereunder
and that the Representatives may rely upon the opinion of ▇▇▇▇▇
▇▇▇▇▇▇▇▇ 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
financial statements of the Company (with an indication of the
date of the latest available unaudited interim financial
statements), a reading of the latest available minutes of the
stockholders and board of directors and the various committees of
the board of directors 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 financial statements of the Company
included in the Registration Statement, if any, do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that
of the audited 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
material increase in long-term debt of the Company, or any
material decrease in the stockholders' equity or net current
assets or net assets of the Company as compared with amounts shown
in the most recent balance sheet 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.
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions
requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in
agreement; and
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(v) statements as to such other material matters incident to the
transaction contemplated hereby as the Representatives may reasonably
request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, 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 (iv) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and financial information
as specified by the Representatives 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 (iv).
(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Representatives 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 shall be
contemplated.
(m) On or before the Closing Date, the Company shall have executed and
delivered to the Representatives, (i) the Representatives' Warrant Agreement,
substantially in the form filed as Exhibit 4(b), to the Registration Statement,
in final form and substance satisfactory to the Representatives, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company.
(n) On or before the Closing Date, the Common Stock shall have been
duly approved for quotation on the Nasdaq SmallCap Market.
(o) On or before the Closing Date, there shall have been delivered to
the Representatives all of the Lock-up Agreements that have been executed and
delivered to the Company in final form and substance satisfactory to
Underwriters' Counsel.
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 Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
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7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriters" shall include the
officers, directors, partners, employees, and counsel 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 the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all loss,
liability, claim, damage, and expense whatsoever (including, but not limited to,
reasonable attorneys' fees and any and all reasonable expense whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation provided that the indemnified persons may
not agree to any such settlement without the prior written consent of the
Company), as and when incurred, arising out of, based upon or in connection with
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any preliminary prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); or (B) in any
application or other document or communication (in this Section 7 collectively
called "application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company in any jurisdiction
in order to qualify the Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, The Nasdaq Stock
Market, Inc. or any securities exchange; or any omission or alleged omission to
state 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, or in
any application, as the case may be; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement. 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 mutual: employees, counsel and hold harmless the Company, each of
its directors, employees, each of its officers who has signed the Registration
Statement, counsel to the Company, and each other person, if any, who controls
the Company, within the meaning of the 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 or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter or the Representatives expressly for use in such
preliminary prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application. 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 in the Prospectus have been furnished by the Underwriters expressly
-30-
for use therein and constitute the only information furnished in writing by or
on behalf of the Underwriters or the Representatives for inclusion in the
Prospectus.
(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 to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 7,
except to the extent that it has been prejudiced in any material respect by such
failure). 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
indemnified party or parties shall have been advised in writing by counsel that
a conflict of interest exists between the indemnifying party and the indemnified
parties making representation of such parties by the same counsel inappropriate
(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 the reasonable fees and expenses of one additional counsel shall be
borne by the indemnifying parties. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
-------- -------
unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be
-31-
indemnified on the other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a 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 other than underwriting discounts
and commissions) bear to the total underwriting discounts 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 underwriting discount applicable to the Securities purchased by
the Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 12(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 of the Company
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 respective
indemnity and contribution 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,
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the Company, any controlling person of either the Underwriter or the Company,
and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriters and the Representatives, as the case may be.
9. Effective Date.
--------------
(a) This Agreement shall become effective at 5:00 p.m., New York
City time, on the date hereof. For purposes of this Section 9, the Securities to
be purchased hereunder shall be deemed to have been so released upon the earlier
of dispatch by the Representatives of telegrams to securities dealers releasing
such shares for offering or the release by the Representatives for publication
of the first newspaper advertisement which is subsequently published relating to
the Securities.
10. Termination.
-----------
(a) Subject to subsection (b) of this Section 10, the
Representatives shall have the right to terminate this Agreement, if between the
date of this Agreement and the Closing Date or the Option Closing Date, as the
case may be, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representative's reasonable opinion will in the
immediate future have a material and adverse effect on the securities markets
generally; or (ii) any material adverse change in the financial markets shall
have occurred; or (iii) if trading on the New York Stock Exchange, the American
Stock Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if the Company shall have
sustained a loss material to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Representative's opinion,
make it inadvisable to proceed with the delivery of the Securities; or (viii) if
there shall have been such a material adverse change in the prospects or
conditions of the Company, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere, in
each case having a material and adverse effect on the securities markets
generally, as in the Representative's good faith judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities.
(b) If this Agreement is terminated by the Representatives in
accordance with any of the provisions of Section 6, Section 10(a) or Section 11,
the Company shall promptly reimburse and indemnify the Underwriters pursuant to
Section 5(b) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 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.
-33-
11. Substitution of 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 Representatives
shall have the right, within 24 hours thereafter, to make arrangement 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
Representatives 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
(b) if the number of Defaulted Securities exceeds 10% oF the
total number of Firm Securities to be purchased on such date, 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 Representatives 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 Representative's option, by notice from the Representatives to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any non-
defaulting party other than pursuant to Section 5, Section 7 and Section 10
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
Representatives, c/o Pryor, McClendon, Counts & Co., Inc., 3 Penn Plaza, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy, which
shall not constitute notice, to Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇ ▇▇▇▇, Esq. Notices to
the Company shall be directed
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to the Company at ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Isonics Corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy, which shall not constitute
notice, to Fenwick & West LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: C. ▇▇▇▇▇ ▇▇▇▇▇, Esq.
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 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 New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant
----------------------------
Agreement, and the Representatives' Warrant Agreement constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representatives and the Company.
-35-
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,
ISONICS CORPORATION
By:_______________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
PRYOR, MCCLENDON, COUNTS & CO., INC.
By:___________________________________
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:___________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chairman
For themselves and as Representatives respectively of the Underwriters named in
Schedule A hereto.
-36-
SCHEDULE A
NUMBER OF SHARES OF
COMMON STOCK TO BE NUMBER OF WARRANTS TO
NAME OF UNDERWRITERS PURCHASED BE PURCHASED
-------------------- --------- ------------
Pryor, McClendon, Counts &
Co., Inc.
National Securities
Corporation
TOTAL
SCH. A-1