Exhibit 1.1
Network-1 Security Solutions, Inc.
1,875,000 Shares of Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. New York, New York
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ August __, ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Network-1 Security Solutions, Inc, a Delaware corporation
(the "Company"), proposes to issue and sell to Whale Securities Co., L.P.
(the "Underwriter") 1,875,000 shares of common stock, par value $.01 per
share (the "Offered Shares"), which Offered Shares are presently authorized
but unissued shares of the common stock, par value $.01 per share
(individually, a "Common Share" and collectively the "Common Shares"), of the
Company. In addition, the Underwriter, in order to cover over-allotments in
the sale of the Offered Shares, may purchase up to an aggregate of 281,250
Common Shares (the "Optional Shares"; the Offered Shares and the Optional
Shares are hereinafter sometimes collectively referred to as the "Shares").
The Shares are described in the Registration Statement, as defined below. The
Company also proposes to issue and sell to the Underwriter for its own
account and the accounts of its designees, warrants to purchase an aggregate
of 187,500 Common Shares at an exercise price of $13.20 per share (the
"Underwriter's Warrants"), which sale will be consummated in accordance with
the terms and conditions of the form of Underwriter's Warrant filed as an
exhibit to the Registration Statement (as hereinafter defined).
The Company hereby confirms its agreement with the
Underwriter as follows:
1. Purchase and Sale of Offered Shares. On the basis of the representations
and warranties herein contained, but subject to the terms and conditions
herein set forth, the Company hereby agrees to sell the Offered Shares to the
Underwriter, and the Underwriter agrees to purchase the Offered Shares from
the Com pany, at a purchase price of $____ per share. The Underwriter plans
to offer the Shares to the public at a public offering price of $8.00 per
Offered Share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be
made to the Company by wire transfer or certified or official bank check or
checks payable to its order in New York Clearing House funds, at the offices
of the Underwriter, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, against
delivery of the Offered Shares to the Underwriter. Such payment and delivery
will be made at ______, New York City time, on the third business day
following the Effective Date (the fourth business day following the Effective
Date in the event that trading of the Offered Shares commences on the day
following the Effective Date), the date and time of such payment and delivery
being herein called the "Closing Date." The certificates representing the
Offered Shares to be delivered will be in such denominations and registered
in such names as the Underwriter may request not less than two full business
days prior to the Closing Date, and will be made avail able to the
Underwriter for inspection, checking and packaging at the office of the
Company's transfer agent or correspondent in New York City, American Stock
Transfer & Trust Company, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, not less
than one full business day prior to the Closing Date.
(b) On the Closing Date, the Company will
sell the Underwriter's Warrants to the Underwriter or to the designees of the
Underwriter limited to officers and partners of the Underwriter, members of
the selling group and/or their officers or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form
of, and in accordance with, the provisions of the Underwriter's Warrant
attached as an exhibit to the Registration Statement. The aggregate purchase
price for the Underwriter's Warrants is $187.50. The Underwriter's Warrants
will be restricted from sale, transfer, assignment or hypothecation for a
period of one year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrant Agreement will be made to
the Company by check or checks payable to its order on the Closing Date
against delivery of the certificates representing the Underwriter's Warrants.
The certificates representing the Underwriter's Warrants will be in such
denominations and such names as the Underwriter may request prior to the
Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over
allotments in connection with the distribution and sale of the Offered Shares
as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares from the Company.
The purchase price to be paid for the Optional Shares will be the same price
per Optional Share
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as the price per Offered Share set forth in Section 1 hereof. The option granted
hereby may be exercised by the Underwriter as to all or any part of the Optional
Shares at any time within 45 days after the Effective Date. The Underwriter will
not be under any obligation to purchase any Optional Shares prior to the
exercise of such option.
(b) The option granted hereby may be exercised by
the Underwriter by giving oral notice to the Company, which must be confirmed
by a letter, telex or telegraph setting forth the number of Optional Shares
to be purchased, the date and time for delivery of and payment for the
Optional Shares to be purchased and stating that the Optional Shares referred
to therein are to be used for the purpose of covering over-allotments in
connection with the distribution and sale of the Offered Shares. If such
notice is given prior to the Closing Date, the date set forth therein for
such delivery and payment will not be earlier than either two full business
days thereafter or the Closing Date, whichever occurs later. If such notice
is given on or after the Closing Date, the date set forth therein for such
delivery and payment will not be earlier than two full business days
thereafter. In either event, the date so set forth will not be more than 15
full business days after the date of such notice. The date and time set forth
in such notice is herein called the "Option Closing Date." Upon exercise of
such option, the Company will become obligated to convey to the Underwriter,
and, subject to the terms and conditions set forth in Section 3(d) hereof,
the Underwriter will become obligated to purchase, the number of Optional
Shares specified in such notice.
(c) Payment for any Optional Shares purchased will
be made to the Company by wire transfer or certified or official bank check
or checks payable to its order in New York Clearing House funds, at the
office of the Underwriter, against delivery of the Optional Shares purchased
to the Underwriter. The certificates representing the Optional Shares to be
delivered will be in such denominations and registered in such names as the
Underwriter requests not less than two full business days prior to the Option
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the aforesaid office of the Company's transfer
agent or correspondent not less than one full business day prior to the
Option Closing Date.
(d) The obligation of the Underwriter to purchase
and pay for any of the Optional Shares is subject to the accuracy and
completeness (as of the date hereof and as of the Option Closing Date) of and
compliance in all material respects with the representations and warranties
of the Company herein, to the accuracy and completeness of the statements of
the Company or its
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officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material
respects by the Company of its obligations hereunder, to the satisfaction by
the Company of the conditions, as of the date hereof and as of the Option
Closing Date, set forth in Section 3(b) hereof, and to the delivery to the
Underwriter of opinions, certificates and letters dated the Option Closing
Date substantially similar in scope to those specified in Section 5, 6(b),
(c), (d), (e) and (f) hereof, but with each reference to "Offered Shares" and
"Closing Date" to be, respectively, to the Optional Shares and the Option
Closing Date.
4. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, with full power and authority, corporate and other, to own or lease
and operate, as the case may be, its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company is duly qualified to do business
as a foreign corporation and is in good standing in all jurisdictions wherein
such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company. The Company has no subsidiaries.
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of
the Company, and the Underwriter's Warrant Agreement, when executed and
delivered by the Company on the Closing Date, will be the valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms. The execution, delivery and performance of this
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this
Agreement and the Underwriter's Warrant Agreement have been duly authorized
by all necessary corporate action and do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) result in any
violation of the Certificate of Incorporation or By-Laws, each as amended, of
the Company; (ii) result in a breach of or conflict with any of the terms or
provisions of, or constitute a default under, or result in the modification
or termination of, or result in the creation or imposition of any lien,
security interest, charge or
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encumbrance upon any of the properties or assets of the Company pursuant to
any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Company is a party or by which the Company or or any
of its properties or assets is or may be bound or affected; (iii) violate any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of its properties or business; or (iv) have any effect on
any permit, certification, registration, approval, consent order, license,
franchise or other authorization (collectively, the "Permits") necessary for
the Company to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency
or body, other than under the Securities Act of 1933, as amended (the "Act"),
the Regulations (as hereinafter defined) and applicable state securities or
Blue Sky laws, are required (i) for the valid authorization, issuance, sale
and delivery of the Shares to the Underwriter, and (ii) the consummation by
the Company of the transactions contemplated by this Agreement or the
Underwriter's Warrant Agreement.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2
have been satisfied with respect to the Company, the transactions
contemplated herein and in the Registration Statement. The Company has
prepared in conformity with the requirements of the Act and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission
(the "Commission") and filed with the Commission a registration statement
(File No. 333- ) on Form SB-2 and has filed one or more amendments thereto,
covering the registration of the Shares under the Act, including the related
preliminary prospectus or preliminary prospectuses (each thereof being herein
called a "Preliminary Prospectus") and a proposed final prospectus. Each
Preliminary Prospectus was endorsed with the legend required by Item
501(a)(5) of Regulation S-B of the Regulations and, if applicable, Rule 430A
of the Regulations. Such registration statement including any documents
incorporated by reference therein and all financial schedules and exhibits
thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the
"Registration Statement" and the "Prospectus," except that, (i) if the
prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the Prospectus, the term "Prospectus" will also include the
prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the date the
Registration
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Statement is declared effective by the Commission (the "Effective Date") and
prior to the Option Closing Date, the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has
instituted or, to the best of the Company's knowledge, threatened to
institute any proceedings with respect to such an order.
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it
is filed with the Commission pursuant to Rule 424(b), and both documents as
of the Closing Date and the Option Closing Date, referred to below, will
contain all statements which are required to be stated therein in accordance
with the Act and the Regulations and will in all material respects conform to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on
such dates, will contain any untrue statement of a material fact or 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, except that this representation and warranty does not
apply to statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company in connection with the
Registration Statement or Prospectus or any amendment or supplement thereto
by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. Based on the
assumptions stated in the Registration Statement and the Prospectus, the
Company will have on the Closing Date the adjusted stock capitalization set
forth therein. Except as set forth in the Registration Statement or the
Prospectus, on the Effective Date and on the Closing Date, there will be no
options to purchase, warrants or other rights to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments
to issue or sell shares of the Company's capital stock or any such warrants,
convertible securities or obligations. Except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand,"
"piggyback" or otherwise, to have such securities registered under the Act.
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(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts
or other documents required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement under
the Act or the Regulations which have not been so described or filed as
required.
(i) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company, LLP, the
accountants who have certified certain of the financial statements filed and
to be filed with the Commission as part of the Registration Statement and the
Prospectus, are independent public accountants within the meaning of the Act
and Regulations. The financial statements and schedules and the notes thereto
filed as part of the Registration Statement and included in the Prospectus
are complete, correct and present fairly the financial position of the
Company as of the dates thereof, and the results of operations and changes in
financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved except as otherwise stated
in the Registration Statement and the Prospectus. The selected financial data
set forth in the Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited and unaudited financial statements included in the
Registration Statement and the Prospectus.
(j) The Company has filed with the appropriate
federal, state and local governmental agencies, and all appropriate foreign
countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on
such returns and all assessments received by it to the extent that the same
have become due; and the provisions for income taxes payable, if any, shown
on the financial statements filed with or as part of the Registration
Statement are sufficient for all accrued and unpaid foreign and domestic
taxes, whether or not disputed, and for all periods to and including the
dates of such financial statements. Except as disclosed in writing to the
Underwriter, the Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company.
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(k) The outstanding Common Shares, the outstanding
shares of Series B Preferred Stock, par value $.01 per share of the Company
(the "Preferred Shares") and outstanding options and warrants to purchase
Common Shares have been duly authorized and validly issued. The outstanding
Common Shares and Preferred Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or Preferred Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any shareholder of the Company. None of the holders
of the outstanding Common Shares or Preferred Shares is subject to personal
liability solely by reason of being such a holder. Upon conversion of the
outstanding Preferred Shares into Common Shares on the Closing Date, such
shares will be duly authorized, validly issued, fully paid and
non-assessable, and none of the holders thereof will be subject to personal
liability solely by reason of being such a holder. The offers and sales of
the outstanding Common Shares and Preferred Shares and outstanding options
and warrants to purchase Common Shares were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky laws
or exempt from such registration requirements. The authorized Common Shares
and Preferred Shares and outstanding options and warrants to purchase Common
Shares conform to the descriptions thereof contained in the Registration
Statement and Prospectus. Except as set forth in the Registration Statement
and the Prospectus, on the Effective Date and the Closing Date, there will be
no outstanding options or warrants for the purchase of, or other outstanding
rights to purchase, Common Shares or securities convertible into Common
Shares.
(l) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or
persons controlling, controlled by, or under common control with the Company
within the three years prior to the date hereof, except as disclosed in the
Registration Statement.
(m) The issuance and sale of the Shares have been
duly authorized and, when the Shares have been issued and duly delivered
against payment therefor as contemplated by this Agreement, the Shares will
be validly issued, fully paid and nonassessable, and the holders thereof will
not be subject to personal liability solely by reason of being such holders.
The Shares will not be subject to preemptive rights of any shareholder of the
Company.
(n) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been
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duly authorized and, when such Common Shares have been duly delivered against
payment therefor, as contemplated by the Underwriter's Warrant Agreement,
such Common Shares will be validly issued, fully paid and nonassessable.
Holders of Common Shares issuable upon the exercise of the Underwriter's
Warrants will not be subject to personal liability solely by reason of being
such holders. Neither the Underwriter's Warrants nor the Common Shares
issuable upon exercise thereof will be subject to preemptive rights of any
shareholder of the Company. The Common Shares issuable upon exercise of the
Underwriter's Warrants have been duly reserved for issuance upon exercise of
the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(o) The Company is not in violation of, or in
default under, (i) any term or provision of its Certificate of Incorporation
or By-Laws, each as amended; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or other
agreement or instrument to which it is a party or by which it or any of its
property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of the Company's properties or business. The Company owns,
possesses or has obtained all governmental and other (including those
obtainable from third parties) Permits, necessary to own or lease, as the
case may be, and to operate its properties, whether tangible or intangible,
and to conduct the business and operations of the Company as presently
conducted and all such Permits are outstanding and in good standing, and
there are no proceedings pending or, to the best of the Company's knowledge,
threatened, or any basis therefor, seeking to cancel, terminate or limit such
Permits.
(p) Except as set forth in the Prospectus, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best
of the Company's knowledge, threatened against the Company or involving the
Company's properties or business which, if determined adversely to the
Company, would, individually or in the aggregate, result in any material
adverse change in the financial position, shareholders' equity, results of
operations, properties, business, management or affairs or business prospects
of the Company or which question the validity of the capital stock of the
Company or this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this
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Agreement; nor, to the best of the Company's knowledge, is there any basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to
which the Company or the Company's properties or business is bound or subject.
(q) Neither the Company nor any of its affiliates
has incurred any liability for any finder's fees or similar payments in
connection with the transactions herein contemplated.
(r) The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
service marks, copyrights, rights, trade secrets, confidential information,
processes and formulations used or proposed to be used in the conduct of its
business as described in the Prospectus (collectively the "Intangibles"); to
the best of the Company's knowledge, the Company has not infringed and is not
infringing upon the rights of others with respect to the Intangibles; and the
Company has not received any notice of conflict with the asserted rights of
others with respect to the Intangibles which could, singly or in the
aggregate, materially adversely affect its business as presently conducted or
the prospects, financial condition or results of operations of the Company,
and the Company knows of no basis therefor; and, to the best of the Company's
knowledge, no others have infringed upon the Intangibles of the Company.
(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest financial statements, the Company has not incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, whether or not incurred in the ordinary course of
business, and has not sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree; and since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
have not been, and prior to the Closing Date referred to below there will not
be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting
the general affairs, management, financial condi tion, shareholders' equity,
results of operations or prospects of the Company, otherwise than as set
forth or contemplated in the Prospectus.
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(t) The Company does not own any real property and
has good title to all personal property (tangible and intangible) owned by
it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses
or other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not
interfere with the use of such property made, or proposed to be made, by the
Company, and all rentals, royalties or other payments accruing thereunder
which became due prior to the date of this Agreement have been duly paid, and
neither the Company nor, to the best of the Company's knowledge, any other
party is in default thereunder and, to the best of the Company's knowledge,
no event has occurred which, with the passage of time or the giving of
notice, or both, would constitute a default thereunder. The Company has not
received notice of any violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties.
The Company has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other
insurance as is usually maintained by companies engaged in the same or
similar businesses located in its geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company is a party or by which its
property or business is or may be bound or affected and to which reference is
made in the Prospectus has been duly and validly executed, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company, and neither the Company, nor,
to the best of the Company's knowledge, any other party, is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder.
None of the material provisions of such contracts
or instruments violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its assets or businesses.
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(v) The employment, consulting, confidentiality
and non-competition agreements between the Company and its officers,
employees and consultants, described in the Registration Statement, are
binding and enforceable obligations upon the respective parties thereto in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar
laws or arrangements affecting creditors' rights generally and subject to
principles of equity.
(w) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limita tion, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act
of 1974.
(x) To the best of the Company's knowledge, no
labor problem exists with any of the Company's employees or is imminent which
could adversely affect the Company.
(y) The Company has not, directly or indirectly,
at any time (i) made any contributions to any candidate for political office,
or failed to disclose fully any such contribution in violation of law or (ii)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(z) The Shares have been approved for listing on
the Nasdaq SmallCap Market.
(aa) The Company has provided to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested pursuant to the Due Diligence List of ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇, LLP,
counsel for the Company ("Company Counsel"), and the supplemental requests of
Underwriter's Counsel dated , 1998 and , 1998.
Any certificate signed by an officer of the
Company and delivered to the Underwriter or to Underwriter's Counsel shall be
deemed to be a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
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(a) The Company will not at any time, whether
before the Effective Date or thereafter during such period as the Prospectus
is required by law to be delivered in connection with the sales of the Shares
by the Underwriter or a dealer, file or publish any amendment or supplement
to the Registration Statement or Prospectus of which the Underwriter has not
been previously advised and furnished a copy, or to which the Underwriter
shall object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the
Underwriter immediately, and, if requested by the Underwriter, confirm such
advice in writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement or any supplemented Prospectus is
filed with the Commission; (ii) of the receipt of any comments from the
Commission; (iii) of any request of the Commission for amendment or
supplementation of the Registration Statement or Prospectus or for additional
information; and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the initiation of any proceedings for any of such
purposes. The Company will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use and to
obtain as soon as possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and
the Company hereby consents to the use of such copies for purposes permitted
by the Act. The Company will deliver to the Underwriter, without charge, as
soon as the Registration Statement becomes effective, and thereafter from
time to time as requested, such number of copies of the Prospectus (as
supplemented, if the Company makes any supplements to the Prospectus) as the
Underwriter may reasonably request. The Company has furnished or will furnish
to the Underwriter two signed copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or after
the Registration Statement becomes effective, two copies of all exhibits
filed therewith and two signed copies of all consents and certificates of
experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Offered
-13-
Shares and in any Optional Shares which may be issued and sold. If, at any
time when a prospectus relating to the Shares is required to be delivered
under the Act, any event occurs as a result of which the Registration
Statement and Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act
or the regulations thereunder, the Company will promptly file with the
Commission, subject to Section 5(a) hereof, an amendment or supplement which
will correct such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper
information as may be required and otherwise cooperate in qualifying the
Shares for offering and sale under the securities or Blue Sky laws relating
to the offering in such jurisdictions as the Underwriter may reasonably
designate, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be subject
to service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction.
(f) The Company will make generally available to
its security holders, in the manner specified in Rule 158(b) under the Act,
and deliver to the Underwriter and Underwriter's Counsel as soon as
practicable and in any event not later than 45 days after the end of its
fiscal quarter in which the first anniversary date of the effective date of
the Registration Statement occurs, an earning statement meeting the
requirements of Rule 158(a) under the Act covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's
Counsel on a timely basis (i) a copy of each report or document, including,
without limitation, reports on Forms 8-K, 10-C, 10-K (or 10-K SB), 10-Q (or
10-Q SB) and 10-C and exhibits thereto, filed or furnished to the Commission,
any securities exchange or the National Association of Securities Dealers,
Inc. (the "NASD") on the date each such report or document is so filed or
furnished; (ii) as soon as practicable, copies of any reports or
communications (financial or other) of the Company mailed to its security
holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G, 14D-1
or 13E-3 received or prepared by the Company from time to time; (iv) monthly
statements setting forth such information regarding the Company's results of
operations and financial position (including balance sheet, profit and loss
-14-
statements and data regarding outstanding purchase orders) as is regularly
prepared by management of the Company; and (v) such additional information
concerning the business and financial condition of the Company as the
Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense.
The Company will furnish to its shareholders annual reports containing
audited financial statements and such other periodic reports as it may
determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that
controls, is controlled by or is under common control with the Company will
take any action designed to or which might be reasonably expected to cause or
result in the stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50,000
previously paid to it, and the Company will pay or cause to be paid the
following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited
to, the fees and expenses of accountants and counsel for the Company; the
preparation, printing, mailing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses and
the Prospectus, and any amendments or supplements thereto; the printing and
mailing of the Selected Dealer Agreement, the issuance and delivery of the
Shares to the Underwriter; all taxes, if any, on the issuance of the Shares;
the fees, expenses and other costs of qualifying the Shares for sale under
the Blue Sky or securities laws of those states in which the Shares are to be
offered or sold, including fees and disbursements of counsel in connection
therewith, and including those of such local counsel as may have been
retained for such purpose; the filing fees incident to securing any required
review by the NASD and either the Boston Stock Exchange or Pacific Stock
Exchange; the cost of printing and mailing the "Blue Sky Survey," the cost of
furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs (up
to $12,000) of placing "tombstone advertisements" in any publications which
may be selected by the Underwriter; and all other costs and expenses incident
to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the
payment for the Offered Shares or any Optional Shares three percent (3%) of
the gross proceeds of the offering (less
-15-
the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's
Counsel relating to Blue Sky qualifications and registrations, which, as
provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company
to Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto are not consummated because the Company decides
not to proceed with the offering for any reason or because the Underwriter
decides not to proceed with the offering as a result of a breach by the
Company of its representations, warranties or covenants in the Agreement or
as a result of material adverse changes in the affairs of the Company, then
the Company will be obligated to reimburse the Underwriter for its
accountable out-of-pocket expenses up to the sum of $75,000, inclusive of
amounts theretofore paid to the Underwriter by the Company. In all cases
other than those set forth in the preceding sentence, if the Company or the
Underwriter decides not to proceed with the offering for any other reason,
the Company will only be obligated to reimburse the Underwriter for its
accountable expenses up to $50,000, inclusive of amounts theretofore paid to
the Underwriter by the Company. In no event, however, will the Underwriter,
in the event the offering is terminated, be entitled to retain or receive
more than an amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Prospectus. No
portion of the net proceeds from the sale of the Shares will be used to repay
any indebtedness other than (i) $3,250,00 principal amount of indebtedness
plus accrued interest thereon and (ii) up to $95,000 of indebtedness to be
assumed by the Company in connection with the acquisition of CommHome Systems
Corp., provided that none of such amounts will be repaid to any person or
entity that is, or will be prior to the Closing Date, an officer, director or
securityholder beneficially owning five percent (5%) or more of the Common
Shares (a "Principal Securityholder"), or any affiliate of any such person or
entity. The Company will file with the Commission all required reports in
accordance with the provisions of Rule 463 promulgated under the Act and will
provide a copy of each such report to the Underwriter and its counsel.
(l) During the period of twelve (12) months from
the Effective Date (the "Initial Lock-up Period"), neither the
-16-
Company nor any of its officers, directors or security holders will offer for
sale or sell or otherwise dispose of, directly or indirectly, any securities
of the Company, in any manner whatsoever, whether pursuant to Rule 144 of the
Regulations or otherwise, and no holders of registration rights relating to
securities of the Company will exercise any such registration rights, in
either case, without the prior written consent of the Underwriter. In
addition, during the twelve (12) month period following the Initial Lock-up
Period, no officer, director or Principal Securityholder will sell, transfer
or otherwise dispose of any of its Common Shares during any three-month
period in excess of the amount that such person would be allowed to sell if
it were deemed an "affiliate" of the Company and its shares were deemed
"restricted," as those terms are defined in Rule 144 promulgated under the
Act, other than by a private sale or gift in connection with which the
transferee agrees to be bound by the terms of this agreement, without the
prior written consent of the Underwriter.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12)
months from the Effective Date, without the Underwriter's prior written
consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authoriza tion; (ii) transactions are
recorded as necessary in order to permit preparation of financial statements
in accordance with generally accepted accounting principles and to maintain
account ability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will use its best efforts to
maintain the listing of the Shares on the Nasdaq SmallCap Market and will, if
so qualified, list the Shares, and maintain such listing for so long as
qualified, on the Nasdaq National Market System.
(p) The Company will, concurrently with the
Effective Date, register the class of equity securities of which the Shares
are a part under Section 12(g) of the Exchange Act and the Company will
maintain such registration for a minimum of five (5) years from the Effective
Date.
-17-
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors will have the right to designate a nominee for
election, at its or their option, either as a member of or a non-voting
advisor to the Board of Directors of the Company (which Board, during such
period, shall be comprised of at least five (5) persons, a majority of the
members of which Board must, during such period, be persons not otherwise
affiliated with the Company, its management or its founders), and the Company
will use its best efforts to cause such nominee to be elected and continued
in office as a director of the Company or as such advisor until the
expiration of five (5) years from the Effective Date. Each of the Company's
current officers, directors and shareholders agrees to vote all of the Common
Shares owned by such person or entity so as to elect and continue in office
such nominee of the Underwriter. Following the election of such nominee as a
director or advisor, such person shall receive no more or less compensation
than is paid to other non-officer directors of the Company for attendance at
meetings of the Board of Directors of the Company and shall be entitled to
receive reimbursement for all reasonable costs incurred in attending such
meetings including, but not limited to, food, lodging and transportation. The
Company agrees to indemnify and hold such director or advisor harmless, to
the maximum extent permitted by law, against any and all claims, actions,
awards and judgments arising out of his service as a director or advisor and
to maintain a liability insurance policy affording coverage for the acts of
its officers and directors, to include such director or advisor as an insured
under such policy. The rights and bene fits of such indemnification and the
benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director or advisor.
If the Underwriter does not exercise its
option to designate a member of or advisor to the Company's Board of
Directors, the Underwriter shall nonetheless have the right to send a
representative (who need not be the same individual from meeting to meeting)
to observe each meeting of the Board of Directors. The Company agrees to give
the Underwriter notice of each such meeting and to provide the Underwriter
with an agenda and minutes of the meeting no later than it gives such notice
and provides such items to the directors.
(r) The Company shall retain a transfer agent for
the Common Shares, reasonably acceptable to the Underwriter, for a period of
five (5) years from the Effective Date. In addition, for a period of five (5)
years from the Effective Date, the Company, at its own expense, shall cause
such transfer agent to provide the Underwriter, if so requested in writing,
with copies of the Company's daily transfer sheets, and, when requested by
the Underwriter, a current list of the Company's securityholders,
-18-
including a list of the beneficial owners of securities held by a depository
trust company and other nominees.
(s) The Company hereby agrees, at its sole cost
and expense, to supply and deliver to the Underwriter and Underwriter's
Counsel, within a reasonable period from the date hereof, four bound volumes,
including the Registration Statement, as amended or supplemented, all
exhibits to the Registration Statement, the Prospectus and all other
underwriting documents.
(t) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service
(including annual report information) or ▇▇▇▇▇'▇ Industrial Manual (▇▇▇▇▇'▇
OTC Industrial Manual not being sufficient for these purposes) and shall use
its best efforts to have the Company listed in such manual and shall maintain
such listing for a period of five years from the Effective Date.
(u) For a period of five (5) years from the
Effective Date, the Company shall provide the Underwriter, on a not less than
annual basis, with internal forecasts setting forth projected results of
operations for each quarterly and annual period in the two (2) fiscal years
following the respective dates of such forecasts. Such forecasts shall be
provided to the Underwriter more frequently than annually if prepared more
frequently by management, and revised forecasts shall be prepared and
provided to the Underwriter when required to reflect more current
information, revised assumptions or actual results that differ materially
from those set forth in the forecasts.
(v) For a period of five (5) years from the
Effective Date, or until such earlier time as the Common Shares are listed on
the New York Stock Exchange or the American Stock Exchange, the Company shall
cause its legal counsel to provide the Underwriter with a list, to be updated
at least annually, of those states in which the Common Shares may be traded
in non- issuer transactions under the Blue Sky laws of the 50 states.
(w) For a period of five (5) years from the
Effective Date, the Company shall continue to retain ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ &
Company, LLP (or such other nationally recognized accounting firm acceptable
to the Underwriter) as the Company's independent public accountants.
(x) For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(w) above, to review
(but not audit) the Company's financial statements for each of the first
three fiscal quarters prior to the announcement of quarterly financial
information, the filing
-19-
of the Company's 10-Q (or 10-QSB) quarterly report (or other equivalent
report) and the mailing of quarterly financial information to shareholders.
(y) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any
other publicity without the Underwriter's prior written consent, other than
normal and customary releases issued in the ordinary course of the Company's
business or those releases required by law.
(z) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid employees in
excess of the compensation paid to such employees as of the Effective Date,
without the prior written consent of the Underwriter, for a period of three
(3) years from the Effective Date.
(aa) For a period of five (5) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the
Company's accountants and the Company.
(ab) For a period of three (3) years from the
Effective Date, the Company will not offer or sell any of its securities (i)
pursuant to Regulation S promulgated under the Act or which are convertible
or exercisable into Common Shares at a price which may be adjusted from time
to time based on the future market price of the Common Shares, without the
prior written consent of the Underwriter, or (ii) at a discount to market or
in a discounted transaction (other than as described in clause (i) above),
without the prior written consent of the Underwriter, which shall not be
unreasonably withheld.
(ac) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity
securities of the Company, except for (i) Common Shares issuable upon
exercise of currently outstanding options and warrants or conversion of
currently outstanding convertible securities and (ii) options (and shares
issuable upon exercise of such options) available for future grant pursuant
to any stock option plan in effect on the Effective Date or a future plan
approved by the Company's shareholders.
(ad) Prior to the Effective Date and for a period
of three (3) years thereafter, the Company will retain a
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financial public relations firm reasonably acceptable to the Underwriter.
(ae) For a period of five (5) years from the
Effective Date, the Company will cause its Board of Directors to meet, either
in person or telephonically, a minimum of four (4) times per year and will
hold a shareholder's meeting at least once per annum.
(af) Prior to the Effective Date, the Company
shall have obtained directors' and officers' insurance naming the Underwriter
as an additional insured party, in an amount equal to twenty-five percent
(25%) of the gross proceeds of the offering, and the Company will maintain
such insurance for a period of at least three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase
Shares from the Company. The obligation of the Underwriter to purchase and
pay for the Offered Shares which it has agreed to purchase from the Company
is subject (as of the date hereof and the Closing Date) to the accuracy of
and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company or its officers made pursuant hereto, to the performance in all
material respects by the Company of its obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement will have become
effective not later than _______.M., New York City time, on the date hereof,
or at such later time or on such later date as the Underwriter may agree to
in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or,
to the best of the Underwriter's or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction
of Underwriter's Counsel.
(b) At the time that this Agreement is executed
and at the Closing Date, there will have been delivered to the Underwriter a
signed opinion of Company Counsel, dated as of the date hereof or the Closing
Date, as the case may be (and any other opinions of counsel referred to in
such opinion of Company Counsel or relied upon by Company Counsel in
rendering their opinion), reasonably satisfactory to Underwriter's Counsel,
to the effect that:
-21-
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, with full power and authority, corporate and other, and with all
Permits necessary to own or lease, as the case may be, and operate its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition,
results of operations, business or proper ties of the Company. To the best of
Company Counsel's knowledge, the Company has no subsidiaries.
(ii) The Company has full power and
authority, corporate and other, to execute, deliver and perform this
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms of this
Agreement and the Underwriter's Warrant Agreement have been duly authorized
by all necessary corporate action, and this Agreement has been duly executed
and delivered by the Company. This Agreement is (assuming for the purposes of
this opinion that it is valid and binding upon the other party thereto) and,
when executed and delivered by the Company on the Closing Date, the
Underwriter's Warrant Agreement will be, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject, as
to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies and
except that enforceability of the indemnification provisions set forth in
Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy
underlying such laws.
(iii) The execution, delivery and
performance of this Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms of this
Agreement and the Underwriter's Warrant Agreement do not, and will not, with
or without the giving of notice or the lapse of time, or both, (A) result in
a violation of the Certificate of Incorporation or ByLaws, each as amended,
of the Company, (B) result in a breach of or conflict with any terms or
provisions of, or constitute a default under, or result in the modification
or termination of,
-22-
or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company
pursuant to any indenture, mortgage, note, contract, commitment or other
material agreement or instrument to which the Company is a party or by which
the Company or any of the Company's properties or assets are or may be bound
or affected; (C) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of the Company's
properties or business; or (D) have any effect on any Permit necessary for
the Company to own or lease and operate its properties or conduct its
business or the ability of the Company to make use thereof.
(iv) To the best of Company Counsel's
knowledge, no Permits of any court or governmental agency or body (other than
under the Act, the Regulations and applicable state securities or Blue Sky
laws) are required for the valid authorization, issuance, sale and delivery
of the Shares or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by this
Agreement or the Underwriter's Warrant Agreement.
(v) The Registration Statement has become
effective under the Act; to the best of Company Counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act or applicable state
securities laws.
(vi) The Registration Statement and the
Prospectus, as of the Effective Date, and each amendment or supplement
thereto as of its effective or issue date (except for the financial
statements and other financial data included therein or omitted therefrom, as
to which Company Counsel need not express an opinion) comply as to form in
all material respects with the requirements of the Act and Regulations and
the conditions for use of a registration statement on Form SB-2 have been
satisfied by the Company.
(vii) The descriptions in the
Registration Statement and the Prospectus of statutes, regulations,
government classifications, contracts and other documents (including opinions
of such counsel); and the response to Item 13 of Form SB-2 have been reviewed
by Company Counsel, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and
there are no material statutes, regulations or government classifications,
or, to the best of Company Counsel's knowledge, material contracts or
documents, of a character
-23-
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement, which are not so
described or filed as required.
None of the material provisions of the
contracts or instruments described above violates any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency
or court having jurisdiction over the Company or any of its assets or
business.
(viii) The outstanding Common Shares and
outstanding options and warrants to purchase Common Shares have been duly
authorized and validly issued. The outstanding Common Shares are fully paid
and nonassessable. The outstanding options and warrants to purchase Common
Shares constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms. None of the outstanding Common
Shares or options or warrants to purchase Common Shares has been issued in
violation of the preemptive rights of any shareholder of the Company. None of
the holders of the outstanding Common Shares is subject to personal liability
solely by reason of being such a holder. The offers and sales of the
outstanding Common Shares and outstanding options and warrants to purchase
Common Shares were at all relevant times either registered under the Act and
the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding
options and warrants to purchase Common Shares conform to the descriptions
thereof contained in the Registration Statement and Prospectus. To the best
of Company Counsel's knowledge, except as set forth in the Prospectus, no
holders of any of the Company's securities has any rights, "demand,"
"piggyback" or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Shares
have been duly authorized and, when the Shares have been issued and duly
delivered against payment therefor as contemplated by this Agreement, the
Shares will be validly issued, fully paid and nonassessable, and the holders
thereof will not be subject to personal liability solely by reason of being
such holders. The Shares are not subject to preemptive rights of any
shareholder of the Company. The certificates representing the Shares are in
proper legal form.
(x) The issuance and sale of the Common
Shares issuable upon exercise of the Underwriter's Warrants have been duly
authorized and, when such Common Shares have been duly delivered against
payment therefor, as contemplated by the Underwriter's Warrant Agreement,
such Common Shares will be validly issued, fully paid and nonassessable.
Holders of Common
-24-
Shares issuable upon exercise of the Underwriter's Warrants will not be
subject to personal liability solely by reason of being such holders. Neither
the Underwriter's Warrants nor the Common Shares issuable upon exercise
thereof will be subject to preemptive rights of any shareholder of the
Company. The Warrant Shares issuable upon exercise of the Underwriter's
Warrants have been duly reserved for issuance upon exercise of the
Underwriter's Warrants in accordance with the provisions of the Underwriter's
Warrant Agreement. The Underwriter's Warrants conform to the descriptions
thereof in the Registration Statement and Prospectus.
(xi) Upon delivery of the Offered Shares
to the Underwriter against payment therefor as provided in this Agreement,
the Underwriter (assuming it is a bona fide purchaser within the meaning of
the Uniform Commercial Code) will acquire good title to the Offered Shares,
free and clear of all liens, encumbrances, equities, security interests and
claims.
(xii) Assuming that the Underwriter
exercises the over-allotment option to purchase any of the Optional Shares
and makes payment therefor in accordance with the terms of this Agreement,
upon delivery of the Optional Shares to the Underwriter hereunder, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to such Optional Shares,
free and clear of any liens, encumbrances, equities, security interests and
claims.
(xiii) To the best of Company Counsel's
knowledge, there are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or
tribunal, foreign or domestic, or before any private arbitration tribunal,
pending or threatened against the Company or involving the Company's
properties or business, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the kind of
business conducted by the Company which, individually and in the aggregate,
is not material.
(xiv) Company Counsel has participated in
reviews and discussions in connection with the preparation of the
Registration Statement and the Prospectus, and in the course of such reviews
and discussions and such other investigation as Company Counsel deemed
necessary, no facts came to its attention which lead it to believe that (A)
the Registration Statement (except as to the financial statements and other
financial data contained therein, as to which Company Counsel need not
express an opinion), on the Effective Date, contained any untrue state ment
of a material fact required to be stated therein or omitted
-25-
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or that (B) the Prospectus (except as to the financial
statements and other financial data contained therein, as to which Company
Counsel need not express an opinion) contains any untrue state ment of a
material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering its opinion pursuant to this
Section 6(b), Company Counsel may rely upon the certificates of government
officials and officers of the Company as to matters of fact, provided that
Company Counsel shall state that they have no reason to believe, and do not
believe, that they are not justified in relying upon such opinions or such
certificates of government officials and officers of the Company as to
matters of fact, as the case may be.
The opinion letter delivered pursuant to
this Section 6(b) shall state that any opinion given therein qualified by the
phrase "to the best of our knowledge" is being given by Company Counsel after
due investigation of the matters therein discussed.
(c) At the time that this Agreement is executed
and at the Closing Date, there will have been delivered to the Underwriter a
signed opinion of Cobrin, Gittes & ▇▇▇▇▇▇, special intellectual property
counsel for the Company ("IP Counsel"), dated as of the date hereof or the
Closing Date, as the case may be, reasonably satisfactory to Underwriter's
Counsel, to the effect that:
(i) To the best of IP Counsel's
knowledge, the Company owns or possesses adequate and enforceable rights to
use, and has not infringed and is not infringing upon the rights of others
with respect to, all patents, patent applications, trademarks, service marks,
copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); and, to the
best of IP Counsel's knowledge, the Company has not received any notice that
it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly
or in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any
licenses with respect to the Intangibles which are required to be obtained by
the Company.
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(ii) IP Counsel confirms the opinion of
IP Counsel dated June 23, 1997 and addressed to the Company in all material
respects as if such opinion was given on the date hereof (IP Counsel may
restate such opinion in its entirety).
(iii) IP Counsel has participated in
reviews and discussions in connection with the preparation of the
Registration Statement and the Prospectus, and in the course of such reviews
and discussions and such other investigation as IP Counsel deemed necessary,
no facts came to its attention which lead it to believe that (A) the
Registration Statement (except as to the financial statements and other
financial data contained therein, as to which IP Counsel need not express an
opinion), on the Effective Date, contained any untrue statement of a material
fact required to be stated therein or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which IP Counsel need not express an
opinion) contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering its opinion pursuant to this
Section 6(c), IP Counsel may rely upon the certificates of government
officials and officers of the Company as to matters of fact, provided that IP
Counsel shall state that they have no reason to believe, and do not believe,
that they are not justified in relying upon such opinions or such
certificates of government officials and officers of the Company as to
matters of fact, as the case may be.
The opinion letter delivered pursuant to
this Section 6(c) shall state that any opinion given therein qualified by the
phrase "to the best of our knowledge" is being given by IP Counsel after due
investigation of the matters therein discussed.
(d) At the Closing Date, there will have been
delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated
as of the Closing Date, to the effect that the opinions delivered pursuant to
Sections 6(b) and 6(c) hereof appear on their face to be appropriately
responsive to the requirements of this Agreement, except to the extent waived
by the Underwriter, specifying the same, and with respect to such related
matters as the Underwriter may require.
(e) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements
-27-
thereto will contain all material 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, and
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; (ii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
will not have been any material adverse change in the financial condition,
results of operations or general affairs of the Company from that set forth
or contemplated in the Registration Statement and the Prospectus, except
changes which the Registration Statement and the Prospectus indicate might
occur after the Effective Date; (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no material transaction, contract or agreement entered into
by the Company, other than in the ordinary course of business, which would be
required to be set forth in the Registration Statement and the Prospectus,
other than as set forth therein; and (iv) no action, suit or proceeding at
law or in equity will be pending or, to the best of the Company's knowledge,
threatened against the Company which is required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's
knowledge, threatened against the Company before or by any federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially adversely affect the business,
property, financial condition or results of operations of the Company, other
than as set forth in the Registration Statement and the Prospectus. At the
Closing Date, there will be delivered to the Underwriter a certificate signed
by the Chairman of the Board or the President or a Vice President of the
Company, dated the Closing Date, evidencing compliance with the provisions of
this Section 6(e) and stating that the representations and warranties of the
Company set forth in Section 4 hereof were accurate and complete in all
material respects when made on the date hereof and are accurate and complete
in all material respects on the Closing Date as if then made; that the
Company has performed all covenants and complied with all conditions required
by this Agreement to be performed or complied with by the Company prior to or
as of the Closing Date; and that, as of the Closing Date, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or, to the best of
his knowledge, are contemplated or threatened. In addition, the Underwriter
will
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have received such other and further certificates of officers of the Company
as the Underwriter or Underwriter's Counsel may reasonably request.
(f) At the time that this Agreement is executed
and at the Closing Date, the Underwriter will have received a signed letter
from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company, LLP, dated the date such letter is to be
received by the Underwriter and addressed to it, confirming that it is a firm
of independent public accountants within the meaning of the Act and
Regulations and stating that: (i) insofar as reported on by them, in their
opinion, the financial statements of the Company included in the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable Regulations; (ii) on the basis of
procedures and inquiries (not constituting an examination in accordance with
generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in
the Registration Statement and the Prospectus and the latest available
unaudited interim financial statements of the Company, if more recent than
that appearing in the Registration Statement and Prospectus, inquiries of
officers of the Company responsible for financial and accounting matters as
to the transactions and events subsequent to the date of the latest audited
financial statements of the Company, and a reading of the minutes of meet
ings of the shareholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and
Prospectus to a specified date not more than three business days prior to the
date of such letter, there have been any decreases in net current assets or
net assets as compared with amounts shown in such financial statements or
decreases in net sales or decreases [increases] in total or per share net
income [loss] compared with the corresponding period in the preceding year or
any change in the capitalization or long-term debt of the Company, except in
all cases as set forth in or contemplated by the Registration Statement and
the Prospectus, and (B) the unaudited interim financial statements of the
Company, if any, appearing in the Registration Statement and the Prospectus,
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 and
practices on a basis substantially consistent with the audited financial
statements included in the Registration Statement or the Prospectus; and
(iii) they have compared specific dollar amounts, numbers of shares,
numerical data, percentages of revenues and earnings, and other financial
-29-
information pertaining to the Company set forth in the Prospectus (with
respect to all dollar amounts, numbers of shares, percent ages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and infor mation may be derived from the
general accounting records 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.
(g) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares to be sold on the
Closing Date.
(h) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Shares by the Underwriter.
(i) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any
time prior to the Closing Date or the Option Closing Date, as the case may
be, for any member firm of the NASD to execute transactions (as principal or
as agent) in the Shares, and no proceedings for the purpose of taking such
action shall have been instituted or shall be pending, or, to the best of the
Underwriter's or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(j) The Company meets the current and any existing
and proposed criteria for inclusion of the Shares on the Nasdaq SmallCap
Market.
(k) All proceedings taken at or prior to the
Closing Date or the Option Closing Date, as the case may be, in connection
with the authorization, issuance and sale of the Shares shall be reasonably
satisfactory in form and substance to the Underwriter and to Underwriter's
Counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may request for the purpose of enabling
them to pass upon the matters referred to in Section 6(d) hereof and in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company, the performance of any covenants of
the Company, or the compliance by the Company with any of the conditions
herein contained.
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(k) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings of its officers,
directors and securityholders and/or registration rights holders, as the case
may be, to the effect of the matters set forth in Sections 5 (l) and (q).
If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the
Underwriter on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent
of the Underwriter, and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they
or any of them may become subject under the Act or under any other statute or
at common law or otherwise, and, except as hereinafter provided, will
reimburse the Underwriter and each such person, if any, for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in
any Preliminary Prospectus or in the Prospectus (or the Registration
Statement or Prospectus as from time to time amended or supplemented) or (ii)
in any application or other document executed by the Company, or based upon
written information furnished by or on behalf of the Company, filed in any
jurisdiction in order to qualify the Shares under the securities laws thereof
(hereinafter "application"), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
in light of the circumstances under which they were made, unless such untrue
statement or omission was made in such Registration Statement, Preliminary
Prospectus, Prospectus or application in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by
the Underwriter or any such person through the Underwriter expressly for use
therein; provided, however, that the indemnity agreement contained in this
Section 7(a) with respect to any Preliminary Prospectus will not inure to the
benefit of the Underwriter (or to the benefit of any other person that may be
indemnified pursuant to this Section 7(a)) if (A) the person asserting any
such losses, claims, damages, expenses or liabilities purchased
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the Shares which are the subject thereof from the Underwriter or other
indemnified person; (B) the Underwriter or other indemnified person failed to
send or give a copy of the Prospectus to such person at or prior to the
written confirmation of the sale of such Shares to such person; and (C) the
Prospectus did not contain any untrue statement or alleged untrue statement
or omission or alleged omission giving rise to such cause, claim, damage,
expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses
or liabilities, joint or several (and actions in respect thereof), to which
they or any of them may become subject under the Act or under any other
statute or at common law or otherwise, and, except as hereinafter provided,
will reimburse the Company and each such director, officer or controlling
person for any legal or other expenses reasonably incurred by them or any of
them in connection with investigating or defending any actions, whether or
not resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in the
Registration Statement, in any Preliminary Prospectus or in the Prospectus
(or the Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application (including any application for
registration of the Shares under state securities or Blue Sky laws), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, but only insofar as any such statement or omission was made
in reliance upon and in conformity with information furnished in writing to
the Company in connection therewith by the Underwriter expressly for use
therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought
against any indemnifying party under this Section 7, the indemnified party
will notify the indemnifying party in writing of the commencement thereof,
and the indemnifying party will, subject to the provisions hereinafter
stated, assume the defense of such action (including the employment of
counsel satisfactory to the indemnified party and the payment of expenses)
insofar as such action relates to an alleged liability in respect of which
indemnity may be sought against the indemnifying party. After notice from the
indemnifying party of its election to assume the
-32-
defense of such claim or action, the indemnifying party shall no longer be
liable to the indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation; provided,
however, that if, in the reasonable judgment of the indemnified party or
parties, it is advisable for the indemnified party or parties to be
represented by separate counsel, the indemnified party or parties shall have
the right to employ a single counsel to represent the indemnified parties who
may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for
any settlement of any action effected without such indemnifying party's
consent, which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii)
any indemnified or indemnifying party seeks contribution under the Act, the
Exchange Act, or otherwise, then the Company (including, for this purpose,
any contribution made by or on behalf of any director of the Company, any
officer of the Company who signed the Registration Statement and any
controlling person of the Company) as one entity and the Underwriter
(including, for this purpose, any contribution by or on behalf of each
person, if any, who controls the Underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee and agent of the Underwriter) as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses
whatsoever to which any of them may be subject, so that the Underwriter is
responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share set forth on the cover page of the Prospectus
represents of the initial public offering price per Share set forth on the
cover page of the Prospectus and the Company is responsible for the remaining
portion; provided, however, that if applicable law does not permit such
allocation, then, if applicable law permits, other relevant equitable
considerations such as the relative fault of the Company and the Underwriter
in connection with the facts which resulted in such losses, liabilities,
claims, damages and expenses shall also be
-33-
considered. The relative fault, in the case of an untrue statement, alleged
untrue statement, omission or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission or alleged
omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Underwriter
agree that it would be unjust and inequitable if the respective obligations
of the Company and the Underwriter for contribution were determined by pro
rata or per capita allocation of the aggregate losses, liabilities, claims,
damages and expenses or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) will be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee and agent of the Underwriter will have the same
rights to contribution as the Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who has signed the
Registration Statement and each director of the Company will have the same
rights to contribution as the Company, subject in each case to the provisions
of this Section 8. Anything in this Section 8 to the contrary
notwithstanding, no party will be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8 is intended to supersede, to the extent permitted by law, any right
to contribution under the Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of
the Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the
delivery of, and payment for, the Shares.
-34-
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice
to the Underwriter, or the Underwriter, by written or telegraphic notice to
the Company, may terminate this Agreement prior to the earlier of (i) 11:00
A.M., New York City time, on the first full business day after the Effective
Date; or (ii) the time when the Underwriter, after the Registration Statement
becomes effective, releases the Offered Shares for public offering. The time
when the Underwriter "releases the Offered Shares for public offering" for
the purposes of this Section 10 means the time when the Underwriter releases
for publication the first newspaper advertisement, which is subsequently
published, relating to the Offered Shares, or the time when the Underwriter
releases for delivery to members of a selling group copies of the Prospectus
and an offering letter or an offering telegram relating to the Offered
Shares, whichever will first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Shares and the obligation to purchase the
Optional Shares after exercise of the option referred to in Section 3 hereof,
are subject to termination in the absolute discretion of the Underwriter, by
notice given to the Company prior to delivery of and payment for all the
Offered Shares or such Optional Shares, as the case may be, if, prior to such
time, any of the following shall have occurred: (i) the Company withdraws the
Registration Statement from the Commission or the Company does not or cannot
expeditiously proceed with the public offering; (ii) the representations and
warranties in Sec tion 4 hereof are not materially correct or cannot be
complied with; (iii) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by federal or New
York State authorities; (vi) any other restrictions on transactions in
securities materially affecting the free market for securities or the payment
for such securities, including the Offered Shares or the Optional Shares,
will be established by either of such Exchanges, by the Commission, by any
other federal or state agency, by action of the Congress or by Executive
Order; (vii) trading in any securities of the Company shall have been
suspended or halted by any national securities exchange, the NASD or the
Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured,
by reason of fire, flood, accident or other calamity; (x) any action has been
taken by the government of the United States or any department or agency
thereof which, in the judgment of the Underwriter, has had a
-35-
material adverse effect upon the market or potential market for securities in
general; or (xi) the market for securities in general or political, financial
or economic conditions will have so materially adversely changed that, in the
judgment of the Underwriter, it will be impracticable to offer for sale, or
to enforce contracts made by the Underwriter for the resale of, the Offered
Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein
are not consummated because any condition of the Underwriter's obligations
hereunder is not satisfied or because of any refusal, inability or failure on
the part of the Company to comply with any of the terms or to fulfill any of
the conditions of this Agreement, or if for any reason the Company shall be
unable to or does not perform all of its obligations under this Agreement,
the Company will not be liable to the Underwriter for damages on account of
loss of anticipated profits arising out of the transactions covered by this
Agreement, but the Company will remain liable to the extent provided in
Sections 5(j), 7, 8 and 9 of this Agreement.
11. Information Furnished by the Underwriter to the
Company. It is hereby acknowledged and agreed by the parties hereto that for
the purposes of this Agreement, including, without limitation, Sections 4(f),
7(a), 7(b) and 8 hereof, the only information given by the Underwriter to the
Company for use in the Prospectus are the statements set forth in the last
sentence of the last paragraph on the cover page, the statement appearing in
the last paragraph on page with respect to stabilizing the market price of
Shares, the information in the paragraph on page with respect to
concessions and reallowances, and the information in the paragraph on
page with respect to the determination of the public offering price, as
such information appears in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at,
or mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P.,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇; if to the Com pany, addressed to
it at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, with a copy to
▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇, LLP, Attention: ▇▇▇ ▇▇▇▇▇▇▇▇, Esq., 1350 Avenue of the
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
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This Agreement shall be deemed to have been made
and delivered in New York City and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the
internal laws of the State of New York. The Company (1) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall
be instituted exclusively in New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York, (2) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (3) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of
New York, and the United States District Court for the Southern District of
New York in any such suit, action or proceeding. The Company further agrees
to accept and acknowledge service of any and all process which may be served
in any such suit, action or proceeding in the New York State Supreme Court,
County of New York, or in the United States District Court for the Southern
District of New York and agrees that service of process upon the Company
mailed by certified mail to the Company's address shall be deemed in every
respect effective service of process upon the Company, in any such suit,
action or proceeding.
13. Parties in Interest. This Agreement is made solely for
the benefit of the Underwriter, the Company and, to the extent expressed, any
person controlling the Company or the Underwriter, each officer, director,
partner, employee and agent of the Underwriter, the directors of the Company,
its officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from
the Underwriter, as such purchaser.
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If the foregoing is in accordance with your understanding
of our agreement, kindly sign and return to us the enclosed duplicates
hereof, whereupon it will become a binding agreement between the Company and
the Underwriter in accordance with its terms.
Very truly yours,
NETWORK-1 SECURITY SOLUTIONS, INC.
By---------------------------------
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By
---------------------------------
Name:
Title: