Exhibit 1.1
875,000 Units, each Unit Consisting of
Two (2) Shares of Common Stock and
One (1) Class A Redeemable
Common Stock Purchase Warrant
of
ABLE ENERGY, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
June , 1998
▇▇▇▇▇ ▇▇▇▇▇▇▇ Securities, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Able Energy, Inc., a Delaware corporation (the "Company"), confirms its
agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇ Securities, Inc. ("▇▇▇▇▇ ▇▇▇▇▇▇▇)", with respect to
the sale by the Company and the purchase by the Underwriter, of 875,000 units
("Units"), each Unit consisting of two (2) shares (the "Shares") of the
Company's common stock, par value $.01 per share ("Common Stock"), and one (1)
Class A Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"),
each of which Redeemable Warrants entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $5.00 per share pursuant to a
warrant agreement (the "Warrant Agreement") between the Company and the warrant
agent, set forth in Schedule I annexed hereto, and with respect to the grant by
the Company to the Underwriter of the option described in SECTION 2(b) hereof to
purchase all or any part of 131,250 additional Units for the purpose of covering
over-allotments, if any. The aforesaid 875,000 Units, 1,750,000 Shares and
875,000 Redeemable Warrants (the "Firm Securities") and together with all or any
part of the Units, Shares and Redeemable Warrants subject to the overallotment
option described in SECTION 2(b) hereof (the "Overallotment Securities") are
hereinafter collectively referred to as the "Securities." The Company also
proposes to issue and sell to the Underwriter, an option (the "Unit Purchase
Option") pursuant to the Underwriter's Unit Purchase Option Agreement (the
"Underwriter's Unit Purchase Option Agreement") for the purchase of an aggregate
of 131,250 additional Units consisting of 262,500 Shares (the "Underwriter's
Unit Shares") and 131,250 Common Stock Purchase Warrants (the "Underwriter's
Unit Warrants"). The shares of Common Stock issuable upon exercise of the
Redeemable Warrants and the Underwriter's Unit Warrants are hereinafter
sometimes referred to as the "Warrant Shares." The Shares, the Redeemable
Warrants, the Unit Purchase Option, Underwriters' Unit Shares, Underwriters'
Unit Warrants, and the Warrant Shares are more fully described in the
Registration Statement (as defined in Subsection 1(a) hereof) and the Prospectus
(as defined in Subsection 1(a) hereof) referred to below. Unless the context
otherwise requires, all references to the "Company" shall include all
subsidiaries and entities acquired by the Company on or prior to the Closing
Date (defined in Subsection 2(c) hereof). All representations, warranties and
opinions of counsel shall cover any such subsidiaries and acquired entities.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with the Underwriter as of the date hereof, and as of
the Closing Date and any Overallotment Closing Date (as defined in Subsection
2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and an amendment or amendments
thereto, on Form SB-2 (No. 333- ) including any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the Securities
under the Securities Act of 1933, as amended (the "Act"), which registration
statement and any amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act and the rules and regulations of the
Commission under the Act. Following execution of this Agreement, the Company
will promptly file (i) if the Registration has been declared effective by the
Commission, (A) a Term Sheet (as defined in the Rules and Regulations) (as
hereinafter defined) pursuant to Rule 434 under the Act or (B) a Prospectus
under Rules 430A and/or 424(b) under the Act, in either case in form
satisfactory to the Underwriter or (ii) in the event the Registration Statement
has not been declared effective, a further amendment to said registration
statement in the form heretofore delivered to the Underwriter and will not,
before the registration statement becomes effective, file any other amendment
thereto unless the Underwriter shall have consented thereto after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations)(as hereinafter
defined), is hereinafter called the "Registration Statement" and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and
2
Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part thereof and no proceedings
for a stop order have been instituted or are pending or, to the best knowledge
of the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
neither the Preliminary Prospectus, the Registration Statement or Prospectus at
the time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriter by or on behalf of the Underwriter expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Overallotment Closing Date
(as hereinafter defined) and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all material
statements which are required to be stated therein in compliance with the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Overallotment Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information supplied to the Company in writing by or
on behalf of the Underwriter expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is now, and at the Closing
Date and any Overallotment Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity except for its wholly
owned subsidiaries ______, ________ and (the subsidiaries). The Company and
each subsidiary is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of its
properties or the character of its
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operations require such qualification or licensing, except where the failure to
so qualify would not have a material adverse effect on the Company. The Company
and each subsidiary has all requisite power and authority (corporate and other),
and has obtained any and all necessary applications, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; the Company
and each subsidiary is and has been doing business in material compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state, local and foreign laws, rules and
regulations except where the failure to comply would not have a material adverse
effect upon the Company; neitherand the Company nor any subsidiary has not
received any written notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operation of the Company. The disclosures, if any, in the Registration
Statement concerning the effects of federal, state, local, and foreign laws,
rules and regulations on the business of the of the Company and each subsidiary
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date
and the Overallotment Closing Date, if any, based upon the assumptions set forth
therein, and the Company is not a party to or bound by any instrument, agreement
or other arrangement providing for the Company to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Shares, Redeemable Warrants, the Unit
Purchase Option, Underwriter' Unit Shares, the Underwriter's Unit Warrants, and
the Warrant Shares and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform in all respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Unit Purchase Option , the Underwriters' Unit
Shares, and the Underwriter's Unit Warrants to be issued and sold by the Company
hereunder, and the Warrant Shares issuable upon exercise of the Redeemable
Warrants and the Underwriter's Unit Warrants and payment therefor, are not and
will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and will conform to the descriptions thereof contained
in the Prospectus; the
4
holders thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities, the Unit Purchase Option, the Underwriters' Unit Shares, and the
Underwriter's Unit Warrants, and the Warrant Shares has been duly and validly
taken; and the certificates representing the Securities, the Underwriter's Unit
Warrants, and the Warrant Shares will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Securities to be sold
to the Underwriter by the Company hereunder, the Underwriter will acquire good
and marketable title to such Securities free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) ___________________, whose report is filed with the Commission as
a part of the Registration Statement, is an independent certified public
accountant as required by the Act and the Rules and Regulations.
(h) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and taxes payable under Chapters 21 through 24 of the Internal Revenue Code of
1986 (the "Code"), (ii) has furnished all tax and information returns it is
required to furnish pursuant to the Code, and has established reasonable
reserves for such taxes which are not due and payable, and (iii) does not have
knowledge of any tax deficiency or claims outstanding, proposed or assessed
against it.
(i) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts which it reasonably believes to be
adequate for its business, including, but not limited to, personal injury and
product liability insurance covering all personal and real property owned or
leased by the Company against fire, theft, damage and all risks customarily
issued against.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or
5
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company which: (i) questions the
validity of the capital stock of the Company or this Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with this
Agreement; (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects); or (iii) might materially
affect the condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to enter
into this Agreement, the Underwriter's Unit Purchase Option Agreement and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, the Underwriter's Unit Purchase Option Agreement
and the Warrant Agreement have each been duly and properly authorized, executed
and delivered by the Company. Each of this Agreement, the Underwriter's Unit
Purchase Option Agreement or the Warrant Agreement, constitutes a legally valid
and binding agreement of the Company, subject to due authorization, execution
and delivery by the Underwriter and/or the Underwriter, enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law). Neither the Company's execution or delivery of this
Agreement, the Underwriters' Unit Purchase Option Agreement, and the Warrant
Agreement, its performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, nor the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of: (i)
the Articles of Incorporation or By-Laws of the Company; (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject; or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the transactions contemplated hereby, except such as have
6
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with (i) the Underwriter's purchase and
distribution of the Firm Securities and Overallotment Securities to be sold by
the Company hereunder; or (ii) the issuance and delivery of the Unit Purchase
Option, the Underwriter's Unit Shares, the Underwriter's Unit Warrants, the
Redeemable Warrants or the Warrant Shares.
(m) All executed agreements or copies of executed agreements filed as
exhibits to the Registration Statement to which the Company is a party or by
which the Company may be bound or to which any of its assets, properties or
businesses may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute legally valid and binding agreements of
the Company, enforceable against it in accordance with its respective terms.
The descriptions contained in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Rules and
Regulations and there are no material contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not: (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money in any material amount; (ii) entered into any transaction
other than in the ordinary course of business; (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock;
or (iv) made any changes in capital stock, material changes in debt (long or
short term) or liabilities other than in the ordinary course of business,
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
(o) No default exists in the due performance and observance of any
material term, covenant or condition of any license, contract, indenture,
mortgage, installment sales agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which any of
the Company may be bound or to which any of its property or assets (tangible or
intangible) of the Company is subject or affected except where such default does
not, and will not, have a material adverse effect upon the Company.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
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(q) Since its inception, the Company has not incurred any liability
arising under or as a result of the application of the provisions of the Act.
(r)The Company does not presently maintain, sponsor or contribute to,
and never has maintained, sponsored or contributed to, any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan " or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37) respectively of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as defined
in Section 3(35) of ERISA.
(s) The Company is not in violation in any material respect of any
domestic or foreign laws, ordinances or governmental rules or regulations to
which it is subject.
(t) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within eighteen (18) months of the date hereof or to require the Company to file
a registration statement under the Act during such eighteen (18) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(u) Neither the Company, nor, to the Company's best knowledge, any of
its employees, directors, stockholders or affiliates (within the meaning of the
Rules and Regulations) has taken, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise.
(v) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing; and (ii) except as set forth in the Prospectus,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service ▇▇▇▇ trade name, copyright, know-how,
technology or other
8
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(w) To the best of its knowledge, the Company owns and has the
unrestricted right to use all material trade secrets, trade-marks, trade names,
know-how (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively herein "Intellectual Property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company, free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that the
possibility exists that other persons or entities, completely independently of
the Company, or employees or agents, could have developed trade secrets or items
of technical information similar or identical to those of the Company.
(x) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all the Intellectual Property material to
its operations.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(aa) The Company has obtained duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers and
directors and any person or entity owning the Company's securities has agreed
not to, directly or indirectly, offer to sell, sell, grant any option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber any of
their shares of Common Stock or other securities of the Company (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than 21 months following
the effective date of the Registration Statement without the prior written
consent of the Underwriter. The Company will cause the Transfer Agent, as
defined below, to ▇▇▇▇ an appropriate legend on the face of stock certificates
representing all of such shares of Common Stock and other securities of the
Company.
(bb) Except as disclosed in the Prospectus, the Company has not
incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
9
(cc) The Firm Securities have been approved for quotation on the
Nasdaq National Market of the SmallCap Market, Inc. subject to official notice
of issuance.
(dd) Neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company;
and (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(ee) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, except with respect to the beneficial ownership of not more
than 1% of the outstanding shares of capital stock of any publicly-held entity;
or (ii) a beneficial interest in any contract or agreement to which the Company
is a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions", there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director, or principal stockholder of the Company, or any affiliate
or associate of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriters' counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(gg) The Company has entered into employment agreements with ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as described in the Prospectus. The Company
has obtained a key-man life insurance policy in the amount of not less than
$3,000,000 on the life of ▇▇. ▇▇▇▇▇▇▇▇▇▇, which policy is owned by the Company
and names the Company as the sole beneficiary thereunder.
10
(hh) No securities of the Company have been sold by the Company in
the last year, except as disclosed in Part II of the Registration Statement.
(ii) The minute books of the Company have been made available to
Underwriter's Counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Stockholders of the Company since the date of its
incorporation.
(jj) Except as disclosed in writing to the Underwriter, no officer, or
director or stockholder of the Company has any affiliation or association with
any member of the NASD.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND AGREEMENT TO
ISSUE UNDERWRITERS' UNIT PURCHASE OPTION.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter,
agrees to purchase from the Company at the price per Unit as set forth below.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase up to an additional 131,250 Units, each Unit consisting
of two (2) Shares and one (1) Redeemable Warrant at the prices per Unit set
forth below; provided, however, that with respect to such additional Units, the
Underwriter shall obtain such Units by exercising its option to purchase up to
50,000 Shares from Mr. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and by the Company providing up to
65,625 Redeemable Warrants. The option granted hereby will expire 45 days
after the date of this Agreement, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Firm Securities upon
notice by the Underwriter to the Company setting forth the number of
Overallotment Securities as to which the Underwriter are then exercising the
option and the time and date of payment and delivery for such Overallotment
Securities. Any such time and date of delivery shall be determined by the
Underwriter, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the Underwriter and
the Company. Nothing herein contained shall obligate the Underwriter to make
any over-allotments. No Overallotment Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇,
Underwriter, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place
as shall be agreed upon by the Underwriter Securities, Inc. and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
_____ __, 1998 or at such other time and date as shall be designated by the
Underwriter but not less than three (3) nor more than five (5) business days
after the
11
effective date of the Registration Statement (such time and date of payment and
delivery being hereafter called "Closing Date"). In addition, in the event that
any or all of the Overallotment Securities are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for such Option
Securities shall be made at the above-mentioned office or at such other place
and at such time (such time and date of payment and delivery being hereinafter
called "Overallotment Closing Date") as shall be agreed upon by the Underwriter
and the Company on each Overallotment Closing Date as specified in the notice
from the Underwriter to the Company. Delivery of the certificates for the Firm
Securities and the Overallotment Securities, if any, shall be made to the
Underwriter against payment by the Underwriter of the purchase price for the
Firm Securities and the Overallotment Securities, if any, to the order of the
Company as the case may be by certified check in New York Clearing House funds,
certificates for the Firm Securities and the Overallotment Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to
Closing Date or the relevant Overallotment Closing Date, as the case may be.
The certificates for the Firm Securities and the Overallotment Securities, if
any, shall be made available to the Underwriter at the above-mentioned office or
such other place as the Underwriter may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Overallotment Closing Date, as the case may be.
The purchase price of the Units to be paid by the Underwriter, to the
Company for the Units purchased under Clauses (a) and (b) above will be $
per Unit (which price is net of the Underwriters' discount and commissions).
The Company shall not be obligated to sell any Securities hereunder unless all
Firm Securities to be sold by the Company are purchased hereunder. The Company
agrees to issue and sell 875,000 Units to the Underwriter in accordance
herewith.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's Unit Purchase Option at a purchase price of
$87.50 which Unit Purchase Option shall entitle the holders thereof to purchase
an aggregate of 87,500 Units. The Underwriter's Unit Purchase Option shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an initial exercise price equal
to one hundred fifty percent (150%) of the initial public offering price of the
Units. The Underwriter's Unit Purchase Option Agreement and form of Unit
Purchase Option Certificate shall be substantially in the form filed as an
Exhibit to the Registration Statement. Payment for the Underwriter's Unit
Purchase Option shall be made on the Closing Date. The Company has reserved and
shall continue to reserve a sufficient number of Shares for issuance upon
exercise of the Underwriter's Unit Purchase Option and the Underwriter's Unit
Warrants contained in the Underwriter's Unit Purchase Option.
3. PUBLIC OFFERING OF THE SECURITIES. As soon after the Registration
Statement becomes effective and as the Underwriter deem advisable, but in no
event more than five (5) business days after such effective date, the
Underwriter shall make a public offering of the
12
Securities (other than to residents of or in any jurisdiction in which
qualification of the Securities is required and has not become effective) at the
price and upon the other terms set forth in the Prospectus and otherwise in
compliance with the Rules and Regulations. The Underwriter may allow such
concessions and discounts upon sales to other dealers as set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Securities has been completed to
such extent as the Underwriter, in its sole discretion deems advisable.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act (i)
before termination of the offering of the Securities by the Underwriter which
the Underwriter shall not previously have been advised and furnished with a
copy, or (ii) to which the Underwriter shall have objected or (iii) which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm by notice in writing: (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriter pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
13
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriter or ▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇, LLP ("Underwriter's Counsel"), shall reasonably object.
(e) The Company shall cooperate in good faith with the Underwriter,
and Underwriters' Counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriter may
reasonably designate, and shall cooperate with the Underwriter and Underwriters'
Counsel in the making of such applications, and filing such documents and shall
furnish such information as may be required for such purpose; PROVIDED, HOWEVER,
the Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriter agree that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriter's Counsel, and the Company will furnish
to the Underwriter a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period commencing on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the
14
event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its security holders, in
the manner specified in Rule 158(b) of the Rules and Regulations, and to the
Underwriter, an earnings statement which will be in such form and detail
required by, and will otherwise comply with, the provisions of Section 11(a) of
the Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act, covering a period of at least 12
consecutive months after the effective date of the Registration Statement.
(h) During a period of three (3) years after the date hereof and
provided that the Company is required to file reports with the Commission under
Section 12 of the Exchange Act, the Company will furnish to its stockholders, as
soon as practicable, annual reports (including financial statements audited by
independent public accountants), and will deliver to the Underwriter:
(i) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(iii) every press release and every material news item or
article of interest to the financial community in respect of the Company and any
future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature concerning the
Company and any future subsidiaries or their respective businesses which the
Underwriter may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time.
During such three-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent and Warrant Agent, which may be the same entity, and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer and Warrant Agent) for its Common
Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriter or pursuant to the
Underwriter's direction, without charge, at such place as the Underwriter may
designate, copies of each
15
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Underwriter may reasonably request.
(k) Neither the Company, nor its officers or directors, nor affiliates
of any of them (within the meaning of the Rules and Regulations) will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the provisions, set forth under the
caption "Use of Proceeds" in the Prospectus. No portion of the net proceeds
will be used directly or indirectly to acquire any securities issued by the
Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required (including but not limited to a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each
Overallotment Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited consolidated interim
financial statements of the Company (which in no event shall be as of a date
more than forty-five (45) days prior to the date of the Registration Statement)
which have been read by the Company's independent public accountants, as stated
in their letters to be furnished pursuant to SECTION 6(k) hereof.
(o) For a period of three (3) years from the Closing Date, the Company
shall furnish to the Underwriter at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Securities upon the Underwriter's
reasonable request; (ii) a list of holders of Securities upon the Underwriter's
reasonable request; (iii) a list of, if any, the securities positions of
participants in the Depository Trust Company upon the Underwriter's reasonable
request.
(p) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall use its best efforts to cause one (1)
individual selected by the Underwriter to be elected to the Board of Directors
of the Company (the "Board"), if requested by the Underwriter and provided such
individual is reasonably acceptable to and approved by the Company.
Alternatively, the Underwriter shall be entitled to appoint an individual who
shall be permitted to attend all meetings of the Board and to receive all
notices and other
16
correspondence and communications sent by the Company to members of the Board.
The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred and authorized in advance by the
Company in connection with his or her attendance of the Board meetings. To the
extent permitted by law, the Company agrees to indemnify and hold the designee
(as a director or observer) and the Underwriter harmless against any and all
claims, actions, awards and judgements arising out of his or her service as a
director or an observer and the Company shall maintain a liability insurance
policy in an amount of not less than $5,000,000 affording coverage for the
action of its officer and directors, to include such designee and the
Underwriter as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years from the
date hereof, or (ii) the sale to the public of the Warrant Shares, the Company
will not take any action or actions which may prevent or disqualify the
Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other appropriate
form) for the registration under the Act of the Warrant Shares.
(r) For a period of five (5) years from the date hereof, use its best
efforts at its cost and expense to maintain the listing of the Securities on the
Nasdaq SmallCap Market.
(s) (i) As soon as practicable, but in no event more than 5 business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Securities.
(t) Following the Effective Date of the Registration Statement and for
a period of two (2) years thereafter, the Company shall, at its sole cost and
expense, prepare and file such blue sky trading applications with such
jurisdictions as the Underwriter may reasonably request after consultation with
the Company, and on the Underwriter's request, furnish the Underwriter with a
secondary trading survey prepared by securities counsel to the Company.
(u) The Company shall not amend or alter any term of any written
employment agreement between the Company and any executive officer, during the
term of such written employment agreement, in a manner more favorable to such
employee, without the express written consent of the Underwriter.
(v) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter and
Underwriters' Counsel, which consent shall not be unreasonably withheld, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(w) Commencing one (1) year from the date hereof, upon the exercise of
any Redeemable Warrant, the exercise of which was solicited by the Underwriter
in accordance with the applicable rules and regulations of the NASD prevailing
at the time of such solicitation (including Rule 2710(c)(6)(B)(xi) thereof, the
Company shall pay to the Underwriter a fee of 5%
17
of the aggregate exercise price of such Warrant (provided that the Underwriter
has been designated by the Warrantholder as having solicited the Redeemable
Warrant) within five (5) business days of such exercise and receipt of the
exercise price. The Company further agrees that it will not solicit the
exercise of any Warrant other than through the Underwriter, unless either: (i)
the Underwriter cannot legally solicit the exercise of the Redeemable Warrants
at the time of such solicitation; (ii) the Underwriter declines, in writing, to
solicit the exercise of the Warrants within five (5) business days of such a
written request by the Company; or (iii) the Underwriter consents to the
solicitation of the exercise of the Warrants by the Company or another entity.
(x) The Company will use its best efforts to maintain its registration
under the Exchange Act in effect for a period of five (5) years from the Closing
Date.
(y) On the Closing Date, the Company and the Underwriter shall enter
into a financial consulting agreement, in the form filed as an Exhibit to the
Registration Statement, pursuant to which the Underwriter will provide financial
consulting services to the Company for a two (2) year period for an aggregate
fee of $166,000, all of which will be paid on the Closing Date (the "Financial
Consulting Agreement").
(z) For a period of 24 months commencing on the Closing Date, except
with the written consent of the Underwriter, which consent shall not be
unreasonably withheld, the Company will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Unit Purchase Option and the Underwriters' Unit
Warrants, (iii) warrants and options of the Company heretofore issued and
described in the Prospectus, and (iv) the grant of options and the issuance of
shares issued upon exercise of options issued or to be issued under the
Company's 1998 Stock Option Plan as contemplated by the Prospectus ("Stock
Option Plan") up to the maximum number of options per year and in the aggregate
permitted in such as described in the Stock Option Plan on the date hereof;
except that, during such period, the Company may issue securities in connection
with an acquisition, merger or similar transaction, provided that such
securities are not publicly registered and the acquirer of the securities is not
granted registration rights with respect thereto which are effective prior to 24
months after the Closing Date. Except as discussed in the Prospectus, prior to
the Closing Date, the Company will not issue any options or warrants without the
prior written consent of the Underwriter.
(aa) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the 18 months following the Closing Date without
the Underwriter's prior written consent which consent shall not be unreasonably
withheld. The Company shal not issue any securities pursuant to Regulation S for
a period of two (2) years following the effective date.
(bb) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated
18
by the Registration Statement and Prospectus, (i) the Company will not have
incurred any liabilities or obligations, direct or contingent, or entered into
any material transactions other than in the ordinary course of business; (ii)
there shall not have been any change in the capital stock, funded debt (other
than regular repayments of principal and interest on existing indebtedness) or
other securities of the Company, any material adverse change in the condition
(financial or other), business, operations, income, net worth or properties,
including any material loss or damage to the properties of the Company (whether
or not such loss is insured against), which could materially adversely affect
the condition (financial or other), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not pay or declare any
dividend or other distribution on its Common Stock or its other securities or
redeem or repurchase any of its Common Stock or other securities.
(cc) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, the Company, for a period of 24 months following the
Closing Date, shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Closing Date without obtaining the Underwriter's prior written consent,
which consent shall not be unreasonably withheld. The Underwriter shall either
approve or disapprove such contemplated redemption of securities or dividend
payment or distribution within seven (7) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the seven (7) business
day period shall be deemed approval of the transaction.
(dd) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is 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.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of Closing Date and the
Overallotment Closing Date (to the extent not paid at the Closing Date) all its
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation: (i) the fees and expenses
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing and filing of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter
19
in quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon; (iv) disbursements and fees of Underwriter's Counsel in connection with
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, which Underwriters' Counsel fees (exclusive of
filing fees and disbursements) shall equal $30,000 and of which $10,000 has
previously been paid; (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with one information meeting held in
New York, New York, one tombstone advertisement five (5) bound volumes and
prospectus memorabilia; (vi) fees and expenses of the transfer agent; (vii) the
fees payable to the NASD; and (viii) the fees and expenses incurred in
connection with the listing of the Securities on the Nasdaq SmallCap Market and
all fees and expenses payable to the Underwriter shall be payable at the Closing
Date or Overallotment Closing Date, as applicable. The Underwriter shall be
responsible for all of its own mailing and delivery costs and costs of counsel.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of SECTION 6, SECTION 10(a) or SECTION 12, the Company shall
reimburse and indemnify the Underwriter for up to $75,000 out-of-pocket actual
expenses reasonably incurred in connection with the transactions contemplated
hereby including the fees and disbursements of counsel for the Underwriter of
which the Underwriter acknowledges $10,000 has been paid prior to the date
hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this SECTION 5, it will pay to the
Underwriter a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Firm Securities
$30,000 of which has been paid to date to the Underwriter. The Company will pay
the remainder of the non-accountable expense allowance on the Closing Date by
certified or bank cashier's check or, at the election of the Underwriter, by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elects to exercise the over-allotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on the
Overallotment Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Overallotment Securities.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Overallotment Closing Date, if any, as if they had been made on and as of
the Closing Date or each Overallotment Closing Date, as the case may be; the
accuracy on and as of the Closing Date or Overallotment Closing Date, if any, of
the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Overallotment Closing Date, if any, of each of its covenants and
obligations hereunder and to the following further conditions:
20
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Underwriter, and, at Closing
Date and each Overallotment Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated to the knowledge of the Company by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriters' Counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to Closing
Date the Company shall have provided evidence satisfactory to the Underwriter of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, and the opinion of its counsel is
material or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Underwriter's
reasonable opinion, or the opinion of its counsel is material, or omits to state
a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) At the Closing Date, and the Overallotment Closing Date the
Underwriter shall have received the favorable opinion of Sichenzia, Ross &
▇▇▇▇▇▇▇▇ LLP, counsel to the Company, dated the Closing Date, or Overallotment
Closing Date, as the case may be, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel, to the effect that:
(e) The Company: (A) has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
(B) to the best of counsel's knowledge, the Company is duly licensed or
qualified as a foreign corporation in all jurisdictions in which by reason of
maintaining an office in such jurisdiction or by owning or leasing real property
in such jurisdiction it is required to be so licensed or qualified except where
failure to be so qualified or licensed would have no material adverse effect;
and (C) to the best of counsel's knowledge, the Company has not received any
written notice of proceedings relating to the revocation or modification of any
such license or qualification which revocation or modification would have a
material adverse effect upon the Company.
21
(ii) The Registration Statement, each Preliminary Prospectus
that has been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, schedules and other
financial and statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form SB-2 have been satisfied by the Company. Such counsel shall state that
such counsel has participated in conferences with officers and other
Underwriters of the Company, Underwriters of the independent public accountants
for the Company and Underwriters of the Underwriter at which the contents of the
Registration Statement, the Prospectus and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective or the Prospectus as of the
date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or to make the
statements therein in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus or with
respect to statements or omissions made therein in reliance upon information
furnished in writing to the Company on behalf of Underwriter expressly for use
in the Registration Statement or the Prospectus).
(iii) Except as described in the Prospectus, the Company does not
own an interest of a character required to be disclosed in the Registration
Statement in any corporation, partnership, joint venture, trust or other
business entity;
(iv) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus as of the date indicated therein,
under "Capitalization". The Units, Shares, Redeemable Warrants, the Unit
Purchase Option, the Underwriter's Unit Warrants, the Bridge Warrants and the
Warrant Shares conform or upon issuance will conform in all material respects to
all statements with respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding securities of the Company have been
duly authorized and validly issued and all shares of capital stock are fully
paid and non-assessable; the holders thereof, are not, except by reason of their
own conduct or acts, subject to personal liability by reason of being such
holders, and none of such securities were issued in violation of the preemptive
rights of any holder of any security of the Company. The Securities to be sold
by the Company hereunder, the Unit Purchase Option to be sold by the Company
under the Underwriter's Unit Purchase Option Agreement and Underwriters' Unit
Warrant and the Warrant Shares are not subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and conform or upon issuance will conform
to the description thereof contained in the Prospectus; that, the holders of the
Common Stock shall not be personally liable for the payment of the Company's
debts solely by reason of
22
being such holders except as they may be liable by reason of their own conduct
or acts; and that the certificates representing the Units, Shares, Redeemable
Warrants, Unit Purchase Option, the Underwriter's Unit Shares, and the
Underwriters' Unit Warrants are in due and proper legal form.
(v) The issuance of the Shares, Redeemable Warrants and the
Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. The Securities are not and
will not be subject to the preemptive or similar contractual rights of any
shareholder of the Company. All corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. The certificates, if any, representing the Units, Shares and Redeemable
Warrants are in due and proper form. Upon delivery of the Shares to the
Underwriter against payment therefor as provided for in this Agreement, the
Underwriter (assuming they are bona fide purchasers within the meaning of the
Uniform Commercial Code) will acquire good title to the Units, free and clear of
all liens, encumbrances, equities, security interests and claims.
(v) The Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, no stop order suspending the
effectiveness of the Registration Statement has been issued and to the best of
such counsel's knowledge, no proceedings for that purpose have been instituted
or are pending or threatened or contemplated under the Act;
(vi) To the best of such counsel's knowledge, (A) there are no
material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations;
(vii) This Agreement, the Underwriter's Unit Purchase Option
Agreement, the Warrant Agreement, and the Financial Consulting Agreement have
each been duly and validly authorized, executed and delivered by the Company,
and assuming that it is a valid and binding agreement of the Underwriter, as the
case may be, constitutes a legal, valid and binding agreement of the Company
enforceable as against the Company in accordance with its respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law or pursuant to public
policy).
23
(ix) Neither the execution or delivery by the Company of this
Agreement, the Underwriter's Unit Purchase Option Agreement, the Financial
Consulting Agreement, and the Warrant Agreement, nor its performance hereunder
or thereunder, nor its consummation of the transactions contemplated herein or
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, nor the
issuance of the Securities conflicts with or will conflict with or results or
will result in any material breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under, or
result in the creation imposition of any material lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or intangible) of the
Company except to the extent such event will not have a material adverse effect
upon the Company pursuant to the terms of, (A) the Certificate of Incorporation
or By-Laws of the Company, (B) any indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument that is material to the Company to which the
Company is a party or by which it is bound or to which its properties or assets
(tangible or intangible) are subject, or any indebtedness, or (C) except to the
extent it would not have a material adverse effect on the Company, any statute,
judgment, decree, order, rule or regulation applicable to the Company (except
with respect to environmental laws which are expressly excluded from such
counsel's opinion) or any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body, having jurisdiction over the
Company or any of its respective activities or properties.
(x) No consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other than
such as may be required under state securities laws, as to which no opinion need
be rendered) is required in connection with the issuance by the Company of the
Securities pursuant to the Prospectus and the Registration Statement, the
performance of this Agreement, the Underwriters' Unit Purchase Option Warrant
Agreement, the Financial Consulting Agreement and the Warrant Agreement by the
Company, and the taking of any action by the Company contemplated hereby or
thereby, which has not been obtained;
(xi) Except as described in the Prospectus, the Company is not in
breach of, or in default under, any material term or provision of any indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets (tangible or
intangible) of the Company is subject or affected; and the Company is not in
violation of any material term or provision of its Certificate of Incorporation
or By-Laws or in violation of any material franchise, license, permit, judgment,
decree, order, statute, rule or regulation material to the Company business;
(xii) The statements in the Prospectus under the captions "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS,"
24
"CERTAIN TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
(xiii) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for eighteen months from the date hereof;
(xiv) the Securities, (and underlying shares of Common Stock) are
eligible for listing on the Nasdaq National Market.
In rendering such opinion, such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of Delaware and New York and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriter's Counsel) of other counsel reasonably
acceptable to Underwriter's Counsel, familiar with the applicable laws of such
other jurisdictions, and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company; PROVIDED, that copies of any such
statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
(e) At each Overallotment Closing Date, if any, the Underwriter shall
have received the favorable opinion of counsel to the Company, each dated the
Overallotment Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel confirming as of Overallotment
Closing Date the statements made by such firm, in their opinion, delivered on
the Closing Date.
(f) On or prior to each of the Closing Date and the Overallotment
Closing Date, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require and request for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this SECTION 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
(g) Prior to the Closing Date and each Overallotment Closing Date, if
any: (i) there shall have been no material adverse change nor development
involving a prospective
25
change in the condition, financial or otherwise, prospects or the business
activities of the Company, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness for
money borrowed; (iv) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (v) no action, suit or proceeding, at law or in equity, shall have
been pending or to its knowledge threatened against the Company, or affecting
any of its properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Overallotment Closing Date, if any,
the Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Overallotment Closing Date, as
the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are, in all material respects, true and correct, as if made on and as
of the Closing Date or the Overallotment Closing Date, as the case may be, and
the Company has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or satisfied
at or prior to such Closing Date or Overallotment Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and neither the
Preliminary Prospectus or any supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements
26
therein, in light of the circumstances under which they were made, not
misleading except to the extent any such material fact may be corrected in the
Final Prospectus; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and except as
otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Overallotment Closing Date, as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any material transactions not in the ordinary course of
business; (D) there has not been any change in the capital stock or any increase
in long-term debt or any increase in the short-term borrowings (other than any
increase in the short-term borrowings in the ordinary course of business) of the
Company; (E) the Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no litigation which is
pending or threatened against the Company which is required to be set forth in
an amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates
shall have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriter shall have received clearance
from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date, addressed to the Underwriter in form and
substance satisfactory in all respects (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter, from :
(i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) stating that it is their opinion that the combined financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & Company, LLP
with respect to the financial statements and supporting schedules included in
the Registration Statement;
27
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim combined financial
statements of the Company (with an indication of the date of the latest
available unaudited interim combined financial statements), a reading of the
latest available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
combined financial statements and supporting schedules of the Company included
in the Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited combined financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the financial statements included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from
_____________________ to a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there was any decrease in net
revenues, net earnings or increase in net earnings per common share of the
Company, in each case as compared with the corresponding period beginning
________________ other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease;
(iv) setting forth, at a date not later than five (5) days prior
to the date of the Registration Statement, the amount of liabilities of the
Company (including a breakdown of commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of Securities, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(vi) stating that they have not during the immediately preceding
five (5) year period brought to the attention of the Company's management any
"weakness", as defined in Statement of Auditing Standard No. 60 "Communication
of Internal Control Structure Related Matters Noted in an Audit, " in the
Company's internal controls;
28
(vii) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all material respects with the applicable
accounting requirements of Rule ll-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(k) At the Closing Date and each Overallotment Closing Date, the
Underwriter shall have received from , a letter,
dated as of the Closing Date, or Overallotment Closing Date, as the case may be,
to the effect that they reaffirm that statements made in the letter furnished
pursuant to SUBSECTION (j) of this Section, except that the specified date
referred to shall be a date not more than five days prior to Closing Date and,
if the Company has elected to rely on Rule 430A of the Rules and Regulations, to
the further effect that they have carried out procedures as specified in clause
(iii) of subsection (j) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriter and deemed
to be a part of the Registration Statement pursuant to Rule 430A(b) and have
found such amounts, percentages and financial information to be in agreement
with the records specified in such clause (iii).
(l) On each of Closing Date and Overallotment Closing Date, if any,
there shall have been duly tendered to the Underwriter for its account the
appropriate number of Securities against payment therefore.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of SECTION 4 hereof
shall have been issued on either the Closing Date or the Overallotment Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Overallotment Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, including specifically each person who may be substituted for an
Underwriter as provided in SECTION 11 hereof) and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect
29
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, except that the indemnification contained in
this paragraph with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter or to the benefit of any person controlling the
Underwriter on account of any loss, claim, damage, liability or expense arising
from the sale of the Firm Securities by the Underwriter to any person if a copy
of the Prospectus, as amended or supplemented, shall not have been delivered or
sent to such person within the time required by the Act, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus, as amended and supplemented, and such correction would have
eliminated the loss, claim, damage, liability or expense), the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included Securities of the Company issued
or issuable upon exercise of the Underwriters' Unit Purchase Option; or (iii) in
any application or other document or written communication (in this SECTION 8
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless in any case above such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of the Act to the same extent as the foregoing indemnity from the
Company to the Underwriter but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto in any post-effective
amendment, new registration statement or prospectus, or in any application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to the Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the
30
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any post-effective amendment, new registration statement or
prospectus, or in any such application, provided that such written information
or omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto, in any post-effective amendment, new registration statement or
prospectus or in any such application, provided, further, that the liability of
each Underwriter to the Company shall be limited to the amount of the net
proceeds of the Offering received by the Company. The Company acknowledges that
the statements with respect to the public offering of the Firm Securities set
forth under the heading "Underwriting" and the stabilization legend and the last
paragraph of the cover page in the Prospectus have been furnished by the
Underwriter expressly for use therein and any information furnished by or on
behalf of the Underwriter filed in any jurisdiction in order to qualify the
Securities under State Securities laws or filed with the Commission, the NASD or
any securities exchange constitute the only information furnished in writing by
or on behalf of the Underwriter for inclusion in the Prospectus and the
Underwriter hereby confirm that such statements and information are true and
correct and shall be on each Closing Date and Overallotment Closing Date.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this SECTION 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the foregoing
the indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnifying party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction
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arising out of the same general allegations or circumstances. Anything in this
SECTION 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; PROVIDED HOWEVER, that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this SECTION 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company
is the contributing party and the Underwriter is the indemnified party the
relative benefits received by the Company on the one hand, and the Underwriter,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses) bear to
the total underwriting discounts and commissions received by the Underwriter
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, expenses or liabilities (or actions
in respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriter shall
not be required to contribute any amount in excess of the amount of the net
proceeds of the Offering received by the Company. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this SECTION 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
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proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriter, the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter for
a period of the latter of two (2) years or the applicable statute of
limitations.
9. EFFECTIVE DATE.
This Agreement shall become effective at _____ a.m., New York
City time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Underwriter, in their discretion, shall release the Securities for the sale to
the public, PROVIDED, HOWEVER that the provisions of SECTIONS 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such Securities for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) The Underwriter shall have the right to terminate this
Agreement: (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in the
immediate future materially disrupt general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a war
or major hostilities; or (iv) if a banking moratorium has been declared by a New
York State or federal authority; or (v) if a moratorium in foreign
33
exchange trading has been declared; or if the Company shall have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; or (vii) if there shall have been such material adverse change
in the conditions or prospects of the Company, involving a change not
contemplated by the Registration Statement, or (viii) if there shall have been
such material adverse general market conditions as in the Underwriter's
reasonable judgment would make it inadvisable to proceed with the offering, sale
and/or delivery of the Securities.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to SECTIONS 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
SECTION 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Overallotment Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Overallotment Closing Date, the
Underwriter may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's obligations to purchase Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to SECTION 5 and SECTION 7 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
12. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at ▇▇▇▇▇ ▇▇▇▇▇▇▇ Securities, Inc., ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. Notices to the Company
shall be directed to the Company at
, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, with a copy to the Law Offices of
Sichenzia, Ross & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
13. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in SECTION 7 hereof, and their respective
successors, legal Underwriters and assigns, and their respective heirs and legal
Underwriters and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
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14. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. WAIVER. The waiver by either party of the breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. ASSIGNMENT. Except as otherwise provided within this Agreement,
neither party hereto may transfer or assign this Agreement without prior written
consent of the other party.
18. TITLES AND CAPTIONS. All article, section and paragraph titles
or captions contained in this Agreement are for convenience only and shall not
be deemed part of the context nor affect the interpretation of this Agreement.
19. PRONOUNS AND PLURALS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the Person or Persons may require.
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20. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
ABLE ENERGY, INC.
By:
-------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written.
▇▇▇▇▇ ▇▇▇▇▇▇▇ SECURITIES, INC.
By:
---------------------------
Name:
Title:
36
SCHEDULE I
Warrant Agent - Continental Stock Transfer & Trust Company
37