Form of Underwriting Agreement
1,000,000 Shares of Common Stock
FRESHSTART VENTURE CAPITAL CORP.
UNDERWRITING AGREEMENT
New York, New York
November , 1996
▇▇▇▇▇▇ Securities, Inc.
As Representative of the
several Underwriters listed on Schedule A hereto
▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Freshstart Venture Capital Corp., a New York corporation (the "Company")
confirms its agreement with ▇▇▇▇▇▇ Securities, Inc. ("▇▇▇▇▇▇") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom ▇▇▇▇▇▇ is acting as representative (in such capacity,
▇▇▇▇▇▇ shall hereinafter be referred to as "you" or the "Representative"), with
respect to the sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares ("Shares") of the
Company's common stock, $.01 par value per share ("Common Stock"), set forth in
Schedule A hereto. Such Shares are hereinafter referred to as the "Firm
Securities." Upon your request, as provided in Section 2(b) of this Underwriting
Agreement (the "Agreement"), the Company shall also sell to the Underwriters,
acting severally and not jointly, up to an additional 150,000 shares of Common
Stock for the purpose of covering over-allotments, if any. Such 150,000 Shares
are hereinafter referred to as the "Option Securities." The Firm Securities and,
the Option Securities are more fully described in the Registration Statement and
the Prospectus referred to below. Subject to the receipt of such approval, order
or exemptive relief as may be required under the Investment Company Act of 1940,
as amended (the "1940 Act"), the Company also proposes to issue to the
Representative or such persons as it may designate pursuant to the rules of the
National Association of Securities Dealers, Inc. the option (the
"Representative's Warrant") referred to and defined in Section 13, to purchase
certain additional shares of Common Stock. The Firm Securities, the Option
Securities and the shares of Common Stock issuable upon exercise of the
Representative's Warrant are herein collectively called the "Securities".
1. Representations and Warranties. (a) The Company represents and warrants
to, and agrees with, each of the Underwriters as of the date hereof, and as of
the Closing Date (hereinafter defined) and the Option Closing Date (hereinafter
defined), if any, as follows:
(i) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form N-5 (No. 33-86518) File No. 811-5169,
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Securities and the Option Securities under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended (collectively, the "Acts"), which registration statement and amendment
or amendments have been prepared by the Company in conformity with the
requirements of the Acts, and the Rules and Regulations of the Commission
thereunder. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters and
will not, file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the rules and regulations), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 497 of the rules and
regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Securities Act of 1933, as amended (the "Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1940 Act or the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), as applicable.
(ii) 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 of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Acts and the Rules and Regulations, and none of 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 in
reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus. The Company
acknowledges that the only such information so furnished by the Underwriters is
the paragraph relating to stabilization on the inside front cover page of the
Prospectus and the statements under the caption "Underwriting" in the
Prospectus.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Acts and the Rules and
Regulations, and will conform to the requirements of the Acts and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, contains or will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter (as set forth in
paragraph 1(a)(ii) hereof) expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an equity interest in any corporation, partnership,
trust, joint venture or other business entity. The Company is not qualified as a
foreign corporation in any jurisdiction, there being no jurisdiction in which
failure to so qualify would have a material adverse effect upon the Company.
Except as set forth in the Prospectus, the Company has all requisite power and
authority (corporate and other), and has obtained any and all authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters), to
own or lease its properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in compliance with all
such authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations,
and the Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material
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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.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all 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 and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability under the laws of the State of New York as currently in
effect 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 are
not and will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability under the
laws of the State of New York as currently in effect solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. Upon the issuance and
delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters will acquire good and marketable 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.
(vi) The financial statements of the Company together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
changes in cash flow, changes in stockholders' equity 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 material prospective
change in the condition, financial or otherwise, or net assets of the Company or
in the management, capital stock, investment objectives, investment policies,
earnings, liabilities, business affairs or business prospects of the Company
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(vii) The Company (A) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under
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Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (B) has established adequate reserves for such taxes which
are not due and payable, and (C) does not have any tax deficiency or claims
outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (A) the issuance by the
Company of the Securities or the Representative's Warrants, (B) the purchase by
the Underwriters of the Securities from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, or (D) resales of the
Securities in connection with the distribution contemplated hereby.
(ix) The Company maintains insurance policies, including, but not
limited to, general liability and property insurance, which insures the Company
and its employees, against such losses and risks generally insured against by
comparable businesses. The Company (A) has not failed to give notice or present
any insurance claim with respect to any matter, including but not limited to the
Company's business, property or employees, under the insurance policy or surety
bond in a due and timely manner, (B) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds or has not
failed to pay any premiums due and payable thereunder, or (C) has not failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(x) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (A) 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, (B) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (C) except as set forth in the Prospectus, if adversely
determined, might materially and adversely affect the condition, financial or
otherwise, or the business affairs or business prospects, earnings, liabilities,
prospects, stockholders' equity, value, properties, business or assets of the
Company.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, the Representative's Warrant,
enter into this Agreement, and to consummate the transactions provided for
herein and therein (subject, with respect to the issuance of the
Representative's Warrant and the shares of Common Stock issuable upon exercise
of the Representative's Warrant to receipt of such approval, order or exemptive
relief as may be required under the ▇▇▇▇ ▇▇▇); and this Agreement and the
Representative's Warrant each has been duly and properly authorized, executed
and delivered by the Company. Subject with
respect to the issuance of the Representative's Warrant and the shares of Common
Stock issuable upon exercise of the Representative's Warrant to receipt of such
order or exemptive relief as may be required under the 1940 Act, this agreement
and the Representative's Warrant each constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, and neither the Company's issue and sale of the Securities or execution
or delivery of this Agreement and the Representative's Warrant, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or 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, (A) the
certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which its properties or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, in each case except for conflicts, breaches,
violations, defaults, creations or impositions which do not and would not have a
material adverse effect on the Company.
(xii) Except as described in the Prospectus, 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 execution, delivery or performance of this Agreement and the
Representative's Warrant and the transactions contemplated hereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Securities, except such as have been or may be obtained under the Acts or may be
required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Securities, to be sold by the
Company hereunder.
(xiii) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents and
statutes and regulations are accurate and fairly present the information
required to be shown with respect thereto by
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Form N-5, and there are no contracts or other documents which are required by
the Acts 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.
(xiv) 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
(A) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (B) entered into any transaction other than in
the ordinary course of business, or (C) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in the debt
(long or short term) or liabilities or material adverse change in or affecting
the business affairs or prospects, management, stockholders' equity, properties,
business or assets of the Company.
(xv) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected, which default would have a material adverse effect on the Company.
(xvi) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might 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.
(xvii) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(xviii) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Certified Public Accountants, whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Acts and the Rules
and Regulations.
(xix) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of its officers, directors and
current stockholders who beneficially owns in excess of five percent of the
issued and outstanding shares of Common
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Stock (collectively, the "Principal Stockholders") 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 or dispose of any shares of
Common Stock (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 18 months following the effective date of the Registration Statement
without the prior written consent of the Representative and that any Common
Stock to be sold or otherwise disposed of with the consent of the Representative
shall only be sold or otherwise disposed of through the Representatives. The
Company will cause the Transfer Agent, as defined below, to ▇▇▇▇ an appropriate
legend on the face of stock certificates representing all of such securities and
to place "stop transfer" orders on the Company's stock ledgers.
(xx) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD") and the Company is aware that the Representatives shall compensate
any of their respective personnel who may have acted in such capacities as they
shall determine in their sole discretion.
(xxi) The Securities have been approved for quotation on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ").
(xxii) Neither the Company, nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (A) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (B) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (C) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(xxiii) 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 of
the foregoing persons or entities has or has had, either directly or indirectly,
(A) an interest in any person or entity which (1) furnishes or sells services or
products which are furnished or sold
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by the Company, or (2) purchases from or sells or furnishes to the Company any
goods or services, or (B) a beneficiary 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, Principal Stockholder (as such term is
defined in the Prospectus) of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(xxiv) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(xxv) The minute books of the Company have been made available to the
Underwriters and contains a complete summary of all meetings and actions of the
directors and stockholders of the Company, since the time of its incorporation,
and reflects all transactions referred to in such minutes accurately in all
material respects.
(xxvi) Except and to the extent described in the Prospectus, no
holders of any 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 or to require the Company to
file a registration statement under the Acts and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(xxvii) The Company is registered with the Commission under the 1940
Act as an investment company. The Company is, and at all times through the
Closing Date and the Option Closing Date, each as hereinafter defined, if any,
will be, in compliance with the terms and provisions of the Acts in all material
respects. No person is serving or acting as an officer or director of, or
investment adviser to, the Company except in accordance with the provisions of
the 1940 Act, the Advisers Act, and the Rules and Regulations thereunder.
(xxviii) The Company has purchased "key-man" life insurance policies
on the life of Zindel Zelmanovitch and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ of which the Company is
the sole beneficiary, on terms and conditions satisfactory to the
Representative.
(xxix) The Company has entered into employment agreements with Zindel
Zelmanovitch, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ on terms and conditions
satisfactory to the Representative.
2. Purchase, Sale and Delivery of the Securities
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase
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from the Company at a price of $4.50 per Share, that number of Firm Securities
set forth in Schedule A opposite the name of such Underwriter, subject to such
adjustment as the Representative in its sole discretion shall make to eliminate
any sales or purchases of fractional shares, plus any additional number of Firm
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties, covenants
and agreements, herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase all or any part of an additional 150,000 shares of
Common Stock at a price of $4.50 per Share. The option granted hereby will
expire 45 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the Rules and
Regulations, or (ii) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Rules and Regulations, 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 Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, 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 hereinafter defined, unless otherwise
agreed upon by the Representative and the Company. Nothing herein contained
shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
evidencing the Firm Securities shall be made at the offices of ▇▇▇▇▇▇
Securities, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
November __, 1996 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three(3) nor more than ten
(10) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called "Closing Date").
In addition, in the event that any or all of the Option Securities are purchased
by the Underwriters, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company. Delivery of the certificates
for the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company by New York Clearing House Funds. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Securities then
being purchased which the number of
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Firm Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each case
to such adjustments as the Representative in its discretion shall make to
eliminate any sales or purchases of fractional shares. Certificates for the Firm
Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representative deems advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representative may from time to time increase or decrease the public
offering price after distribution of the Shares has been completed to such
extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Acts or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representatives shall not previously have been advised and furnished
with a copy, or to which the Representatives shall have objected or which is not
in compliance with the Acts, 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 Representatives and confirm the notice in writing,
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 497 promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 497 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 of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for
-11-
the suspension of the qualification of any of the Securities for offering or
sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
497 not later than the Commission's close of business on the earlier of (i) the
second business day following the execution and delivery of this Agreement and
(ii) the fifth business day after the effective date of the Registration
Statement.
(d) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 497 of the Rules and Regulations), and
will furnish the Representatives with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such prospectus to which the Representative or
▇▇▇▇ & Priest LLP ("Underwriters' Counsel"), shall reasonably object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Acts, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Acts 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
-12-
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Acts, any event shall
have occurred as a result of which, in the reasonable opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Acts and the Rules and Regulations, the Company will notify
the Representative promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Underwriters' Counsel,
and the Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the Underwriters may
request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the 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 seven years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the
Representatives:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
-13-
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Representative
may reasonably request.
During such seven-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) The Company will retain counsel, an accounting firm, and
financial printer and maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock, all of whom shall be
reasonably acceptable to the Representatives.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any Prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representatives may reasonably
request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of 18
months from the effective date of the Registration Statement, each of the
Principal Stockholders agrees that he, she or it, as the case may be, will not,
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein without
the prior written consent of the Representative (collectively, the "Lock-up
Agreements"). During the two year period commencing with the effective date of
the Registration Statement, the Company shall not, without the prior written
consent of the Representative, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any options, rights or warrants with respect to any
shares of Common Stock, other than as contemplated by the Registration
Statement. On or before the Closing Date, the Company shall deliver instructions
to the Transfer Agent authorizing it to place appropriate legends on the
certificates representing the securities subject to the Lock-up Agreement and to
place appropriate stop transfer orders on the Company's ledgers.
-14-
(l) Neither the Company, nor any of its officers, directors,
stockholders or affiliates (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.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "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.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, the 1940 Act, the Advisers 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, the
Advisers Act, the 1940 Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
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(j) hereof.
(p) The Company shall cause the Securities to be listed on NASDAQ and,
for a period of seven (7) years from the date hereof, use its best efforts to
maintain NASDAQ quotation of the Securities to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representatives at the Representative's request and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock (ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more than five
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 and (ii) but in no event more than 30 days from the
effective date of the Registration Statement, take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
▇▇▇▇▇'▇ Manual and to use its best efforts to continue such inclusion for as
long as the securities are outstanding.
(s) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Representatives and
Underwriters' Counsel, issue,
-15-
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.
(t) For a period of two (2) years after the effective date of the
Registration Statement, ▇▇▇▇▇▇ shall have the right to designate, subject to any
approval required to be obtained from the United States Small Business
Administration (the "SBA"), one (1) individual for election to the Company's
Board of Directors ("Board") and the Company shall use its best efforts to elect
any individual so designated to the Board. The Company shall provide its outside
Directors with compensation on a par to its existing Directors in the form of
cash on its Common Stock as deemed appropriate and customary for similar
companies. In the event ▇▇▇▇▇▇ shall not have designated such individual at the
time of any meeting of the Board or such person is unavailable to serve, the
Company shall notify ▇▇▇▇▇▇ of each meeting of the Board and an individual
designated by ▇▇▇▇▇▇ shall be permitted to attend all meetings of the Board and
to receive all notices and other correspondence and communications sent by the
Company to members of the Board. Such individual shall be reimbursed for all
out-of-pocket expenses incurred in connection with his or her service on, or
attendance at meetings of, the Board.
(u) On or before the effective date of the Registration Statement, the
Company shall engage a financial public relations firm satisfactory to the
Representative which shall be continuously engaged from such engagement date to
a date twelve months from the effective date.
(v) Subject to and upon receipt of an exemptive order or other similar
relief or approval from the Commission or the staff thereof, the Company shall
(i) issue to the Representative or such designees as are permitted under the
NASD Conduct Rules warrants to purchase up to 100,000 shares of Common Stock,
for a term of five years from the effective date of the Registraton Statement,
exercisable at a price of $7.00 per share, substantially in the form filed as an
exhibit to the Registration Statement and (ii) enter into a two year
non-exclusive financial consulting agreement with the Representative pursuant to
which the Representative would receive fees of $25,000 per year for its services
thereunder, substantially in the form filed as an exhibit to the Registration
Statement. The Company will use its reasonable best efforts to obtain such
approvals, provided that any expense incurred in connection with obtaining such
approvals will be borne by the Representive.
-16-
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation, (i) the fees and expenses
of accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing, (including mailing
and handling charges) filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreements, the Powers of
Attorney and related documents, including the cost of all copies thereof and of
the Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities, (iv) the
qualification of the Securities under state or foreign securities or "Blue Sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses, (vi) costs and expenses in connection with Company
counsel's due diligence investigations, including but not limited to the fees of
any independent counsel or consultant retained, (vii) fees and expenses of the
transfer agent and registrar, (viii) applications, if any, for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission, NASDAQ and the NASD, and (x) the fees and expenses incurred in
connection with the application for quotation of the Securities on NASDAQ.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel (and in addition to fees and expenses of Underwriters' Counsel incurred
pursuant to Section 5(a)(iv) above for which the Company shall remain liable).
(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
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein 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. In the event the Representatives elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Representatives on the Option Closing Date (by certified or
bank cashier's check or, at the Representative's election, by
-17-
deduction from the proceeds of the offering) a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Option Securities.
(d) The Underwriter shall not be responsible for any expense of the
Company or others or for any charge or claim related to the offering
contemplated by hereunder in the event that the sale of the Securities as
contemplated hereunder is not consummated.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement which shall be in form and substance
satisfactory to the Representative and Underwriter's Counsel, shall have become
effective not later than 12:00 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
Representative, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the Shares 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 497 of the Rules and Regulations within
the prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Representative 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 497 of
the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative'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 Representative's opinion, is material, or omits to state a
fact which, in the Representative's 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.
-18-
(c) On or prior to the Closing Date, the Representative shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representatives may request and Underwriters' Counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) At Closing Date, the Underwriters shall have received the
favorable opinion of Stursberg & ▇▇▇▇▇, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction, and (B) has
all requisite corporate power and authority, and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), materially necessary to own or lease its properties and
conduct its business as described in the Prospectus; the Company is not
qualified as a foreign corporation in any jurisdiction (to such counsel's
knowledge, there being no jurisdiction in which failure to so qualify would have
a material adverse effect on the Company); to such counsel's knowledge, the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs or prospects, properties, business or assets of the Company.
The disclosures in the Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(ii) to such counsel's knowledge, the Company does not own an equity
interest in any other corporation, partnership, joint venture, trust or other
business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization", and, to such counsel's knowledge, after due
inquiry, the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement and as described in the
Prospectus. The Securities, and all other securities issued or issuable by the
Company, conform in all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability
under the laws of the State of New York as currently in effect 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
-19-
of the Company contained in the certificate of incorporation of the Company or,
to such counsel's knowledge, any agreement, document or instrument. The
Securities to be sold by the Company hereunder are not and will not be subject
to any preemptive or other similar rights of any stockholder contained in the
certificate of incorporation of the Company or, to such counsel's knowledge,
agreement, document or instrument, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof or the
Representative's Warrant, will be validly issued, fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability under the laws of the State of New
York as currently in effect solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities
are in due and proper form. Upon the issuance and delivery pursuant to this
Agreement and the Representative's Warrant of the Securities to be sold by the
Company, the Underwriters and the holders of the Representative's Warrant, as
the case may be, will acquire good and marketable title to the Securities free
and clear of any pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind whatsoever (except those
arising out of acts or claims against the Underwriters or the holders of the
Representative's Warrant). No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriters of the Securities from the
Company, (C) consummation by the Company of any of its obligations under this
Agreement, or (D) resales of the Securities in connection with the distribution
contemplated hereby.
(iv) the Registration Statement is effective under the Acts, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, to such counsel's knowledge, after due
inquiry, no stop order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof or suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or threatened
or contemplated under the Acts;
(v) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Acts and the Rules and Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Acts 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
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents
-20-
to which the Company is a party or by which it is bound, including any document
to which the Company is a party or by which it is bound, incorporated by
reference into the Prospectus and any supplement or amendment thereto, are
accurate in all material respects and fairly represent the information required
to be shown by Form N-5; (C) there is not pending or threatened against the
Company any action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without limitation,
those having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of the Company which (1) 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), (2) questions the validity of the
capital stock of the Company or this Agreement or the Representative's Warrant
or of any action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the Prospectus is not
described as required; and (E) except as disclosed in the Prospectus, there is
no action, suit or proceeding pending, or threatened, against or affecting the
Company before any court or arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which an adverse decision which
may result in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company, which
could materially adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement or which in any manner
draws into question the validity or enforceability of this Agreement;
(vii) the Company has full legal right, power and authority to enter
into this Agreement and the Representative's Warrant, subject as to the
Representative's Warrant of receipt of an order or exemptive relief under the
1940 Act, and to consummate the transactions provided for therein; and this
Agreement and the Representative's Warrant each has been duly authorized,
executed and delivered by the Company. This Agreement and the Representative
Warrant, assuming due authorization, execution and delivery by each other party
hereto and, with respect to the Representative's Warrant, the receipt of an
order or exemptive relief under the 1940 Act, constitutes a legal, valid and
binding agreement of the Company 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),
and neither the Company's execution or delivery of this Agreement and of the
Representative's Warrant, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein, or 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
-21-
(tangible or intangible) of the Company pursuant to the terms of, (A) the
certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) 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, except for conflicts, breaches, violations,
defaults, creations or impositions which do not and would not have a material
adverse effect on the Company.
(viii) except as described in the Prospectus, no consent, approval,
authorization or order, and no filing with, any court, regulatory body,
government agency or other body (other than such as may be required under Blue
Sky laws, as to which no opinion need be rendered) is required in connection
with the issuance of the Securities pursuant to the Prospectus and the
Registration Statement, the performance of this Agreement and the transactions
contemplated hereby;
(ix) to such counsel's knowledge, the properties and business of the
Company conform to the description thereof contained in the Registration
Statement and the Prospectus;
(x) to such counsel's knowledge, the Company is not in breach of, or
in default under, any term or provision of any license, contract, indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership 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 the property or
assets (tangible or intangible) of any of the Company is subject or affected,
which could materially adversely affect the Company; and the Company is not in
violation of any term or provision of its Certificate of Incorporation or
By-Laws, or in violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation the result of which would materially and
adversely affect the condition, financial or otherwise, or the earnings,
business affairs, position, shareholders' equity, value operation, properties,
business or results of operations of the Company.
(xi) the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation any such licenses or
rights described in the Prospectus as being owned or possessed by the Company),
and to the best of such counsel's knowledge after reasonable investigation,
there is no claim or action by any person pertaining to, or proceeding, pending,
or threatened, which challenges the exclusive rights of the Company with respect
to any trademarks, service marks, copyrights,
-22-
service names, trade names, patents, patent applications and licenses used in
the conduct of the Company's businesses (including, without limitations, any
such licenses or rights described in the Prospectus as being owned or possessed
by the Company).
(xii) except as described in the Prospectus, the Company does not (a)
maintain, sponsor or contribute to any ERISA Plans, (b) maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (c) has never completely or partially withdrawn from a
"multiemployer plan".
(xiii) the statements in the Prospectus under "BUSINESS," "FEDERAL
REGULATION," "CONFLICTS OF INTEREST," "TAX CONSIDERATIONS," and "DESCRIPTION OF
CAPITAL STOCK AND LONG TERM DEBT," have been reviewed by such counsel with the
exception of "TAX CONSIDERATIONS" which section has been reviewed by special tax
counsel (which is delivering its separate opinion addressed to the Underwriters
in form and substance satisfactory to Underwriters' 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;
(xiv) the Securities have been approved for listing on NASDAQ, and the
Company's Registration Statement on Form 8-A under the Exchange Act has become
effective.
(xv) to such counsel's knowledge, the persons listed under the caption
"SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT" in the Prospectus
are the respective "beneficial owners" (as such phrase is defined in regulation
13d-3 under the Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth therein;
(xvi) to such counsel's knowledge, except as described in the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement;
(xvii) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or the financial consulting
arrangement or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as determined by the
NASD;
(xviii) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations of the
parties thereto, enforceable against each such party and any subsequent holder
of the securities subject thereto 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
-23-
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable); and
(xix) The Company is duly registered with the Commission under the
1940 Act as an investment company, and all action under the Acts necessary to
make the public offering and consummate the sale of the Shares as provided in
this Agreement has been taken by the Company. The provisions of the Certificate
of Incorporation and By-laws of the Company comply as to form in all material
respects with the Acts and the Rules and Regulations.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, 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
Preliminary Prospectus, 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
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
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 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 satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (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 that the Representatives and they
are justified in relying thereon.
At each Option Closing Date, if any, the Underwriters shall have received
the favorable opinion of Stursberg & ▇▇▇▇▇, counsel to the Company, and of
special tax counsel to the Company dated the Option Closing Date, addressed to
the Underwriters and in form and
-24-
substance satisfactory to Underwriters' Counsel confirming as of Option Closing
Date the statements made in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(f) Prior to each of Closing Date and each Option Closing Date, if
any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there has not been any change in the capital stock or any
change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company, or affecting any of their respective
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
management prospects or financial condition or assets of the Company, except as
set forth in the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Acts and no proceedings therefor shall have
been initiated, threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the effect
that each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of the
Company are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
-25-
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of such
person's knowledge, after due inquiry are contemplated or threatened under the
Acts;
(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 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 therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there must not have been any
material change in the shares of Common Stock or liabilities of the Company
except as set forth in or contemplated by the Prospectus; (B) there must not
have been any material adverse change in the general affairs, management,
business, financial condition or results of operations of the Company, whether
or not arising from transactions in the ordinary course of business, as set
forth in or contemplated by the Prospectus; (C) the Company must not have
sustained any material loss or interference with its business from any court or
from legislative or other governmental action, order or decree, whether foreign
or domestic, or from any other occurrence, not described in the Registration
Statement and Prospectus; and (D) there must not have occurred any event that
makes untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or that is not reflected
in the Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information therein, in light of the
circumstances in which they were made, not misleading in any material respect.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇:
(i) confirming that they are independent accountants with respect
to the Company within the meaning of the Acts and the applicable Rules and
Regulations;
-26-
(ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of the
Acts and the Rules and Regulations thereunder and that the Representatives may
rely upon the opinion of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ with respect to the financial
statements and supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the 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
financial statements, if any, 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 Acts 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 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 May 31, 1996 balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or decrease;
(iv) 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;
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(j) At Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in
-27-
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 or the Option Closing Date, as the case may be, and, if the Company
has elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (v) of
subsection (j) of this Section with respect to certain amounts, percentages and
financial information as specified by the Representatives and deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(m) On or before Closing Date, the Securities shall have been approved
for quotation on NASDAQ.
(n) On or before Closing Date, there shall have been delivered to the
Representative the Lock-up Agreement, in form and substance satisfactory to
Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Representatives may terminate this Agreement
or, if the Representative so elects, it may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company will indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of 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, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Acts, the Exchange Act, the Advisers Act or any other statute or at
common law or otherwise or under the laws of foreign countries, arising out of
or based upon
-28-
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, 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 Securities; or (iii) in any application or other document or written
communication (in this Section 7 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 securities commission or agency, or
any securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
Application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of their respective directors,
each of the Company's 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
Underwriters but only with respect to statements or omissions, if any, made in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any Application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to any Underwriter by such Underwriter expressly for use in
such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto 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 directly
relating to the transactions effected by the Underwriters in connection with
this offering. The Company acknowledges that the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters for inclusion in the
Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure 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
-29-
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
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party 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
a contributing party and the Underwriters are the indemnified party, the
relative benefits received by the Company, on the one hand, and
-30-
the Underwriters, on the other, shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the Cover Page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subdivision (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subdivision (d) the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subparagraph (d). Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the respective indemnity agreements
contained in Section 7 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter,
the Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 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
Representative, in its discretion, shall release
-31-
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 Representatives of telegrams to securities dealers releasing such shares
for offering or the release by the Representatives for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has disrupted, or in the
Representative's opinion will in the immediate future disrupt the financial
markets; or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (v) if a banking moratorium has been
declared by a state or federal authority; or (vi) if a moratorium in foreign
exchange trading has been declared; or (vii) if the Company shall have sustained
a loss material or substantial to the Company by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in the Representative's
opinion, make it inadvisable to proceed with the delivery of the Securities; or
(viii) if there shall have been such a material adverse change in the condition
(financial or otherwise), business affairs or prospects of the Company, whether
or not arising in the ordinary course of business, which would render, in the
Representatives' judgment, either of such parties unable to perform
satisfactorily its respective obligations as contemplated by this Agreement or
the Registration Statement, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere as
in the Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Representative for all of their actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters.
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representative, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied (including, without limitation,
pursuant to Section 6 or Section 12) then, the Company shall promptly reimburse
and indemnify the Representative for all of their actual out-of-pocket expenses,
including the fees and disbursements of counsel for the
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Underwriters (less amounts previously paid pursuant to Section 5(c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability on
the part of any non- defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than
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pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section shall relieve the Company from liability, if any, in respect of
such default.
13. Representative's Warrant. On the Closing Date, the Company shall issue
and sell to the Representative or such persons as it may designate pursuant to
the rules of the NASD, for a total purchase price of $5,00, the Representative's
Warrant, entitling the holder thereof to purchase 100,000 shares of Common Stock
in accordance with the terms of the Representative's Warrant.
14. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives at [225 ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: [ ],
with a copy to ▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed to the Company at ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Zindel Zelmanovitch,
President, with a copy to Stursberg & ▇▇▇▇▇, Attention: C. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇., Esq.
15. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
16. 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.
17. 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.
18. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
FRESHSTART VENTURE CAPITAL CORP.
By:____________________________
Confirmed and accepted as of
the date first above written
▇▇▇▇▇▇ SECURITIES, INC.
For itself and as Representative of the several
Underwriters named in Schedule A
hereto
By: ▇▇▇▇▇▇ Securities, Inc.
By: ____________________________
Name:
Title:
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SCHEDULE A
Name of Underwriters Number of Firm
-------------------- Securities to
be Purchased
--------------
TOTAL....................................... ---------
1,000,000
=========
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