Exhibit 1.1
DRAFT
112096
UNDERWRITING AGREEMENT
BETWEEN
U.S. ENERGY SYSTEMS, INC.
AND
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ INC.
DATED: __________, 1996
TABLE OF CONTENTS
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Page
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INDEX OF DEFINITIONS................................................................................................v
1. Purchase and Sale of Securities............................................................................1
1.1 Firm Units........................................................................................1
1.1.1 Purchase of Firm Securities..............................................................1
1.1.2 Payment and Delivery.....................................................................1
1.2 Over-allotment Option.............................................................................2
1.2.1 Option Securities........................................................................2
1.2.2 Exercise of Over-allotment Option........................................................2
1.2.3 Payment and Delivery.....................................................................3
1.3 Representative's Purchase Option..................................................................3
1.3.1 Purchase Option..........................................................................3
1.3.2 Payment and Delivery.....................................................................3
2. Representations and Warranties of the Company..............................................................3
2.1 Filing of Registration Statement..................................................................3
2.1.1 Pursuant to the Act......................................................................3
2.1.2 Pursuant to the Exchange Act.............................................................4
2.2 No Stop Orders, Etc...............................................................................4
2.3 Disclosures in Registration Statement.............................................................4
2.3.1 Securities Act and 10b-5 Representation..................................................4
2.3.2 Disclosure of Contracts..................................................................5
2.3.3 Prior Securities Transactions............................................................5
2.4 Changes After Dates in Registration Statement.....................................................5
2.4.1 No Material Adverse Change...............................................................5
2.4.2 Recent Securities Transactions, Etc......................................................6
2.5 Independent Accountants...........................................................................6
2.6 Financial Statements..............................................................................6
2.7 Authorized Capital; Options; Etc..................................................................6
2.8 Valid Issuance of Securities; Etc.................................................................6
2.8.1 Outstanding Securities...................................................................6
2.8.2 Securities Sold Pursuant to this Agreement...............................................7
2.9 Registration Rights of Third Parties..............................................................7
2.10 Validity and Binding Effect of Agreements.........................................................7
2.11 No Conflicts, Etc.................................................................................8
2.12 No Defaults; Violations...........................................................................8
2.13 Corporate Power; Licenses; Consents...............................................................8
2.13.1 Conduct of Business......................................................................8
2.13.2 Transactions Contemplated Herein.........................................................9
2.14 Title to Property; Insurance......................................................................9
2.15 Litigation; Governmental Proceedings..............................................................9
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2.16 Good Standing....................................................................................10
2.17 Taxes............................................................................................10
2.18 Employee Options. ..............................................................................10
2.19 Transactions Affecting Disclosure to NASD........................................................10
2.19.1 Finder's Fees...........................................................................11
2.19.2 Payments Within Twelve Months...........................................................11
2.19.3 Use of Proceeds.........................................................................11
2.19.4 Insiders' NASD Affiliation..............................................................11
2.20 Foreign Corrupt Practices Act....................................................................11
2.21 Nasdaq Eligibility...............................................................................12
2.22 Intangibles......................................................................................12
2.23 Relations With Employees.........................................................................12
2.23.1 Employee Matters........................................................................12
2.23.2 Employee Benefit Plans..................................................................12
2.24 Officers' Certificate............................................................................13
2.25 Warrant Agreement................................................................................13
2.26 Lock-Up Agreements...............................................................................13
2.27 Subsidiaries.....................................................................................13
2.28 Certain Definitions..............................................................................13
2.29 Conditions to Obligations Under Other Agreements.................................................14
3. Covenants of the Company..................................................................................14
3.1 Amendments to Registration Statement.............................................................14
3.2 Federal Securities Laws..........................................................................14
3.2.1 Compliance..............................................................................14
3.2.2 Filing of Final Prospectus..............................................................14
3.2.3 Exchange Act Registration...............................................................14
3.3 Blue Sky Filing..................................................................................15
3.4 Delivery to Underwriters of Prospectuses.........................................................15
3.5 Events Requiring Notice to the Representative....................................................15
3.6 Review of Financial Statements...................................................................15
3.7 Unaudited Financials.............................................................................15
3.8 Secondary Market Trading and Standard & Poor's...................................................16
3.9 Nasdaq Maintenance...............................................................................16
3.10 Warrant Solicitation and Warrant Solicitation Fees...............................................16
3.11 Registration of Common Stock.....................................................................16
3.12 Reports to the Representative....................................................................17
3.12.1 Periodic Reports, Etc...................................................................17
3.12.2 Transfer Sheets and Weekly Position Listings............................................17
3.12.3 Secondary Market Trading Memorandum.....................................................17
3.13 Agreements between the Representative and the Company............................................17
3.13.1 [Intentionally Omitted.]................................................................17
3.13.2 [Intentionally Omitted.]................................................................17
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3.13.3 Representative's Purchase Option........................................................17
3.14 Disqualification of Form S-1 (or other appropriate form).........................................18
3.15 Payment of Expenses..............................................................................18
3.15.1 General Expenses........................................................................18
3.15.2 Non-Accountable Expenses................................................................19
3.16 Application of Net Proceeds......................................................................19
3.17 Delivery of Earnings Statements to Security Holders..............................................19
3.18 Key Person Life Insurance........................................................................19
3.19 Stabilization....................................................................................19
3.20 Internal Controls................................................................................19
3.21 Accountants and Lawyers..........................................................................20
3.22 Transfer Agent...................................................................................20
3.23 Sale of Securities...............................................................................20
3.24 Other Transactions...............................................................................20
3.25 Secondary Offering...............................................................................20
4. Conditions of Underwriters' Obligations...................................................................21
4.1 Regulatory Matters...............................................................................21
4.1.1 Effectiveness of Registration Statement.................................................21
4.1.2 NASD Clearance..........................................................................21
4.1.3 No Blue Sky Stop Orders.................................................................21
4.2 Company Counsel Matters..........................................................................21
4.2.1 (a) Effective Date Opinion of Counsel..............................................21
(b) Other Counsel's Opinion........................................................26
4.2.2 Closing Date and Option Closing Date Opinions of Counsel................................27
4.2.3 Reliance................................................................................27
4.2.4 Secondary Market Trading Memorandum.....................................................28
4.3 Cold Comfort Letters.............................................................................28
4.4 Officers' Certificates...........................................................................29
4.4.1 Officers' Certificate...................................................................29
4.4.2 Secretary's Certificate.................................................................30
4.5 No Material Changes..............................................................................30
4.6 Delivery of Agreements...........................................................................31
4.7 Opinion of Counsel for the Underwriters..........................................................31
4.8 Other Transactions...............................................................................31
5. Indemnification...........................................................................................31
5.1 Indemnification of the Underwriters..............................................................31
5.1.1 General.................................................................................31
5.1.2 Procedure...............................................................................32
5.2 Indemnification of the Company...................................................................32
5.3 Contribution.....................................................................................33
5.3.1 Contribution Rights.....................................................................33
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5.3.2 Contribution Procedure..................................................................33
6. Default by an Underwriter.................................................................................34
6.1 Default Not Exceeding 10% of Firm Securities or Option Securities................................34
6.2 Default Exceeding 10% of Firm Securities or Option Securities....................................34
6.3 Postponement of Closing Date.....................................................................34
7. Additional Covenants......................................................................................34
7.1 Board Designee...................................................................................34
7.2 [Intentionally Omitted.].........................................................................35
7.3 Rule 144 Sales...................................................................................35
7.4 Press Releases...................................................................................35
7.5 Form S-8 or any Similar Form.....................................................................35
7.6 Employment Agreements............................................................................35
7.7 Compensation and Other Arrangements..............................................................36
8. Representations and Agreements to Survive Delivery........................................................36
9. Effective Date of This Agreement and Termination Thereof..................................................36
9.1 Effective Date...................................................................................36
9.2 Termination......................................................................................36
9.3 Notice...........................................................................................37
9.4 Expenses.........................................................................................37
9.5 Indemnification..................................................................................37
10. Miscellaneous.............................................................................................37
10.1 Notices..........................................................................................37
10.2 Headings.........................................................................................38
10.3 Amendment........................................................................................38
10.4 Entire Agreement.................................................................................38
10.5 Binding Effect...................................................................................38
10.6 Governing Law; Jurisdiction......................................................................38
10.7 Execution in Counterparts........................................................................38
10.8 Waiver, Etc......................................................................................39
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INDEX OF DEFINITIONS
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Term Section
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Acquisition Agreement............................................................................................2.28
Acquisition Transactions........................................................................................2.3.2
Act............................................................................................................ 2.1.1
AICPA....................................................................................................... 4.3(iii)
Anchor...........................................................................................................3.25
BSE.............................................................................................................2.2.1
Closing Date....................................................................................................1.1.2
Comfort Letter Subject.........................................................................................4.3(i)
Code...........................................................................................................2.23.2
Commission......................................................................................................2.1.1
Common Stock....................................................................................................1.1.1
Company........................................................................................Introductory Paragraph
Conversion Agreement.............................................................................................2.28
Department.......................................................................................................3.25
Effective Date..................................................................................................1.1.1
ERISA..........................................................................................................2.23.2
ERISA Plans....................................................................................................2.23.2
Exchange Act....................................................................................................2.1.2
Far West..........................................................................................................2.6
Filing Date ...................................................................................................2.19.2
Firm Securities.................................................................................................1.1.1
Insiders.........................................................................................................2.26
Intangibles......................................................................................................2.22
Lehi............................................................................................................2.3.2
NASD...........................................................................................................2.19.1
NRG.............................................................................................................2.3.2
NRG Acquisition Agreement........................................................................................2.28
1-A...............................................................................................................2.6
Opinion Subject..............................................................................................4.2.1(b)
Option Closing Date.............................................................................................1.2.2
Option Securities...............................................................................................1.2.1
Other Counsel................................................................................................4.2.1(b)
Over-allotment Option...........................................................................................1.2.1
Plymouth........................................................................................................2.3.2
Preferred Stock Exchange Agreement...............................................................................2.28
Preliminary Prospectus..........................................................................................2.1.1
Pro Forma Financial Statements................................................................................4.3(iv)
Proposed Financing................................................................................................7.8
Prospectus......................................................................................................2.1.1
Public Securities...............................................................................................1.2.1
Registration Statement..........................................................................................2.1.1
Regulations.....................................................................................................2.1.1
Representative.................................................................................Introductory Paragraph
Representative's Purchase Option................................................................................1.3.1
Representative's Securities.....................................................................................1.3.1
Representative's Shares.........................................................................................1.3.1
Representative's Warrants.......................................................................................1.3.1
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Secondary Market Trading Memorandum............................................................................3.12.3
Term Section
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Securities.................................................................................................... .1.3.1
Steamboat Acquisition Agreement..................................................................................2.28
Steamboat Facilities.............................................................................................2.28
Steamboat L.L.C.................................................................................................2.3.2
Subsidiary(ies)................................................................................................. 2.27
Transfer Agent...................................................................................................3.22
Unaudited Financials..............................................................................................3.7
Underwriter....................................................................................Introductory Paragraph
Underwriters...................................................................................Introductory Paragraph
Warrants........................................................................................................1.1.1
Warrant Agreement................................................................................................2.25
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U.S. ENERGY SYSTEMS, INC.
3,100,000 SHARES OF COMMON STOCK
3,100,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
----------------------
New York, New York
__________, 1996
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned, U.S. ENERGY SYSTEMS, INC., a Delaware corporation
("Company"), hereby confirms its agreement with ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Inc. (being
referred to herein variously as "you" or the "Representative"), and the other
underwriters named on Schedule 1 hereto (the Representative and the other
underwriters being collectively referred to as the "Underwriters" or
individually as "Underwriter"), as follows:
1. Purchase and Sale of Securities.
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1.1 Firm Units.
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1.1.1 Purchase of Firm Securities. On the basis of the
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representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the several
Underwriters, 3,100,000 shares of the Company's Common Stock, par value $0.01
("Common Stock"), and 3,100,000 Redeemable Common Stock Purchase Warrants
("Warrants"), and the Underwriters, severally and not jointly, agree to purchase
from the Company, the numbers of shares of Common Stock and Warrants set forth
opposite their respective names on Schedule 1 hereto for purchase prices of
$3.68 per share of Common Stock and $0.08 per Warrant (net of commissions in
each instance). Such shares of Common Stock and Warrants are hereinafter
referred to as the "Firm Securities." Each Warrant entitles its holder to
purchase one share of Common Stock at an initial exercise price of $4.00 per
share commencing on the first anniversary of the effective date of the
Registration Statement (as hereinafter defined) ("Effective Date") and ending on
the fifth anniversary of the Effective Date.
1.1.2 Payment and Delivery. Delivery and payment for the Firm
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Securities shall be made at 10:00 A.M., New York time, on or before the third
business day following the date the
Firm Securities commence trading or at such other time as the Representative
shall determine, at the offices of the Representative or at such other place as
shall be agreed upon by the Representative and the Company. The hour and date of
delivery and payment for the Firm Securities are called the "Closing Date."
Payment for the Firm Securities shall be made on the Closing Date, at the
Representative's election, by wire transfer of funds or by certified or bank
cashier's check(s) in New York Clearing House funds, in accordance with the
instructions of the Company upon delivery to you of certificates (in form and
substance satisfactory to the Representative) representing the Common Stock and
Warrants comprising the Firm Securities for the respective accounts of the
Underwriters. The Firm Securities shall be registered in such name or names and
in such authorized denominations as the Representative may request in writing at
least two full business days prior to the Closing Date. The Company will permit
the Representative to examine and package the Firm Securities for delivery at
least one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Securities except upon tender of payment
by the Underwriters for all the Firm Securities.
1.2 Over-allotment Option.
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1.2.1 Option Securities. For the purposes of covering any over-
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allotments in connection with the distribution and sale of the Firm Securities,
the Underwriters are hereby granted an option to purchase up to an additional
465,000 shares of Common Stock and/or 465,000 Warrants from the Company
("Over-allotment Option"). Such additional securities are hereinafter referred
to as the "Option Securities." The Firm Securities and the Option Securities,
together with the shares of Common Stock issuable upon exercise of the Warrants,
are hereinafter referred to collectively as the "Public Securities." The
purchase price to be paid for the Option Securities will be the same price per
Option Security as the price per Firm Security set forth in Section 1.1.1
hereof.
1.2.2 Exercise of Over-allotment Option. The Over-allotment Option
---------------------------------
granted pursuant to Section 1.2.1 hereof may be exercised by the Representative
on behalf of the Underwriters as to all or any part of the Option Securities at
any time, from time to time, within forty-five days after the Effective Date.
The Underwriters will not be under any obligation to purchase any Option
Securities prior to the exercise of the Over-allotment Option. The Over-
allotment Option granted hereby may be exercised by the giving of oral notice to
the Company from the Representative, which must be confirmed by a letter or
telecopy setting forth the number of Option Securities to be purchased, the date
and time for delivery of and payment for the Option Securities and stating that
the Option Securities referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Securities. If such notice is given at least two full business days prior
to the Closing Date, the date set forth therein for such delivery and payment
will be the Closing Date. If such notice is given thereafter, the date set
forth therein for such delivery and payment will not be earlier than five full
business days after the date of the notice. If such delivery and payment for
the Option Securities does not occur on the Closing Date, the date and time of
the closing for such Option Securities will be as set forth in the notice
(hereinafter the "Option Closing Date"). Upon exercise of the Over-allotment
Option, the Company will become obligated to convey to the Underwriters, and,
subject to the terms and conditions set forth herein, the Underwriters will
become obligated to purchase, the number of Option Securities specified in such
notice.
2
1.2.3 Payment and Delivery. Payment for the Option Securities will
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be at the Representative's election by wire-transfer or by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of the
Company at the offices of the Representative or at such other place as shall be
agreed upon by the Representative and the Company upon delivery to you of
certificates representing such securities for the respective accounts of the
Underwriters. The certificates representing the Option Securities to be
delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be, and will be made
available to the Representative for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to such Closing Date.
1.3 Representative's Purchase Option.
--------------------------------
1.3.1 Purchase Option. The Company hereby agrees to issue and sell
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to the Representative (and/or its designees) on the Closing Date, for an
aggregate purchase price of $100, an option ("Representative's Purchase Option")
for the purchase of an aggregate of 310,000 shares of Common Stock
("Representative's Shares") at an initial exercise price of $6.60 per share
and/or 310,000 Warrants ("Representative's Warrants") at an initial exercise
price of $0.165 for the purchase of each of the Representative's Warrants.
The Representative's Shares and the Representative's Warrants are identical to
the securities comprising the Firm Securities except that the exercise price of
the Representative's Warrants is $5.00 per share. The Representative's Purchase
Option, the Representative's Shares, the Representative's Warrants and the
shares of Common Stock issuable upon exercise of the Representative's Warrants
are hereinafter referred to collectively as the "Representative's Securities."
The Public Securities and the Representative's Securities are hereinafter
referred to collectively as the "Securities".
1.3.2 Payment and Delivery. Delivery and payment for the
--------------------
Representative's Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Representative, upon payment therefor, certificates for the
Representative's Purchase Option in the name or names and in such authorized
denominations as the Representative may request. The Representative's Purchase
Option shall be exercisable for a period of four years commencing one year from
the Effective Date.
2. Representations and Warranties of the Company. The Company represents and
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warrants to the Representative as follows:
2.1 Filing of Registration Statement.
--------------------------------
2.1.1 Pursuant to the Act. The Company has filed with the Securities
-------------------
and Exchange Commission ("Commission") a registration statement and an amendment
or amendments thereto, on Form SB-2 (Registration No. 333-04612), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities under the Securities Act of 1933, as amended
("Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act and the
rules and regulations ("Regulations") of the Commission under the Act. Except
as the context may otherwise
3
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430A of the
Regulations) is hereinafter called the "Registration Statement," and the form of
the final prospectus dated the Effective Date (or, if applicable, the form of
final prospectus filed with the Commission pursuant to Rule 424 of the
Regulations) is hereinafter called the "Prospectus." The Registration Statement
has been declared effective by the Commission on the date hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with the
----------------------------
Commission a registration statement on Form 8-A providing for the registration
under the Securities Exchange Act of 1934, as amended ("Exchange Act"), of the
Warrants included in the Securities. Such registration has been declared
effective by the Commission on the date hereof. The Common Stock is registered
under the Exchange Act under registration statement on Form 8-A, declared
effective on ________________.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the best of the
--------------------
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
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2.3.1 Securities Act and 10b-5 Representation. At the time the
---------------------------------------
Registration Statement becomes or became effective and at all times subsequent
thereto up to the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus contained and will contain with
respect to the Company and the Steamboat Facilities (as defined in Section 2.28)
all material statements which are required to be stated therein in accordance
with the Act and the Regulations, and conformed and will in all material
respects conform to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, on such dates, contained or will contain any untrue statement of a
material fact or omitted or will 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. When any Preliminary
Prospectus was first filed with the Commission (whether filed as part of the
Registration Statement for the registration of the Securities or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
Preliminary Prospectus and any amendments thereof and supplements thereto
complied or will comply in all material respects with the applicable provisions
of the Act and the Regulations and did not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
representation and warranty made in this Section 2.3.1 does not apply to
statements made or statements omitted in reliance upon and in conformity with
written information furnished to the Company with respect to the Underwriters by
the Representative expressly for use in the Registration Statement or Prospectus
or any amendment thereof or supplement thereto.
4
2.3.2 Disclosure of Contracts. The description in the Registration
-----------------------
Statement and the Prospectus of contracts and other documents is accurate and
presents fairly the information required to be disclosed and there are no
contracts or other documents required to be described in the Registration
Statement or the Prospectus or to be filed with the Commission as exhibits to
the Registration Statement which have not been so described or filed. Each
contract or other instrument (however characterized or described) to which the
Company, Lehi Independent Power Associates, L.C. ("Lehi"), Plymouth
Cogeneration Limited Partnership ("Plymouth") or NRG Company L.L.C. ("NRG") is a
party or by which the property or business of the Company or the Steamboat
Facilities is or may be bound or affected and (i) which is referred to in the
Pro spectus, or (ii) is material to the business of Lehi, Plymouth, NRG or the
Company as it will exist after the acquisition by the Company of a 81.5%
equity interest in NRG and of a 95% equity interest in Steamboat Envirosystems,
L.C., a Utah limited liability company ("Steamboat L.L.C."), and the
acquisition by Steamboat L.L.C. of the Steamboat Facilities (collectively, the
"Acquisition Transactions") has been duly and validly executed, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and that the remedy of specific performance and
injunctive relief and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. None of such contracts or instruments has
been assigned by the Company, Lehi, Plymouth or Steamboat L.L.C., and none of
the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. or, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder. None
of the material provisions of such contracts or instruments violates or will
result in a violation of any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. or any
of their respective assets or businesses, including, without limitation, those
relating to environmental laws and regulations.
2.3.3 Prior Securities Transactions. No securities of the Company
-----------------------------
have been sold by the Company within the three years prior to the date hereof,
except as disclosed in the Registration Statement.
2.4 Changes After Dates in Registration Statement.
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2.4.1 No Material Adverse Change. Since the respective dates as of
--------------------------
which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, business or business prospects of the Company, Lehi, Plymouth, NRG
and Steamboat L.L.C., as they will exist after the Acquisition Transactions,
including, but not limited to, a material loss or interference with its business
from fire, storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, whether or not arising in the ordinary course of business, and (ii)
there have been no transactions entered into by the Company, Lehi, Plymouth, NRG
or Steamboat L.L.C., other than those in the ordinary course of business, which
are material with respect to the condition, financial or otherwise, or to the
results of operations, business or
5
business prospects of the Company, Lehi, Plymouth, NRG and Steamboat L.L.C. as
they will exist after the Acquisition Transactions.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
------------------------------------
respective dates as of which information is given in the Registration Statement
and the Prospectus, and, except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.
2.5 Independent Accountants. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company, LLP, Traveller
-----------------------
▇▇▇▇ & Mower, PC, and ▇▇▇▇▇▇▇, ▇▇▇▇ & Co., P.C. and Price Waterhouse LLP, whose
reports are filed with the Commission as part of the Registration Statement, are
or were independent accountants as required by the Act and the Regulations as of
the dates of their respective reports.
2.6 Financial Statements. The financial statements, including the notes
--------------------
thereto and supporting schedules included in the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company, Lehi, Plymouth, Far West Capital Electric Energy Fund, L.P.
("Far West") and 1-A Enterprises ("1-A") at the dates and for the periods to
which they apply; and such financial statements have been prepared in conformity
with generally accepted accounting principles, consistently applied throughout
the periods involved; and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. The pro
forma consolidated financial information set forth in the Registration Statement
reflects all significant assumptions and adjustments relating to the business
and operations of the Company, Lehi, Plymouth, NRG and Steamboat L.L.C. in
connection with the Acquisition Transactions and the operations of the Steamboat
Facilities as described in the Registration Statement.
2.7 Authorized Capital; Options; Etc. The Company had at the date or
---------------------------------
dates indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions and adjustments stated in the Registration Statement
and the Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date and on the Closing Date
there will be no options, warrants, or other rights to purchase or otherwise
acquire any authorized but unissued shares of Common Stock of the Company,
including any obligations to issue any shares pursuant to anti-dilution
provisions, or any security convertible into shares of Common Stock of the
Company, or any contracts or commitments to issue or sell shares of Common Stock
or any such options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
----------------------------------
2.8.1 Outstanding Securities. All issued and outstanding securities
----------------------
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable; the holders thereof have no rights of rescission with
respect thereto and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights
6
granted by the Company. The outstanding options and warrants to purchase shares
of Common Stock constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, except (i) as such enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification provision may be limited under federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. The
authorized Common Stock and outstanding options and warrants to purchase shares
of Common Stock conform to all statements relating thereto contained in the
Registration Statement and the Prospectus. The offers and sales by the Company
of the outstanding Common Stock, options and warrants to purchase shares of
Common Stock were at all relevant times either registered under the Act and
registered or qualified under the applicable state securities or Blue Sky Laws
or exempt from such registration or qualification requirements and the holders
thereof have no rights of rescission with respect thereto.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities
------------------------------------------
have been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities
are not and will not be subject to the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company;
and all corporate action required to be taken for the authorization, issuance
and sale of the Securities has been duly and validly taken. When issued, the
Representative's Purchase Option, the Representative's Warrants and the Warrants
will constitute valid and binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of securities of
the Company called for thereby and the Representative's Purchase Option, the
Representative's Warrants and the Warrants will be enforceable against the
Company in accordance with their respective terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
2.9 Registration Rights of Third Parties. Except as set forth in the
------------------------------------
Prospectus, no holders of any securities of the Company or of any options,
warrants or other rights of the Company exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities under the Act or to include any such
securities in a registration statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. To the extent that each
-----------------------------------------
thereof is a party thereto, this Agreement, the Warrant Agreement, the
Representative's Purchase Option, the NRG Acquisition Agreement, the Steamboat
Acquisition Agreement, the Conversion Agreement and the Preferred Stock Exchange
Agreement (as each such agreement is hereinafter defined) have been duly and
validly authorized by the Company or Steamboat L.L.C., as the case may be, and
constitute, or when executed and delivered will constitute, the valid and
binding agreements of the Company or Steamboat L.L.C., enforceable against the
Company and Steamboat L.L.C. in accordance with their respective terms, except
(i) as such enforceability may be limited by bank-
7
ruptcy, insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification provision may be
limited under federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. To the extent that each thereof is a party
------------------
thereto, the execution, delivery, and performance by the Company and Steamboat
L.L.C. of this Agreement, the Warrant Agreement, the NRG Acquisition Agreement,
the Steamboat Acquisition Agreement, the Conversion Agreement and the
Preferred Stock Exchange Agreement, the consummation by the Company and
Steamboat L.L.C. of the transactions herein and therein contemplated and the
compliance by the Company and Steamboat L.L.C. with the terms hereof and thereof
do not and will not, with or without the giving of notice or the lapse of time
or both, (i) result in a breach of, or conflict with any of the terms and
provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or Steamboat L.L.C. pursuant to the terms
of, any indenture, mortgage, deed of trust, 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 or Steamboat L.L.C. is
a party or by which the Company or Steamboat L.L.C. may be bound or to which any
of the property or assets of the Company or Steamboat L.L.C. is subject; (ii)
result in any violation of the provisions of the Certificate of Incorporation or
the By-Laws of the Company or Steamboat L.L.C.; (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
Steamboat L.L.C. or any of their properties or business; or (iv) have a material
adverse effect on any permit, license, certificate, registration, approval,
consent, license or franchise concerning the Company or Steamboat L.L.C.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
-----------------------
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other material agreement or instrument
to which the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. is a party or by
which any of them may be bound or to which any of their properties or assets is
subject. None of the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. is in
violation of any term or provision of its Certificate of Incorporation or By-
Laws or Certificate of Formation or Operating Agreement or other similar
document or instrument, as the case may be, or in violation of any material
franchise, license, permit, applicable law, rule, regulation, judgment or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over any of them or any of their properties or business.
2.13 Corporate Power; Licenses; Consents.
-----------------------------------
2.13.1 Conduct of Business. Each of the Company, Lehi, Plymouth, NRG
-------------------
and Steamboat L.L.C. has all requisite corporate or limited liability company
power and authority, and has all necessary material authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies, to own or lease its properties and
8
conduct its business as described in the Prospectus, and each of the Company,
Lehi, Plymouth, NRG and Steamboat L.L.C. is and has been doing business in
compliance with all such material authorizations, approvals, orders, licenses,
certificates and permits and all federal, state and local rules and regulations.
The disclosures in the Registration Statement concerning the effects of federal,
state and local regulation on the business of each of the Company, Lehi,
Plymouth, NRG and Steamboat L.L.C. as currently contemplated are correct in all
material respects and do not omit to state a material fact.
2.13.2 Transactions Contemplated Herein. The Company has all
--------------------------------
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery, of the
Securities pursuant to this Agreement, the Warrant Agreement and the
Representative's Purchase Option, and as contemplated by the Prospectus, except
with respect to applicable federal and state securities laws. Each of the
Company and Steamboat L.L.C. has all corporate power and authority to enter into
those of the Acquisition Agreement, the Conversion Agreement and the Preferred
Stock Exchange Agreement to which it is a party and to carry out the provisions
and conditions thereof and all consents, authorizations, approvals and orders
required in connection therewith have been obtained.
2.14 Title to Property; Insurance. Each of the Company, Steamboat
----------------------------
L.L.C., Lehi, NRG and Plymouth has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
(tangible and intangible) owned or leased by it, free and clear of all liens,
encumbrances, claims, security interests, defects and restrictions of any
material nature whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable or arising by law. The properties in
which each of the Company, Steamboat L.L.C., Lehi, NRG and Plymouth has an
interest are adequately insured against loss or damage by fire or other
casualty. The Company, Steamboat L.L.C., Lehi, NRG and Plymouth each maintains,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar business.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
------------------------------------
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the best of
the Company's knowledge, threatened against, or involving the properties or
business of, the Company, Steamboat L.L.C., Lehi, NRG or Plymouth which might
materially and adversely affect the financial position, prospects, value or the
operation or the properties or the business of the Company, Steamboat L.L.C.,
Lehi, NRG or Plymouth, or which questions the validity of the capital stock or
membership interests of the Company, Steamboat L.L.C., Lehi, NRG or Plymouth or
this Agreement or the Steamboat Acquisition Agreement or any action taken or to
be taken by the Company or Steamboat L.L.C. pursuant to, or in connection with,
this Agreement, the NRG Acquisition Agreement or the Steamboat Acquisition
Agreement. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal, domestic or foreign, naming the Company,
Steamboat L.L.C., Lehi, NRG or Plymouth and enjoining the Company, Steamboat
L.L.C., Lehi, NRG or Plymouth from taking, or requiring the Company, Steamboat
L.L.C., Lehi, NRG or Plymouth to take, any action, or to which the Company,
9
Steamboat L.L.C., Lehi, NRG or Plymouth or their respective properties or
business is bound or subject.
2.16 Good Standing.
-------------
(a) The Company has been duly organized and is validly existing as a
corporation and is in good standing under the laws of the state of its
incorporation and is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing, except where the failure to qualify would not have a material adverse
effect on it or its properties or business.
(b) Each of Steamboat L.L.C., Lehi, NRG and Plymouth has been duly
organized and is validly existing as a limited liability company or limited
partnership and is in good standing under the laws of the state of its formation
and is duly qualified and licensed and in good standing as a foreign limited
liability company or limited partnership in each jurisdiction in which ownership
or leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
material adverse effect on it or its properties or business.
2.17 Taxes. Each of the Company, Steamboat L.L.C., Lehi,
-----
NRG and Plymouth has filed all returns (as hereinafter defined) required to be
filed with taxing authorities prior to the date hereof or has duly obtained
extensions of time for the filing thereof. Each of the Company, Steamboat
L.L.C., Lehi, NRG and Plymouth has paid all taxes (as hereinafter defined) shown
as due on such returns that were filed and has paid all taxes imposed on or
assessed against it. The provisions for taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid taxes, whether or not disputed, and for
all periods to and including the dates of such consolidated financial
statements. Except as disclosed in writing to the Representative, (i) no issues
have been raised (and are currently pending) by any taxing authority in
connection with any of the returns or taxes asserted as due from the Company or
Steamboat L.L.C., Lehi, NRG or Plymouth, and (ii) no waivers of statutes of
limitation with respect to the returns or collection of taxes have been given by
or requested from the Company, Steamboat L.L.C., Lehi, NRG and Plymouth. The
term "taxes" mean all federal, state, local, foreign, and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments, or charges of any kind
whatever, together with any interest and any penalties, additions to tax, or
additional amounts with respect thereto. The term "returns" means all returns,
declarations, reports, statements, and other documents required to be filed in
respect to taxes.
2.18 Employee Options. No shares of Common Stock are eligible for sale
----------------
pursuant to Rule 701 promulgated under the Act in the 12 month period following
the Effective Date.
2.19 Transactions Affecting Disclosure to NASD.
-----------------------------------------
10
2.19.1 Finder's Fees. Except as described in the Prospectus, there
-------------
are no claims, payments, issuances, arrangements or understandings for services
in the nature of a finder's, consulting or origination fee with respect to the
introduction of the Company to the Representa tive or the sale of the Securities
hereunder or any other arrangements, agreements, understand ings, payments or
issuance with respect to the Company that may affect the Representative's
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
2.19.2 Payments Within Twelve Months. The Company has not made any
------------------------------
direct or indirect payments (in cash, securities or otherwise) to (i) any
person, as a finder's fee, investing fee or otherwise, in consideration of such
person raising capital for the Company or introducing to the Company persons who
provided capital to the Company, (ii) to any NASD member, (iii) to any person or
entity that has any direct or indirect affiliation or association with any NASD
member within the twelve month period prior to the date on which the
Registration Statement was filed with the Commission ("Filing Date") or
thereafter, other than payments to (iv) the Representative, (v) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Chairman of the Board of the Company, and (vi) ▇▇▇▇▇▇▇ Capital Corp. in the
amount of $12,500.
2.19.3 Use of Proceeds. None of the net proceeds of the offering
---------------
will be paid by the Company to any NASD member or any affiliate or associate of
any NASD member, except as specifically authorized herein.
2.19.4 Insiders' NASD Affiliation. Other than ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (a) no
--------------------------
officer, director or five percent or greater stockholder of the Company has any
direct or indirect affiliation or association with any NASD member, and (b) no
beneficial owner of the Company's unregistered securities issued within the 12
month period prior to the Filing Date or thereafter has any direct or indirect
affiliation or association with any NASD member. The Company will advise the
Representative and the NASD if any other five percent or greater stockholder
becomes, directly or indirectly, an affiliate or associated person of an NASD
member participating in the distribution.
2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
-----------------------------
officers, directors, employees or agents or any other person acting on its
behalf 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 or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (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 it in
connection with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
as reflected in any of the financial statements contained in the Prospectus or
(iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The internal accounting
controls and procedures of the Company are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
11
2.21 Nasdaq Eligibility. As of the Effective Date, the Securities have
------------------
been approved for quotation upon notice of issuance on the Nasdaq SmallCap
Market.
2.22 Intangibles. Each of the Company, Steamboat L.L.C., Lehi, NRG and
-----------
Plymouth owns or possesses the requisite licenses or rights to use all
trademarks, service marks, service names, trade names, patents and patent
applications, copyrights and other rights (collectively, "Intangibles")
described as being licensed to or owned by it in the Registration Statement.
The Intangibles which have been registered in the United States Patent and
Trademark Office have been fully maintained and are in full force and effect.
There is no claim or action by any person pertaining to, or proceeding pending
or threatened and none of the Company, Steamboat L.L.C., Lehi, NRG or Plymouth
has received any notice of conflict with the asserted rights of others which
challenges the exclusive right of such company with respect to any Intangibles
used in the conduct of its business except as described in the Prospectus. The
Intangibles and the current products, services and processes of each of the
Company, Steamboat L.L.C., Lehi, NRG and Plymouth do not infringe on any
Intangibles held by any third party. To the best of the Company's knowledge, no
others have infringed upon the Intangibles of the Company, Steamboat L.L.C.,
Lehi, NRG or Plymouth.
2.23 Relations With Employees.
------------------------
2.23.1 Employee Matters. Each of the Company, Steamboat L.L.C.,
----------------
Lehi, NRG and Plymouth has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state and local laws and regulations respecting the employment
of its employees and employment practices, terms and conditions of employment
and wages and hours relating thereto. To the best of the Company's knowledge,
there are no pending investigations involving the Company, Steamboat L.L.C.,
Lehi, NRG or Plymouth by the U.S. Department of Labor or any other governmental
agency, responsible for the enforcement of such federal, state and local laws
and regulations. There is no unfair labor practice charge or complaint against
the Company, Steamboat L.L.C., Lehi, NRG or Plymouth pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, Steamboat
L.L.C., Lehi, NRG or Plymouth or any predecessor entity, and none has ever
occurred. No question concerning representation exists respecting the employees
of the Company, Steamboat L.L.C., Lehi, NRG or Plymouth and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company, Steamboat L.L.C., Lehi, NRG or Plymouth. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company, Steamboat L.L.C., Lehi, NRG or Plymouth,
if any.
2.23.2 Employee Benefit Plans. Other than as set forth in the
----------------------
Registration Statement, neither the Company, Steamboat L.L.C., Lehi, NRG or
Plymouth maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a, "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). The Company and Steamboat L.L.C., Plymouth, NRG and Lehi do not
maintain or contribute to, and have at no time maintained or contributed to, a
defined benefit plan, as defined in Section 3(35) of ERISA. If
12
the Company, Steamboat L.L.C., Lehi, NRG and Plymouth do maintain or contribute
to a defined benefit plan, any termination of the plan on the date hereof would
not give rise to liability under Title IV of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), which could subject the Company, Steamboat L.L.C., Lehi or
Plymouth to any tax penalty for prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. None of the Company, Steamboat L.L.C., Lehi and
Plymouth has ever completely or partially withdrawn from a "multi-employer
plan."
2.24 Officers' Certificate. Any certificate signed by any duly
---------------------
authorized officer of the Company or Steamboat L.L.C., Lehi, NRG or Plymouth and
delivered to you or to your counsel shall be deemed a representation and
warranty by the Company to the Representative as to the matters covered thereby.
2.25 Warrant Agreement. The Company has entered into a warrant agreement
-----------------
with respect to the Warrants and the Representative's Warrants substantially in
the form filed as an exhibit to the Registration Statement ("Warrant Agreement")
with American Stock Transfer & Trust Company, in form and substance satisfactory
to the Representative, providing for among other things (i) no redemption of the
Warrants without the consent of the Representative and (ii) the payment of a
warrant solicitation fee as contemplated by Section 3.10 hereof.
2.26 Lock-Up Agreements. The Company has caused to be duly executed
------------------
legally binding and enforceable agreements pursuant to which all of the officers
and directors of the Company (including their family members and affiliates) and
the persons listed on Schedule 2 (collectively, "Insiders") agree not to sell
any shares of Common Stock owned by them (either pursuant to Rule 144 of the
Regulations or otherwise) for a period of thirteen months following the
Effective Date other than as set forth therein except with the consent of the
Representative and, if applicable, a state securities commission.
2.27 Subsidiaries. The representations and warranties made by the
------------
Company in this Agreement shall, in the event that the Company has one or more
subsidiaries (a "subsid iary(ies)"), also apply and be true with respect to each
subsidiary as if each representation and warranty contained herein made specific
reference to the subsidiary each time the term "Company" was used.
2.28 Certain Definitions. As used herein:
-------------------
(i) the term "Conversion Agreement" means the [TO FOLLOW];
(ii) the term "NRG Acquisition Agreement" means that certain
[TO FOLLOW];
13
(iii) the term "Preferred Stock Exchange Agreement" means the
[TO FOLLOW];
(iv) the term "Steamboat Acquisition Agreement" means the [TO
FOLLOW]; and
(v) the term "Steamboat Facilities" means the [TO FOLLOW].
2.29 Conditions to Obligations Under Other Agreements. As of the
------------------------------------------------
Effective Date, the obligations of the Company and Steamboat L.L.C. which are
conditions to the consummation of the transactions contemplated by the NRC
Acquisition Agreement and the Steamboat Acquisition Agreement, the Conversion
Agreement and the Preferred Stock Exchange Agreement have been fulfilled by the
Company other than the closing of the offering contemplated by the Registration
Statement and those conditions which cannot be satisfied until the closing of
such offering.
3. Covenants of the Company. The Company covenants and agrees as follows:
------------------------
3.1 Amendments to Registration Statement. The Company will deliver to
------------------------------------
the Representative, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Representative
shall reasonably object.
3.2 Federal Securities Laws.
-----------------------
3.2.1 Compliance. During the time when a Prospectus is required to
----------
be delivered under the Act, the Company will use all reasonable efforts to
comply with all require ments imposed upon it by the Act, the Regulations and
the Exchange Act and by the regulations under the Exchange Act, as from time to
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Public Securities in accordance with the provisions hereof and
the Prospectus. If at any time when a Prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriters, 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 light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will file the
--------------------------
Prospectus (in form and substance satisfactory to the Representative) with the
Commission pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years from the
-------------------------
Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and the Warrants under the provisions of
Section 12 of the Exchange Act.
14
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
---------------
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective to qualify the Public Securities for offering and
sale under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representa tive 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 be required
by the laws of such jurisdiction.
3.4 Delivery to Underwriters of Prospectuses. The Company will deliver
----------------------------------------
to the several Underwriters, without charge, from time to time during the
period when the Prospectus is required to be delivered under the Act or the
Exchange Act such number of copies of each Preliminary Prospectus and the
Prospectus as such Underwriters may reasonably request and, as soon as the
Registration Statement or any amendment or supplement thereto becomes effective,
deliver to you two original executed Registration Statements, including
exhibits, and all post-effective amendments thereto and copies of all exhibits
filed therewith or incorporated therein by reference and all original executed
consents of certified experts.
3.5 Events Requiring Notice to the Representative. The Company will
---------------------------------------------
notify the Representative immediately and confirm the notice in writing (i) of
the effectiveness of the Registration Statement and any amendment thereto, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Public Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the mailing and delivery to the Commission for filing of any amendment
or supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof which, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from the
------------------------------
Effective Date, the Company, at its expense, shall cause its regularly engaged
independent accountants to read (but not audit) the Company's financial
statements for each of the first three fiscal quarters prior to the announcement
of quarterly financial information, the filing of the Company's Form 10-Q
quarterly reports and the mailing of quarterly financial information to
stockholders.
3.7 Unaudited Financials. The Company will furnish to the Representative
--------------------
as early as practicable subsequent to the date hereof, but at least three full
business days prior to the Closing Date, a copy of the latest available
unaudited interim financial statements ("Unaudited Financials")
15
of the Company (which shall be as of a month-end date no more than thirty days
prior to the Effective Date) which have been read by the Company's independent
accountants, as stated in their letter to be furnished pursuant to Section 4.3
hereof.
3.8 Secondary Market Trading and Standard & Poor's. The Company will
----------------------------------------------
take all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within thirty
(30) days after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market trading exemption in such states as may be requested
by the Representative, including the payment of any necessary fees and expenses
and the filing of a Form (e.g., 25101(b)) for secondary market trading in the
----
State of California on the Effective Date or as soon thereafter as is
permissible.
3.9 Nasdaq Maintenance. For a period of five years from the date hereof,
------------------
the Company will use its best efforts to maintain the quotation of the Common
Stock and Warrants by Nasdaq SmallCap Market and, if the Company satisfies the
inclusion standards of the Nasdaq National Market System, to apply for and
maintain quotations by the Nasdaq National Market System of such securities
during such period.
3.10 Warrant Solicitation and Warrant Solicitation Fees. The Company
--------------------------------------------------
hereby engages the Representative, on a non-exclusive basis, as its agent for
the solicitation of the exercise of the Warrants. The Company, at its cost,
will (i) assist the Representative with respect to such solicitation, if
requested by the Representative and will (ii) provide the Representative, and
direct the Company's transfer and warrant agent to provide to the
Representative, lists of the record and, to the extent known, beneficial owners
of the Company's Warrants. Commencing one year from the Effective Date, the
Company will pay the Representative a commission of five percent of the Warrant
exercise price for each Warrant exercised, payable on the date of such exercise,
on the terms provided for in the Warrant Agreement, if allowed under the rules
and regulations of the NASD and only if the Representative has provided bona
fide services to the Company in connection with the exercise of such Warrants
and has received written confirmation from the holder that the Representative
has solicited such exercise. In addition to soliciting, either orally or in
writing, the exercise of Warrants, such services may also include disseminating
information, either orally or in writing, to Warrantholders about the Company or
the market for the Company's securities, and assisting in the processing of the
exercise of the Warrants. The Representative may engage sub-agents who are
members of the NASD in its solicitation efforts. The Company will disclose the
arrangement to pay such solicitation fees to the Representative in any
prospectus used by the Company in connection with the registration of the shares
of Common Stock underlying the Warrants.
16
3.11 Registration of Common Stock. The Company agrees that prior to the
----------------------------
date that the Warrants become exercisable, it shall file with the Commission a
post-effective amendment to the Registration Statement, if possible, or a new
registration statement, for the registration, under the Act, of the Common Stock
issuable upon exercise of the Warrants. In either case, the Company shall cause
the same to become effective at or prior to the date that the Warrants become
17
exercisable, and to maintain the effectiveness of such registration statement
and keep current a prospectus thereunder until the expiration of the Warrants in
accordance with the provisions of the Warrant Agreement.
3.12 Reports to the Representative.
-----------------------------
3.12.1 Periodic Reports, Etc. For a period of five years from the
----------------------
Effective Date, the Company will promptly furnish to the Representative, and to
each other Underwriter who may so request, copies of such financial statements
and other periodic and special reports as the Company from time to time files
with any governmental authority or furnishes generally to holders of any class
of its securities, and promptly furnish to the Representative (i) a copy of each
periodic report the Company shall be required to file with the Commission, (ii)
a copy of every press release and every news item and article with respect to
the Company or its affairs which was released by the Company, (iii) copies of
each Form SR, (iv) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4
received or prepared by the Company, (v) a copy of monthly statements setting
forth such information regarding the Company's results of operations and
financial position (including balance sheet, profit and loss statements and data
regarding operations) as is regularly prepared by management of the Company, and
(vi) such additional documents and information with respect to the Company and
the affairs of any future subsidiaries of the Company as the Representative may
from time to time reasonably request.
3.12.2 Transfer Sheets and Weekly Position Listings. For a period of
--------------------------------------------
five years from the Closing Date, the Company will furnish to the Representative
at the Company's sole expense such transfer sheets and position listings of the
Company's securities as the Representative may request, including the daily,
weekly and monthly consolidated transfer sheets of the transfer agent of the
Company and the weekly security position listings of the Depository Trust
Company.
3.12.3 Secondary Market Trading Memorandum. Until such time as the
-----------------------------------
Public Securities are listed or quoted, as the case may be, on the New York
Stock Exchange, the American Stock Exchange or Nasdaq Smallcap Market, the
Company shall cause the Representative's legal counsel to deliver to the
Representative at the times set forth below a written memorandum detailing those
states in which Public Securities may be traded in non-issuer transactions under
the Blue Sky laws of the fifty states ("Secondary Market Trading Memorandum").
The Secondary Market Trading Memorandum shall be delivered to the Representative
on the Effective Date and on the first day of every calendar quarter thereafter.
The Company shall pay to Representative's legal counsel a one-time fee of $5,000
for such services at the Closing.
3.13 Agreements between the Representative and the Company.
-----------------------------------------------------
3.13.1 [Intentionally Omitted.]
------------------------
3.13.2 [Intentionally Omitted.]
------------------------
18
3.13.3 Representative's Purchase Option. On the Closing Date, the
--------------------------------
Company will execute and deliver to the Representative the Representative's
Purchase Option substantially in the form filed as an exhibit to the
Registration Statement.
3.14 Disqualification of Form S-1 (or other appropriate form). For a
--------------------------------------------------------
period equal to seven years from the date hereof, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration of the Warrants and the
Representative's Warrants and the securities issuable upon exercise of those
securities under the Act.
3.15 Payment of Expenses.
-------------------
3.15.1 General Expenses. The Company hereby agrees to pay on the
----------------
Closing Date and, to the extent not paid on the Closing Date, on the option
Closing Date, if any, all expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
(i) the preparation, printing, filing, delivery and mailing (including the
payment of postage with respect to such mailing) of the Registration Statement,
the Prospectus and the Preliminary Prospectuses and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and any amendments thereof or supplements thereto supplied to the Underwriters
in quantities as may be required by the Underwriters, (ii) the printing,
engraving, issuance and delivery of the shares of Common Stock and the Warrants
and the Representative's Purchase Option, including any transfer or other taxes
payable thereon, (iii) the qualification of the Public Securities under state or
foreign securities or Blue Sky laws, including the filing fees under such Blue
Sky laws, the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," and all amendments and supplements thereto, fees up to an aggregate
of $35,000 and disbursements of Underwriters' counsel and a one time fee of
$5,000 payable to the Underwriters' counsel for the preparation of the Secondary
Market Trading Memorandum, (iv) filing fees, costs and expenses (including fees
and disbursements of Underwriters' counsel, which fees shall not exceed $5,000)
incurred in registering the offering with the NASD, (v) costs of placing
"tombstone" advertisements in The Wall Street Journal, (vi) fees and
-----------------------
disbursements of the transfer and warrant agent, (vii) the preparation, binding
and delivery of transaction "bibles" and transaction lucite cubes or similar
commemorative items in a form, style and quantity as requested by the
Representative, (viii) any listing of the Public Securities on Nasdaq SmallCap
or National Market, as the case may be, and any securities exchange, and any
listing in Standard & Poor's, (ix) the Company's expenses associated with "due
diligence" meetings arranged by the Underwriter, and (x) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section 3.15.1. Since an important
part of the public offering process is for the Company to appropriately and
accurately describe both the background of the principals of the Company and the
Company's competitive position in its industry, the Company has engaged and will
pay for an investigative search firm of the Representative's choice to conduct
an investigation of principals of the Company mutually selected by the
Representative and the Company. If the Company's representative have not
submitted to a bindery acceptable to the Representative all of the closing and
other documents material to the transactions contemplated hereby within 30 days
of the Effective Date, the Company shall pay the fees and costs of the
Representative's agents to prepare the transactional bibles and have them bound.
The Representative may deduct from the net proceeds of the offering payable to
the Company on the
19
Closing Date, or the Option Closing Date, if any, the expenses set forth herein
to be paid by the Company to the Representative and/or to third parties.
3.15.2 Non-Accountable Expenses. The Company further agrees that, in
------------------------
addition to the expenses payable pursuant to Section 3.15.1, it will pay to the
Representative a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Public
Securities, of which $50,000 has been paid to date, and the Company will pay the
balance on the Closing Date and any additional monies owed attributable to the
Option Securities or otherwise on the Option 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. If the offering contemplated by
this Agreement is not consum mated for any reason whatsoever then the following
provisions shall apply: The Company's liability for payment to the
Representative of the non-accountable expense allowance shall be equal to the
sum of the Representative's actual out-of-pocket expenses (including, but not
limited to, counsel fees, "road-show" and due diligence expenses). The
Representative shall retain such part of the non-accountable expense allowance
previously paid as shall equal such actual out-of-pocket expenses. If the
amount previously paid is insufficient to cover such actual out-of-pocket
expenses, the Company shall remain liable for and promptly pay any other actual
out-of-pocket expenses. If the amount previously paid exceeds the amount of the
actual out-of-pocket expenses, the Representative shall promptly remit to the
Company any such excess. Upon request, the Representative shall furnish the
Company with copies of receipts or other evidence of payment of its actual out-
of-pocket expenses.
3.16 Application of Net Proceeds. The Company will apply the net
---------------------------
proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use Of Proceeds" in the Prospectus.
The Company hereby agrees that, without the express prior consent of the
Representative, except as so described, the Company will not apply any net
proceeds from the offering to pay (i) any debt for borrowed funds or (ii) any
debt or obligation owed to any Insider.
3.17 Delivery of Earnings Statements to Security Holders. The Company
---------------------------------------------------
will make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth full calendar month following
the Effective Date, an earnings statement (which need not be certified by
independent accountants unless required by the Act or the Regulations, but which
shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Act)
covering a period of at least twelve consecutive months beginning after the
Effective Date.
3.18 Key Person Life Insurance. The Company will maintain, for a period
-------------------------
of not less than one year from the Effective Date, key person life insurance in
an amount no less than $1,000,000 on the life of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and pay the
annual premiums therefor and name the Company as the sole beneficiary thereof.
3.19 Stabilization. Neither the Company, nor, to its knowledge, any of
-------------
its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the
20
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Public
Securities.
3.20 Internal Controls. The Company maintains and will continue to
-----------------
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.21 Accountants and Lawyers. For a period of five years from the
-----------------------
Effective Date, the Company shall retain independent accountants and securities
lawyers acceptable to the Representative. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Co., LLP, and
▇▇▇▇ & Priest, LLP, are acceptable to the Representative.
3.22 Transfer Agent. For a period of five years from the Effective Date,
--------------
the Company shall retain a transfer agent for the Common Stock and Warrants
acceptable to the Representa tive. American Stock Transfer & Trust Company is
acceptable to the Representative.
3.23 Sale of Securities. Except in accordance with the agreements
------------------
referred to in Section 2.26, the Company agrees not to permit or cause a private
or public sale or private or public offering of any of its securities (in any
manner, including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the Insiders for a period of thirteen months following the
Effective Date without obtaining the prior written consent of the
Representative.
3.24 Other Transactions. The Company will take such action as is
------------------
necessary to consummate the Acquisition Transactions and the transactions
contemplated by the Conversion Agreement and the Preferred Stock Exchange
Agreement concurrently with the consummation of the transactions contemplated by
this Agreement.
3.25 Secondary Offering. With respect to the secondary offering of
------------------
securities of the Company by Anchor Capital Company LLC ("Anchor") which has
been registered under the Registration Statement, the Company shall:
(a) submit to the Corporate Financing of the NASD (the
"Department") at the same time they are filed with the Commission all post-
effective amendments to the Registration Statement or supplements to the
Prospectus disclosing actual price and selling terms;
(b) submit to the Department at the same time they are filed with
the Commission all post-effective amendments or prospectus supplements
disclosing actual price and selling terms;
21
(c) advise the Department if any 5% or greater shareholder of the
Company is or becomes an affiliate or associated person of an NASD member
participating in the distribution;
(d) if a portion of the securities offered by Anchor are
underwritten, prior to the commencement of the distribution (i) submit to the
Department for review copies of all underwriting documents proposed for use and
(ii) submit to the Department for approval the maximum compensation to be paid
to the underwriter(s); and
(e) prior to any distribution or other disposition of the
securities registered for the secondary offering, furnish, or cause the selling
securityholders to furnish, all information required by Department if a member
of the NASD is involved in such distribution or other disposition, whether for
its own account or as a broker, dealer or underwriter, including but not limited
to information concerning the maximum compensation to be received by any NASD
member.
4. Conditions of Underwriters' Obligations. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy of the representations and warranties of
the Company as of the date hereof and as of each of the Closing Date and the
Option Closing Date, if any, to the accuracy of the statements of officers of
the Company made pursuant to the provisions hereof and to the performance by the
Company of its obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
------------------
4.1.1 Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement has been declared effective on the date of this Agreement and, at each
of the Closing Date and the Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for the 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 ▇▇▇▇▇▇▇▇ Mollen & ▇▇▇▇▇▇, counsel to the Underwriters.
4.1.2 NASD Clearance. By the Effective Date, the Representative
--------------
shall have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration
Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of the
-----------------------
Securities in any jurisdiction designated by the Representative pursuant to
Section 3.3 hereof shall have been issued on either on the Closing Date or the
Option Closing Date, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
4.2 Company Counsel Matters.
-----------------------
4.2.1 (a) Effective Date Opinion of Counsel. On the Effective Date,
---------------------------------
the Representative shall have received the favorable opinion of ▇▇▇▇ & Priest,
LLP, counsel to the
22
Company, dated the Effective Date, addressed to the Representative and in form
and substance satisfactory to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the
Underwriters, to the following effect, except that such opinion need not address
any matters relating to Steamboat L.L.C. other than in the following clause (i):
(i) (A) The Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of its state of
incorporation and is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which to such counsel's knowledge
its ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, except where the failure to qualify
would not have a material adverse effect on it or its properties or business.
(B) Each of Steamboat L.L.C., NRG and Lehi has been duly organized and
is validly existing as a limited liability company and is in good standing under
the laws of its state of organization and is duly qualified and licensed and in
good standing as a foreign limited liability company in each jurisdiction in
which to such counsel's knowledge its ownership or leasing or any properties or
the character of its operations requires such qualification or licensing, except
where the failure to qualify would not have a material adverse effect on it or
its properties or business.
(C) Plymouth has been duly organized and is validly existing as a
limited partnership and is in good standing under the laws of its state of
organization and is duly qualified and licensed and in good standing as a
foreign limited partnership in each jurisdiction in which to such counsel's
knowledge its ownership or leasing or any properties or the character of its
operations requires such qualification or licensing, except where the failure to
qualify would not have a material adverse effect on it or its properties or
business.
(D) The Company, through its subsidiaries, is the record and, to such
counsel's knowledge, beneficial owner of 50% of the equity interests of Lehi
and Plymouth, of 81.5% of the equity interests of NRG and of 95% of the equity
interests of Steamboat L.L.C.
(ii) Except to the extent that the lack of such authorizations,
approvals, orders, licenses, certificates and permits would not have a
materially adverse effect on the Company or Steamboat L.L.C. or their respective
activities, each of the Company, Lehi, Plymouth, NRG and Steamboat L.L.C. has
all requisite power and authority, and has all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental or regulatory officials and bodies to own or lease its properties
and conduct its business as described in the Prospectus, and such counsel has no
actual knowledge that any of the Company, Lehi, Plymouth, NRG or Steamboat
L.L.C. is conducting its activities without material compliance with such
approvals, orders, licenses, certificates and permits. Each of the Company and
Steamboat L.L.C. has all power and authority to enter into those of this
Agreement, the Warrant Agreement, the NRG Acquisition Agreement, the Steamboat
Acquisition Agreement, the Conversion Agreement, the Preferred Stock Exchange
Agreement and the Representative's Purchase Option to which it is a party and to
carry out the provisions and conditions hereof and thereof, and all consents,
authorizations, approvals and orders required in connection therewith
23
have been obtained. No consents, approvals, authorizations or orders of, and no
filing with any court or governmental agency or body (other than such as may be
required under the Act and applicable Blue Sky laws) are required as to the
Company, Lehi, Plymouth, NRG and Steamboat L.L.C. for the valid authorization,
issuance, sale and delivery of the Securities, and the consummation of the
transactions and agreements contemplated by this Agreement, the Warrant
Agreement, the NRG Acquisition Agreement, the Steamboat Acquisition Agreement,
the Conversion Agreement, the Preferred Stock Exchange Agreement and the
Representative's Purchase Option and as contemplated by the Prospectus or, if so
required, all such authorizations, approvals, consents, orders, registrations,
licenses and permits have been duly obtained and are in full force and effect
and have been disclosed to the Representative.
(iii) All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or, to the best of such counsel's knowledge, similar
contractual rights granted by the Company. The outstanding options and war
rants to purchase shares of Common Stock constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms, except
(a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (b) as
enforceability of any indemnification provision may be limited under the federal
and state securities laws, and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the direction of the court before which any proceeding therefor
may be brought. The offers and sales by the Company of the outstanding Common
Stock and options and warrants to purchase shares of Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky Laws or exempt from such registration requirements. The
authorized and outstanding capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when issued and
paid for, will be validly issued, fully paid and non-assessable; the holders
thereof are not and will not be subject to personal liability by reason of being
such holders. The Securities are not and will not be subject to the preemptive
rights of any holders of any security of the Company or, to the best of such
counsel's knowledge after due inquiry, similar contractual rights granted by the
Company. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. When
issued, the Warrants, the Representative's Purchase Option and the
Representative's Warrants will constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby and such
Warrants, Representative's Purchase Option and Representative's Warrants, when
issued, will be enforceable against the Company in accordance with their
respective terms, except (a) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (b) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (c) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any
24
proceeding therefor may be brought. The certificates representing the Securities
are in due and proper form.
(v) To the best of such counsel's knowledge, after due inquiry, except
as set forth in the Prospectus, no holders of any securities of the Company or
of any options, warrants or securities of the Company exercisable for or
convertible or exchangeable into securities of the Company have the right to
require the Company to register any such securities of the Company under the Act
or to include any such securities in a registration state ment to be filed by
the Company.
(vi) To the best of such counsel's knowledge, after due inquiry, the
Units, the shares of Common Stock and the Warrants are eligible for quotation on
the Nasdaq SmallCap Market.
(vii) This Agreement, the Warrant Agreement, the NRG Acquisition
Agreement, the Steamboat Acquisition Agreement, the Conversion Agreement, the
Preferred Stock Exchange Agreement and the Representative's Purchase Option have
each been duly and validly authorized by the Company and Steamboat L.L.C. to the
extent it is a party thereto and, when executed and delivered by the Company and
Steamboat L.L.C., to the extent it is a party thereto, will constitute valid and
binding obligations of the Company and Steamboat L.L.C., as the case may be,
enforceable against the Company and Steamboat L.L.C., to the extent it is a
party thereto, in accordance with their respective terms, except (a) as such
enforce ability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification provisions may be limited under the federal and state securities
laws, and (c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(viii) The execution, delivery and performance by the Company and
Steamboat L.L.C., to the extent it is a party thereto, of this Agreement, the
Warrant Agreement, the NRG Acquisition Agreement, the Steamboat Acquisition
Agreement, the Conversion Agreement, the Preferred Stock Exchange Agreement
and the Representative's Purchase Option, the issuance and sale of the
Securities by the Company, the consummation of the transactions contemplated
hereby and thereby and the compliance by the Company and Steamboat L.L.C., to
the extent any is a party thereto, with the terms and provisions hereof and
thereof, do not and will not, with or without the giving of notice or the lapse
of time, or both, (a) conflict with, or result in a breach of, any of the terms
or provisions of, or constitute a default under, or result in the creation or
modification of any lien, security interest, charge or encum brance upon any of
the respective properties or assets of the Company or Steamboat L.L.C. pursuant
to the terms of, any material mortgage, deed of trust, note, indenture, written
loan, contract or other material agreement or instrument of which such counsel
has knowledge and, to the best of such counsel's knowledge, to which the Company
or Steamboat is a party or by which the Company or Steamboat or any of their
respective properties or assets may be bound, (b) result in any violation of the
provisions of the respective Certificates of Incorporation, By-Laws, Certificate
of Formation or Operating Agreement of the Company or Steamboat L.L.C., (c)
violate any statute or any judgment, order or decree of which such counsel has
knowledge, rule or regulation applicable to the Company or Steamboat L.L.C.
25
of any court, domestic or foreign, or of any federal, state or other regulatory
authority or other governmental body having jurisdiction over the Company or
Steamboat L.L.C., their respective properties or assets, or (d) have a material
adverse effect on any permit, certification, registration, approval, consent,
license or franchise of the Company or Steamboat L.L.C.
(ix) The Registration Statement, each Preliminary Prospectus and the
Prospectus and any post-effective amendments or supplements thereto (other than
the financial statements included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations. The Securities and all other securities issued or
issuable by the Company conform in all respects to the description thereof
contained in the Registration Statement and the Prospectus. The information in
the Prospectus under "Business," "Management," "Certain Transactions,"
"Principal Stockholders," "Description of Securities" and "Shares Eligible for
Future Sale" have been reviewed by such counsel, and insofar as it contains
descriptions of law, descriptions of statutes, rules or regulations or legal
conclusions such information is correct in all material respects. No statute or
regulation or legal or governmental proceeding required to be described in the
Prospectus is not described as required, nor are any contracts or documents of
which such counsel has knowledge of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement not so described or filed as required.
(x) Counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent accountants
for the Company and representatives of the Representative at which the contents
of the Registration Statement, the Prospectus and related matters were discussed
and although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as otherwise set
forth in counsel's opinion), no facts have come to the attention of such counsel
which lead them to believe that neither the Registration Statement or the
Prospectus nor any 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, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus).
(xi) The Registration Statement is effective under the Act, and, to
the best of such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act or
applicable state securities laws.
(xii) [Intentionally omitted.]
----------------------
(xiii) Except as described in the Prospectus, to the best of such
counsel's knowledge, no material default exists in the due performance and
observance of any term, covenant or condition of any material license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other
material agreement or instrument evidencing an
26
obligation for borrowed money, or any other material agreement or instrument to
which the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. is a party or by
which the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. may be bound or to
which any of the respective properties or assets of the Company, Lehi, Plymouth,
NRG or Steamboat L.L.C. is subject. None of the Company, Lehi, Plymouth, NRG or
Steamboat L.L.C. is in material violation of any term or provision of its
Certificate of Incorporation, By-Laws, Certificate of Formation, Operating
Agreement or other similar document or of any franchise, license, permit,
applicable law, rule, regulation, judgment or decree of any governmental agency
or court, domestic or foreign, having jurisdiction over it or any of its
properties or business, except as described in the Prospectus.
(xiv) [Intentionally omitted.]
----------------------
(xv) To the best of such counsel's knowledge, after due inquiry,
except as described in the Prospectus and except for subsidiaries whose
operations are included in their respective consolidated financial statements
included in the Prospectus, none of the Company, Lehi, Plymouth, NRG or
Steamboat L.L.C. owns an interest in any corporation, partnership, joint
venture, trust or other business entity.
(xvi) To the best of such counsel's knowledge, after due inquiry,
except as set forth in the Prospectus, there is no action, suit or proceeding
before or by any court of governmental agency or body, domestic or foreign, now
pending, or threatened against the Company, Lehi, Plymouth, NRG or Steamboat
L.L.C. which might result in any material and adverse change in the condition
(financial or otherwise), business or prospects of the Company, Lehi, Plymouth,
NRG or Steamboat L.L.C., or might materially and adversely affect the properties
or assets thereof.
(xvii) the Company should not have any liability to Enviro
Partners, L.P. ("Partners") if it refuses to sell its preferred stock to
Partners or its warrants to Energy Management Corporation in accordance with the
terms of the Convertible Preferred Stock Purchase Agreement dated May 3, 1996
between the Company and Partners if such refusal is based upon the inability of
the Company to have its securities listed for quotation on the Nasdaq SmallCap
Market if such sale were to occur.
(xviii) To the best of such counsel's knowledge, after due inquiry,
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
financial consulting arrangements or any other arrangements, agreements,
understandings, payments or issuances that may affect the Representative's
compensation, as determined by the NASD.
(b) Other Counsel's Opinion. On the Effective Date, the
-----------------------
Representative shall have received the opinion of the counsel listed in
Schedule 3 hereto ("Other Counsel") in form and substance satisfactory to
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Underwriters, relating to litigation,
title to properties, permits and licenses and environmental and regulatory
matters of that of the Company, Lehi, NRG, Plymouth and Steamboat L.L.C listed
next to its name in Schedule
27
3 (such counsel's "Opinion Subject"). Such opinion shall include, among other
things, statements to the effect that:
(i) Other Counsel is not aware of any federal, state or local statute,
rule or regulation relating to electricity production, operation, marketing or
transportation matters or environmental matters which it considers to be
material to the operations of its Opinion Subject in the states in which they
operate other than those set forth in the Prospectus (collectively, the
"Applicable Laws and Regulations").
(ii) To the best of Other Counsel's knowledge, after due inquiry, it
is not aware of any state of facts which would lead it to believe that its
Opinion Subject is not in substantial compliance with the Applicable Laws and
Regulations. By "substantial compliance," Other Counsel means that, based on
its experience as attorneys, it believes that any compliance exceptions of which
it has knowledge are not of a level of significance, individually or
collectively, to the various regulatory authorities which enforce the Applicable
Laws and Regulations which would result in its Opinion Subject losing its
ability to operate any of its properties (or to receive the benefits from those
properties operated by others in which it has an interest) or in a fine or
penalty that would significantly affect the financial condition of the Company.
(iii) Other Counsel has examined and passed upon statements
concerning the Applicable Laws and Regulations in the following sections of the
Prospectus: the sections in "Risk Factors" entitled "Governmental Regulation"
and "Environmental Risks" and the section in "Business" entitled "Government
Regulation." Such sections, insofar as they refer to the Applicable Laws and
Regulations, are accurate and complete and do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
(c) Unless the context clearly indicates otherwise, the term "Company"
as used in this Section 4.2.1 shall include each subsidiary of the Company. The
opinion of counsel for the Company and Other Counsel and any opinion relied upon
by such counsel shall include a statement to the effect that it may be relied
upon by counsel for the Representative in its opinion delivered to the
Representative.
4.2.2 Closing Date and Option Closing Date Opinions of Counsel. On
--------------------------------------------------------
each of the Closing Date and the Option Closing Date, if any, the Representative
shall have received the favorable opinions of Company Counsel and Other Counsel,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Representative and in the forms and substance satisfactory to ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Underwriters, confirming as of the Closing Date
and, if applicable, the Option Closing Date, the statements made by such counsel
in their opinions delivered on the Effective Date and, in the case of the
opinion of Company Counsel, referring to Steamboat L.L.C. as set forth in
Section 4.2.1.
4.2.3 Reliance. In rendering such opinions, such counsel may rely
--------
(i) as to matters involving the application of laws other than the laws of the
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
28
an opinion or opinions (in form and substance reasonably satisfactory to the
Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws, and (ii) as to matters
of fact, to the extent they deem proper, on certificates or other written
statements of officers of departments of various jurisdiction having custody of
documents respecting the corporate existence or good standing of the Company,
Lehi, Plymouth, NRG and Steamboat L.L.C., provided that copies of any such
statements or certificates shall be delivered to the Underwriters' counsel if
requested. Each such opinion of counsel shall include a statement to the effect
that it may be relied upon by counsel for the Underwriters in its opinion
delivered to the Representative.
4.2.4 Secondary Market Trading Memorandum. On the Effective Date,
-----------------------------------
the Representative shall have received the Secondary Market Trading Memorandum.
4.3 Cold Comfort Letters. At the time this Agreement is executed and at
--------------------
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Representative and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the Underwriters, the accounting firms specified
in Schedule 4 hereto, dated, respectively, as of the date of this Agreement and
as of the Closing Date and the Option Closing Date, if any:
(i) confirming that they are independent accountants with respect to
the Company, Lehi, Plymouth or Steamboat L.L.C., as the case may be (such firm's
"Comfort Letter Subject"), within the meaning of the Act and the applicable
Regulations;
(ii) stating that in their opinion the financial statements of its
Comfort Letter Subject included in the Registration Statement and Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Regulations thereunder;
(iii) stating that, based on the performance procedures specified by
the American Institute of Certified Public Accountants ("AICPA") for a review of
the latest available unaudited interim financial statements of its Comfort
Letter Subject (as described in SAS No. 71 Interim Financial Information), with
an indication of the date of the latest available unaudited interim financial
statements, a reading of the latest available minutes of the stockholders and
board of directors and the various committees of the board of directors,
consultations with officers and other employees of its Comfort Letter Subject
responsible for financial and accounting matters and other specified procedures
and inquiries, nothing has come to their attention which would lead them to
believe that (a) the unaudited financial statements of its Comfort Letter
Subject included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or any material modification should be made to the unaudited interim
financial statements included in the Registration Statement for them to be in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of its
Comfort Letter Subject included in the Registration Statement, (b) at a date not
later than five days prior to the Effective Date, Closing Date or Option Closing
Date, as the case may be, there was any change in the capital stock or
29
long-term debt of the Company, or any decrease in the stockholders' equity of
the Company as compared with amounts shown in the most recent balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any decrease,
setting forth the amount of such decrease, and (c) during the period from the
date of the most recent balance sheet included in the Registration Statement, to
a specified date not later than five days prior to the Effective Date, Closing
Date or Option Closing Date, as the case may be, there was any decrease in
revenues, or increase in net loss or net loss per share of Common Stock, in each
case as compared with the corresponding period in the preceding year and as
compared with the corresponding period in the preceding quarter, other than as
set forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
(iv) as to Steamboat L.L.C., only, stating that, based on the
performance of procedures specified by the AICPA for a review of unaudited pro
forma financial statements of the Company and Steamboat L.L.C. and Steamboat
Facilities and inquiries of the 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 pro forma condensed consolidated balance sheet at
June 30, 1996 and the unaudited pro forma condensed consolidated statements
of operations for the year ended January 31, 1996 and the six month period
ended July 31, 1996 of the Company and the unaudited pro forma condensed
combined statements of operations for the year ended December 31, 1995 and
the six month period ended June 30, 1996 of Steamboat Facilities included in
the Registration Statement (collectively, the "Pro Forma Financial Statements")
do not comply as to form in all material respects with applicable requirements
of the Act, the Regulations and applicable accounting requirements, (b) that the
pro forma adjustments have not been properly applied to the historical amounts
in the compilation of the Pro Forma Financial Statements, or (c) that the
assumptions used in the preparation of the Pro Forma Financial Statements are
not appropriate;
(v) setting forth, at a date not later than five days prior to the
Effective Date, the amount of liabilities of its Comfort Letter Subject
(including a break-down of commercial paper and notes payable to banks);
(vi) as to the Company only, 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, Lehi and
Plymouth 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 and work sheets of the Company, 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;
(vii) stating that they have not during the immediately preceding
five year period brought to the attention of the management of the Company or
its Comfort Letter Subject any reportable condition related to internal
structure, design or operation as defined in the Statement on Auditing Standards
No. 60 -- "Communication of Internal Control Structure Related Matters Noted in
an Audit," in the internal controls of its Comfort Letter Subject; and
30
(viii) statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
----------------------
4.4.1 Officers' Certificate. At each of the Closing Date and the
---------------------
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the President and the Chief Financial
Officer of the Company, dated the Closing Date or the Option Closing Date, as
the case may be, respectively, to the effect that the Company has performed all
covenants and complied with all conditions required by this Agreement to be
performed or complied with by the Company prior to and as of the Closing Date,
or the Option Closing Date, as the case may be, and that the conditions set
forth in Section 4.5 hereof have been satisfied as of such date and that, as of
Closing Date and the Option Closing Date, as the case may be, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct. In addition, the Representative will have received such other
and further certificates of officers of the Company as the Representative may
reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and the
-----------------------
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the Certificate of Incorporation and By-Laws, as amended, of the
Company are true and complete, have not been modified and are in full force and
effect, (ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been modified, (iii)
all correspondence between the Company or its counsel and the Commission, (iv)
all correspondence between the Company or its counsel and Nasdaq concerning
inclusion of the Securities on Nasdaq, and (v) as to the incumbency of the
officers of the Company. The documents referred to in such certificate shall be
attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and the
-------------------
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the condition
or prospects or the business activities, financial or otherwise, of the Company,
Lehi, Plymouth, NRG and Steamboat L.L.C., taken together, 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, Lehi, Plymouth, NRG or
Steamboat L.L.C. from the latest date as of which the financial condition of the
Company, Lehi, Plymouth, NRG and Steamboat L.L.C. is set forth in the
Registration Statement and Prospectus which is materially adverse to the
Company, Lehi, Plymouth, NRG and Steamboat L.L.C., (iii) the Company, Lehi,
Plymouth, NRG and Steamboat L.L.C. shall not be in default under any provision
of any instrument relating to any outstanding indebtedness which default would
have a material adverse effect on it, (iv) no material amount of the assets of
the Company, Lehi, Plymouth, NRG and Steamboat L.L.C. shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company, Lehi, Plymouth, NRG or Steamboat L.L.C. or
affecting any of its property or business before or by any court or governmental
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations,
31
prospects or financial condition or income of the Company, Lehi, Plymouth, NRG
and Steamboat L.L.C., except as set forth in the Registration Statement and
Prospectus, (vi) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or threatened by the Commission,
and (vii) the Registration Statement and the Prospectus and any amendments or
supplements thereto contain all material statements which are required to be
stated therein in accordance with the Act and the Regulations and conform in all
material respects to the requirements of the Act and the Regulations, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As used in this Section 4.5, the term "Company" shall mean the
Company and its subsidiaries, taken as a whole.
4.6 Delivery of Agreements. At the Closing, the Company shall have
----------------------
delivered to the Representative executed copies of the Representative's Purchase
Option.
4.7 Opinion of Counsel for the Underwriters. All proceedings taken in
---------------------------------------
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to ▇▇▇▇▇▇▇▇ Mollen & ▇▇▇▇▇▇, counsel to the Underwriters, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel for the Underwriters 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 this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
4.8 Other Transactions. The Acquisition Transactions shall have been
------------------
effected on the Closing Date and all conditions required to consummate the
transactions contemplated by the NRG Acquisition Agreement, the Steamboat
Acquisition Agreement, the Conversion Agreement and the Preferred Stock Exchange
Agreement shall have been fulfilled concurrently with the consummation of the
transactions contemplated by this Agreement.
5. Indemnification.
---------------
5.1 Indemnification of the Underwriters.
-----------------------------------
5.1.1 General. Subject to the conditions set forth below, the
-------
Company agrees to indemnify and hold harmless each of the Underwriters, their
respective directors, officers, agents and employees and each person, if any,
who controls an Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation or claims whatsoever, commenced or
threatened, whether arising out of any action between any of the Underwriters
and the Company or between any of the Underwriters and any third-party or
32
otherwise) to which they or any of them may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in (i) any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
each may be 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
Representative's Purchase Option; or (iii) any application or other document or
written communication (in this Section 5 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq 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, in the light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon and in strict 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 or supplement thereof, or in any
application, as the case may be. The Company agrees promptly to notify the
Representative of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the Registration
Statement or Prospectus.
5.1.2 Procedure. If any action is brought against an Underwriter or
---------
controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and fees of counsel
(subject to the approval of the Underwriter) and payment of actual expenses.
Such Underwriter or controlling person 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 Underwriter or such controlling person unless
(i) the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action, or (ii) the Company shall
not have employed counsel to have charge of the defense of such 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 the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys selected by the Underwriter or Underwriters and/or
controlling person shall be borne by the Company. Notwithstanding anything to
the contrary contained herein, if an Underwriter or controlling person shall
assume the defense of such action as provided above, the Company shall have the
right to approve the terms of any settlement of such action which approval shall
not be unreasonably withheld.
5.2 Indemnification of the Company. Each of the Underwriters, severally
------------------------------
and not jointly, agrees to indemnify and hold harmless the Company against any
and all loss, liability, claim, damage and expense described in the foregoing
indemnity from the Company to the several Underwriters, as incurred, but only
with respect to untrue statements or omissions, or alleged
33
untrue statements or omissions directly relating to the transactions effected by
the Underwriters in connection with this offering made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereto or in any application in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to an
Underwriter by or on behalf of such Underwriter expressly for use in such
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or in any such application. In case any action
shall be brought against the Company or any other person so indemnified based on
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or any application, and in respect of which
indemnity may be sought against any Underwriter, such Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the several Underwriters
by the provisions of Section 5.1.2.
5.3 Contribution.
------------
5.3.1 Contribution Rights. In order to provide for just and
-------------------
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto 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
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriters, as incurred, in such proportions that the Underwriters are
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a 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. Notwithstanding
the provisions of this Section 5.3, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Public Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay in respect of such losses, liabilities,
claims, damages and expenses. For purposes of this Section, each director,
officer and employee of an Underwriter, and each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act shall have the same
rights to contribution as such Underwriter and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act shall have the same rights to contribution as the Company.
5.3.2 Contribution Procedure. Within fifteen days after receipt by
----------------------
any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission
34
to so notify the contributing party will not relieve it from any liability which
it may have to any other party other than for contribution hereunder. In case
any such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or its representative of the commencement thereof
within the aforesaid fifteen days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding which was effected by such party seeking contribution on account of
any settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section are intended to supersede, to
the extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available.
6. Default by an Underwriter.
-------------------------
6.1 Default Not Exceeding 10% of Firm Securities or Option Securities.
-----------------------------------------------------------------
If any Underwriter or Underwriters shall default in its or their obligations to
purchase the Firm Securities or the Option Securities, if exercised, hereunder,
and if the number of the Firm Securities or the Option Securities with respect
to which such default relates does not exceed in the aggregate 10% of the number
of Firm Securities or Option Securities which all Underwriters have agreed to
purchase hereunder, then such Firm Securities or Option Securities to which the
default relates shall be purchased by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Securities or Option Securities. In
-------------------------------------------------------------
the event that such default relates to more than 10% of the Firm Securities or
Option Securities, you may in your discretion arrange for yourself or for
another party or parties to purchase such Firm Securities or Option Securities
to which such default relates on the terms contained herein. If within one
business day after such default relating to more than 10% of the Firm Securities
or Option Securities you do not arrange for the purchase of such Firm Securities
or Option Securities, then the Company shall be entitled to a further period of
one business day within which to procure another party or parties satisfactory
to you to purchase said Firm Securities or Option Securities on such terms. In
the event that neither you nor the Company arrange for the purchase of the Firm
Securities or Option Securities to which a default relates as provided in this
Section 6, this Agreement may be terminated by you or the Company (but only with
respect to the obligations relating to the Option Securities if such default
occurs after the Closing Date) without liability on the part of the Company
(except as provided in Section 3.15 and Section 5.1 hereof) or the several
Underwriters but nothing herein shall relieve a defaulting Underwriter of its
liability, if any, to the other several Underwriters and to the Company for
damages occasioned by its default hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Securities
----------------------------
or Option Securities to which the default relates are to be purchased by the
non-defaulting Underwriters, or are to be purchased by another party or parties
as aforesaid, you or the Company shall have the right to postpone the Closing
Date or the Option Closing Date for a reasonable period, but not in any event
exceeding five business days, in order to effect whatever changes may thereby be
made necessary in the Registration
35
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment to the Registration Statement or
the Prospectus which in the opinion of counsel for the Underwriters may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any party substituted under this Section 6 with like effect as if it had
originally been a party to this Agreement with respect to such Securities.
7. Additional Covenants.
--------------------
7.1 Board Designee. For a period of not less than five years from the
--------------
Effective Date, the Company will recommend and use its best efforts to elect a
designee of the Representative, at the option of the Representative, either as a
member of or a non-voting advisor to the Board of Directors of the Company.
Such designee, if elected or appointed, shall attend meetings of the Board and
receive no more or less compensation than is paid to other non-management
directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings, including, but not limited
to, food, lodging and transporta tion. To the extent permitted by law, the
Company will agree to indemnify the Representative and its designee for the
actions of such designee as a director of the Company. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it will, if possible, include each of the Representative
and its designee as an insured under such policy. If the Representative does
not exercise its option to designate a member of the Company's Board of
Directors, the Representative shall nevertheless have the right to send a
representative (who need not be the same individual from meeting to meeting) to
observe each meeting of the Board of Directors. The Company agrees to give the
Representative written notice of each such meeting and to provide the
Representative with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the other directors.
7.2 [Intentionally Omitted.]
------------------------
7.3 Rule 144 Sales. During the five year period following the Effective
---------------
Date, the Representative shall have the right to purchase for the
Representative's account or to sell for the account of the Company's officers,
directors and Principal Stockholders any securities sold pursuant to Rule 144
under the Act. Each of the officers, directors and Principal Stockholders ("144
Sellers") will agree to consult with the Representative with regard to any such
sales and will offer the Representative the exclusive opportunity to purchase or
sell such securities on terms at least as favorable to the 144 Sellers as they
can secure elsewhere. If the Represen tative fails to accept in writing any
such proposal for sale by the 144 Sellers within three business days after
receipt of a notice containing such proposal, then the Representative shall have
no claim or right with respect to any such sales contained in any such notice.
If, thereafter, such proposal is modified in any material respect, the 144
Sellers shall adopt the same procedure as with respect to the original proposal.
7.4 Press Releases. Except as required by law, the Company will not
--------------
issue a press release or engage in any other publicity until 25 days after the
Effective Date without the Representative's prior written consent.
7.5 Form S-8 or any Similar Form. The Company shall not file a
----------------------------
Registration Statement on Form S-8 (or any similar or successor form) for the
registration of shares of Common Stock
36
underlying stock options for a period of one year from the Effective Date
without the Representative's prior written consent.
7.6 Employment Agreements. On or before the Closing Date, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into employment agreements having terms
of five years from the Effective Date and containing such other terms and
conditions as shall have been approved by the Representative.
7.7 Compensation and Other Arrangements. The Company hereby agrees that,
-----------------------------------
for a period of three years from the Effective Date, all the compensation and
other arrangements between the Company and its officers, directors and
affiliates shall be approved by a Compensation Committee of the Company's Board
of Directors, a majority of the members of which shall have no affiliation or
other relationship with the Company other than as directors.
8. Representations and Agreements to Survive Delivery. Except as the context
--------------------------------------------------
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriters and Company, including the indemnity agreements contained in
Section 5 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Underwriters, the Company or
any controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the several Underwriters until the
earlier of the expiration of any applicable statute of limitations and the
seventh anniversary of the later of the Closing Date or the Option Closing Date,
if any, at which time the representations, warranties and agreements shall
terminate and be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
--------------------------------------------------------
9.1 Effective Date. This Agreement shall become effective on the
--------------
Effective Date at the time that the Registration Statement is declared
effective.
9.2 Termination. You shall have the right to terminate this Agreement at
-----------
any time prior to any Closing Date, (i) if any domestic or international event
or act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, The Boston 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 fixed, or maximum
ranges for prices for securities shall have been required on the over-the-
counter market by the NASD or by order of the Commission or any other government
authority having jurisdiction, or (iii) if the United States shall have become
involved in a war or major hostilities, or (iv) if a banking moratorium has been
declared by a New York State or federal authority, or (v) if a moratorium on
foreign exchange trading has been declared which materially adversely impacts
the United States securities market, or (vi) if the Company shall have sustained
a material loss 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 your opinion, make it inadvisable to proceed with the
delivery of the Securities, or
37
(vii) if ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall no longer serve the Company
in his present capacities, or (viii) if any of the Acquisition Agreement, the
Conversion Agreement or the Preferred Stock Exchange Agreement is terminated, or
(ix) if the Company has breached any of its representations, warranties or
obligations hereunder, or (x) if the Representative shall have become aware
after the date hereof of such a material adverse change in the condition
(financial or otherwise), business, or prospects of the Company, Lehi, Plymouth
and Steamboat L.L.C., or such adverse material change in general market
conditions as in the Representative's judgment would make it impracticable to
proceed with the offering, sale and/or delivery of the Securities or to enforce
contracts made by the Representative for the sale of the Securities.
9.3 Notice. If you elect to prevent this Agreement from becoming
------
effective or to terminate this Agreement as provided in this Section 9, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
9.4 Expenses. In the event that this Agreement shall not be carried out
--------
for any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.15 hereof.
9.5 Indemnification. Notwithstanding any contrary provision contained in
---------------
this Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
10. Miscellaneous.
-------------
10.1 Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Representative:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to the Company:
U.S. Energy Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Copy to:
▇▇▇▇ & Priest, LLP
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
10.2 Headings. The headings contained herein are for the sole purpose of
--------
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may only be amended by a written
---------
instrument executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other
----------------
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit of
--------------
and shall be binding upon the Representative, the Underwriters, the Company and
the controlling persons, directors and officers referred to in Section 5 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.
10.6 Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of, relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York or the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 10.1 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The Company and the Representative
agree that the prevailing party(ies) in any such action shall be entitled to
38
recover from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
10.7 Execution in Counterparts. This Agreement may be executed in one or
-------------------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
10.8 Waiver, Etc. The failure of any of the parties hereto to at any
------------
time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way effect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or non-
fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
If the foregoing correctly sets forth the understanding between the
Representative, for itself and as Representative of the Underwriters listed in
Schedule 1 hereto, and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
U.S. ENERGY SYSTEMS, INC.
By:_______________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
Accepted as of the date first
above written.
New York, New York
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ INC.
(for itself and as Representative
of the Underwriters listed on
Schedule 1 hereto)
39
By:______________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chairman
40
SCHEDULE 1
==========
U.S. ENERGY SYSTEMS, INC.
3,100,000 SHARES OF COMMON STOCK AND
3,100,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITER NUMBER OF SHARES OF COMMON NUMBER OF WARRANTS
----------- STOCK TO BE PURCHASED TO BE PURCHASED
--------------------------- ------------------
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Inc.
--------- ---------
3,100,000 3,100,000
41
SCHEDULE 2
==========
NAME NUMBER OF SHARES LOCK-UP PERIOD
---- ---------------- ==============
42
SCHEDULE 3
==========
OTHER COUNSEL OPINION SUBJECT
------------- ---------------
▇▇▇▇ & Priest, LLP The Company
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ ▇.▇. Lehi
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. and
▇▇▇▇ ▇. ▇▇▇▇ Plymouth
▇▇▇▇▇▇▇ & ▇▇▇▇ Steamboat L.L.C.
NRG
43
SCHEDULE 4
==========
ACCOUNTING FIRM COMFORT LETTER SUBJECT
--------------- ----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company, LLP The Company
Traveller ▇▇▇▇ & Mower, PC Lehi
Price Waterhouse LLP Plymouth
▇▇▇▇▇▇▇, ▇▇▇▇ & Co., PC Steamboat L.L.C.
44