ONTRO, INC.
00000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx, Xxxxxxxxxx 00000
UNDERWRITING AGREEMENT
____________, 1997
Xxxxxx Xxxxxxx & Associates, Inc.
As Representative of the Several Underwriters
Named in Schedule I hereto
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Ladies and Gentlemen:
ONTRO, INC., a California corporation (the "Company"), proposes to issue
and sell to the Underwriters named in Schedule I hereto (the "Underwriters")
pursuant to this Underwriting Agreement (the "Agreement"), an aggregate of
2,900,000 Units, each Unit consisting of one (1) share of Common Stock, no par
value per share (the "Shares"), and one (1) Redeemable Common Stock Purchase
Warrant (the "Warrants"), each exercisable to purchase one (1) share of Common
Stock at any time commencing on the effective date of the Registration Statement
(the "Effective Date") and ending on the third anniversary of the Effective
Date. The Warrant exercise price, subject to adjustment described below, will
be $_______ (150% of the initial public offering price of the Units). The
Warrants are subject to redemption at $.05 per Warrant on thirty (30) days'
prior written notice if the closing bid price of the Common Stock as reported on
AMEX exceeds 200% of the initial public offering price of the Units for a
period of twenty (20) consecutive trading days ending within thirty (30) days of
the notice of redemption. The Shares and the Warrants will be separately
transferable immediately upon issuance. In addition, the Company and L. L.
Xxxxxxxxxxxxx Company, Inc. ("LLK") propose to grant to the Underwriters the
option referred to in Section 2(b) to purchase all or any part of an aggregate
of 435,000 additional Units. The shares of Common Stock included in such
additional Units will be offered by LLK and the Warrants included in such
additional units will be offered by the Company. Unless the context otherwise
indicates, the term "Units" shall include the additional Units referred to
above.
The aggregate of 2,900,000 Units, together with all or any part of the
435,000 Units which the Underwriters have the option to purchase, and the Shares
and the Warrants comprising such Units, are herein called the "Units". The
Common Stock of the Company to be outstanding after giving effect to the sale of
the Shares is herein called the "Common Stock." The Units, and the Shares and
Warrants included in the Units (including the 435,000 Units which the
Underwriters have the option to purchase) are herein collectively called the
"Securities."
You have advised the Company and LLK that you desire to purchase the Units,
and that you have been authorized to execute this Agreement as representative of
the Underwriters (the
1
"Representative"). The Company and LLK confirm the agreements made by it
with respect to the purchase of the Units by you, as follows:
1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) A registration statement (File No. 333-39253) on Form SB-2
relating to the public offering of the Units, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act") and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act. "Preliminary
Prospectus" shall mean each prospectus filed pursuant to Rule 430 of the Rules
and Regulations. The registration statement (including all financial schedules
and exhibits) as amended at the time it becomes effective and the final
prospectus included therein are respectively referred to as the "Registration
Statement" and the "Prospectus", except that (i) if the prospectus first filed
by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations
or otherwise utilized and not required to be so filed shall differ from said
prospectus as then amended, the term "Prospectus" shall mean the prospectus
first filed pursuant to Rule 424(b) or Rule 430A or so utilized from and after
the date on which it shall have been filed or utilized, and (ii) if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as defined in Section 2(b)), the term "Registration
Statement" shall include such registration statement as so amended, and the term
"Prospectus" shall include the prospectus as so amended or supplemented, or
both, as the case may be.
(b) At the time the Registration Statement becomes effective and at
all times subsequent thereto up to the Option Closing Date (hereinafter
defined), (i) the Registration Statement and Prospectus will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made; provided, however,
that the Company does not make representations, warranties or agreements as to
information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you or on behalf of any Underwriter through you
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the heading "Underwriting" and the identity of counsel
to the Underwriters under the heading "Legal Matters" constitute the only
information furnished in writing by you, or by any Underwriter through you, for
inclusion in the Registration Statement and Prospectus, as the case may be.
2
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify is not reasonably likely to materially adversely affect the Company's
business, properties or financial condition.
(d) The authorized capital stock of the Company as of the Effective
Date was as set forth under "Capitalization" in the Prospectus. The shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and non-assessable;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company. The Units, Shares,
Warrants and Representative's Option (as that term is defined in Section 12
herein, the "Representative's Option") conform in all material respects to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Units and Shares are duly authorized and, when issued,
delivered and paid for pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. The certificates evidencing the Shares are
in valid and proper legal form. The Warrants and the Representative's Option
will be exercisable for shares of Common Stock of the Company in accordance with
the terms of the Warrants and the Representative's Option and at the prices
therein provided for. The shares of Common Stock have been duly authorized and
reserved for issuance upon such exercise, and such shares, when issued upon such
exercise in accordance with the terms of the Warrants and the Representative's
Option and when the price is paid, shall be fully paid and non-assessable.
Neither the filing of the Registration Statement nor the offering or sale of the
Units or any of the Securities as contemplated in this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any securities of the Company, except as
described in the Registration Statement.
(f) This Agreement, the Warrant Agreement and the Representative's
Option have been duly and validly authorized, executed and delivered by the
Company, and assuming due execution by the other party or parties hereto and
thereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except as rights
to indemnity and contribution hereunder may be limited by applicable law and
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Company has full power and lawful authority to authorize, issue and sell the
Securities to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the
Securities or the Representative's Option, except such as may be required under
the Act or state securities laws.
3
(g) Except as described in the Prospectus, the Company is not in
material violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement, the Warrant Agreement and the Representative's Option will not
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 imposition of any lien,
charge or encumbrance pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company are subject, which would have a material adverse effect on
the business, properties or financial condition of the Company, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company, as amended, or any statute or any
order, rule or regulation applicable to the Company of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company, which would have a material adverse effect on the business, properties
or financial condition of the Company.
(h) The Company owns no real property and, subject to the
qualifications stated in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to its business; all
of the leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and effect,
and, except as described in the Prospectus, the Company is not in default in any
respect with respect to any of the terms or provisions of any of such leases or
subleases which would have a material adverse effect on the business, properties
or financial condition of the Company, and no claim has been asserted by anyone
adverse to rights of the Company as lessor, sublessor, lessee or sublessee under
any of the leases or subleases mentioned above, or affecting or questioning the
right of the Company to continued possession of the leased or subleased premises
or assets under any such lease or sublease except as described or referred to in
the Prospectus, which would have a material adverse effect on the business
properties or financial condition of the Company; and the Company owns or leases
all such properties described in the Prospectus as are necessary to its
operations as now conducted and, except as otherwise stated in the Prospectus,
as proposed to be conducted as set forth in the Prospectus.
(i) KPMG Peat Marwick LLP, who have given their report on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are with respect
to the Company independent public accountants as required by the Act and the
Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved.
4
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, not in the ordinary course
of business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and there has not
been any change in the capital stock of, or any incurrence of long-term debt by,
the Company or any issuance of options, warrants or other rights to purchase the
capital stock of the Company or any adverse change or any development involving,
so far as the Company can now reasonably foresee, a prospective adverse change
in the condition (financial or other), net worth, results of operations,
business, key personnel or properties of it which would be material to the
business or financial condition of the Company, and the Company has not become
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course of
business.
(l) Except as set forth in the Prospectus, there is not now pending
nor, to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which, if adversely determined, would
result in any material adverse change in the condition (financial or other),
business prospects, net worth or properties of the Company; and, except as set
forth in the Prospectus, no labor disputes involving the employees of the
Company exist which, if adversely determined, would result in any material
adverse change in the condition (financial or otherwise), business prospects,
net worth or property of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company
which has not been adequately reserved for on the Company's balance sheet.
(n) The Company has sufficient licenses, permits and other
governmental authorizations currently required for the conduct of its business
or the ownership of its property as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, xxxx registrations,
copyrights and licenses necessary for the conduct of such business and has not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company is in violation of, or causes the Company to violate,
any law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or locality, the violation of which would have a
material adverse effect upon the condition (financial or otherwise), business
prospects, net worth or properties of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for foreign political office, or if made,
failed to disclose fully any such contribution made in violation of law, or (ii)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-
5
public duties, other than payments or contributions required or allowed by
applicable law. The Company's internal accounting controls and procedures
are sufficient to cause the Company to comply in all material respects with
the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as defined in Section 2(c)), all transfer
or other taxes (including franchise, capital stock or other tax, other than
income taxes imposed by any jurisdiction), if any, which are required to be paid
in connection with the sale and transfer of the Units to the Underwriters
hereunder will have been fully paid or provided for by the Company or LLK, as
applicable, and all laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Units, Shares or Warrants or to facilitate the
sale or resale of the Securities.
(s) The Company has no subsidiaries.
(t) Except for this Agreement and other agreements with the
Representative, the Company has not entered into any agreement pursuant to which
any person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(u) The Shares and Warrants have been approved for listing on the
American Stock Exchange.
(v) Except for such rights which have been waived or satisfied, no
holder of securities of the Company has any rights to the registration of
securities of the Company because of the filing of the Registration Statement or
otherwise in connection with the sale of the Units contemplated hereby.
(w) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940.
(x) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its respective business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance, failure to receive required permits,
licenses or other approvals or failure to
6
comply with the terms and conditions of such permits, licenses or approvals
will not in the aggregate have a material adverse effect on the Company.
(y) Each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that
is maintained, administered or contributed to by the Company for employees or
former employees of the Company has been maintained in compliance with its
respective terms and the requirements of any applicable statutes, orders, rules
and regulations, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). No prohibited transaction, within the
meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with
respect to any such plan, excluding transactions effected pursuant to a
statutory or administrative exemption. For each such plan that is subject to
the funding rules of Section 412 of the Code or Section 302 of ERISA, no
"accumulated funding deficiency", as defined in Section 412 of the Code, has
been incurred, whether or not waived, and the fair market value of the assets of
each such plan (excluding for these purposes accrued but unpaid contributions)
exceeded the present value of all benefits accrued under such plan determined
using reasonable actuarial assumptions.
(z) The Company maintains a system of internal accounting controls
that, taken as a whole, are sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (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
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its respective business, including, without
limitation, insurance covering real and personal property owned or leased by it
against theft, damage, destruction, acts of vandalism and all other material
risks customarily insured against, all of which insurance is in full force and
effect. The Company has no reason to believe that it will not be able to renew
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
respective business.
(bb) The Company has owns or possesses exclusive rights to use all
material patents, patent applications, trademarks, xxxx registrations,
copyrights and licenses held by Insta-Heat, Inc. ("IHI") and otherwise necessary
for the conduct of its business and has not received any notice of conflict with
the asserted rights of others in respect thereof.
B. REPRESENTATIONS AND WARRANTIES OF LLK.
(a) LLK is the lawful owner of the Shares of Common Stock to be sold
by it pursuant to this Agreement and has, and on the Option Closing Date will
have, good and clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever.
7
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the Underwriters,
free of all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
(c) LLK has, and on the Option Closing Date will have, full legal
right, power and authority to enter into this Agreement and the Custody
Agreement between LLK and Xxxxx Xxxxxx Shareholder Services, Custodian (the
"Custody Agreement") and to sell, assign, transfer and deliver such Shares in
the manner provided herein and therein, and this Agreement and the Custody
Agreement have been duly authorized, executed and delivered by or on behalf of
LLK and each of this Agreement and the Custody Agreement is a valid and binding
agreement of LLK enforceable against LLK in accordance with its terms, except as
rights to indemnity and contribution hereunder may be limited by applicable law
and except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(d) All information furnished by or on behalf of LLK relating to LLK
and LLK's Shares that is set forth in the Registration Statement and the
Prospectus is, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined) was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date, will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make such
information not misleading.
(e) Neither LLK nor any of LLK's affiliates directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, or had any other association with (within the meaning of
Article I of the Bylaws of the National Association of Securities Dealers, Inc.
(the "NASD")), any member firm of the NASD.
(f) This Agreement has been duly and validly authorized, executed and
delivered by LLK, and assuming due execution by the other party or parties
hereto and thereto, constitutes valid and binding obligations of LLK enforceable
against LLK in accordance with their respective terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
LLK has full power and lawful authority to authorize, issue and sell the
Securities to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the
Securities, except such as may be required under the Act or state securities
laws.
(g) Except as described in the Prospectus, LLK is in material
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement, will not
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 imposition of any lien,
charge or encumbrance pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which LLK is a party
or by which LLK may
8
be bound or to which any of the property or assets of LLK are subject, which
would have a material adverse effect on the business, properties or financial
condition of LLK, nor will such action result in any violation of the
provisions of the certificate of incorporation or the by-laws of LLK, as
amended, or any statute or any order, rule or regulation applicable to LLK of
any court or of any regulatory authority or other governmental body having
jurisdiction over LLK, which would have a material adverse effect on the
business, properties or financial condition of LLK.
(h) LLK has not taken and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Units, Shares or Warrants or to facilitate the sale or resale of
the Securities.
(i) LLK has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
2. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company agrees to issue and sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to buy from the Company at $_____ per Unit at
the place and time hereinafter specified, the number of Units set forth opposite
each Underwriter's name in Schedule I hereto (the "Firm Units").
Delivery of the Firm Units against payment therefor shall take place
at the offices of Xxxxxx Xxxxxxx & Associates, Inc., 0000 Xxxxxxxx Xxxxxxxxx,
Xxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m. New York time
on __________________, 1997, or at such other time and date, not later than 5
business days thereafter, as you may designate, such time and date of payment
and delivery for the Firm Units being herein called the "First Closing Date."
Time shall be of the essence and delivery at the time and place specified in
this subsection (a) is a further condition to the obligations of the
Underwriters hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company and LLK hereby grant the Underwriters an option to
purchase all or any part of an aggregate of 435,000 additional Units at the same
price per Unit as the Underwriters pay for the Firm Units being sold pursuant to
the provisions of subsection (a) of this Section 2 (such additional Units being
referred to herein as the "Option Units"). The shares of Common Stock included
in such Option Units will be offered by LLK and the Warrants included in such
Option Units will be offered by the Company. The purchase price for each
Warrant will be $.10. This option may be exercised on one occasion within 60
days after the Effective Date upon notice by you to the Company and LLK advising
each of them as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Units are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than five
9
full business days after the exercise of said option, nor in any event prior
to the First Closing Date, and such time and date is referred to herein as
the "Option Closing Date." Delivery of the Option Units against payment
therefor shall take place at the offices of Xxxxxx Xxxxxxx & Associates,
Inc., 0000 Xxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000.
Time shall be of the essence and delivery at the time and place specified in
this subsection (b) is a further condition to the obligations of the
Underwriters hereunder.
The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Units referred to in
subsection (a) above.
(c) The Company and LLK, as applicable, will make the certificates
for the Securities comprising the Units to be purchased by the Underwriters
hereunder available to you for checking at least two full business days prior to
the First Closing Date or the Option Closing Date (which are collectively
referred to herein as the "Closing Dates" and individually as a "Closing Date"),
as the case may be. The certificates shall be in such names and denominations
as you may request, at least two full business days prior to the relevant
Closing Dates. Time shall be of the essence and the availability of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company and
LLK, as applicable, to you for the several accounts of the Underwriters against
payment of the purchase price by you, at your option, by certified or bank
cashier's checks in New York Clearing House funds or by wire transfer, payable
to the order of the Company.
In addition, in the event the Underwriters exercise the option to
purchase from the Company and LLK all or any portion of the Option Units
pursuant to the provisions of subsection (b) above, payment for such Option
Units shall be made to or upon the order of the Company and LLK by you, for the
several accounts of the Underwriters at your option, by certified or bank
cashier's checks payable in New York Clearing House funds or by wire transfer,
at the offices of Xxxxxx Xxxxxxx & Associates, Inc. at the time and date of
delivery of such Option Units as required by the provisions of subsection (b)
above, against receipt of the certificates for such Option Units by you, for the
several accounts of the Underwriters registered in such names and in such
denominations as you may request. The shares of Common Stock included in such
Option Units will be offered by LLK and the Warrants included in such Option
Units will be offered by the Company. The purchase price for each Warrant will
be $.10.
It is understood that the Underwriters propose to offer the Units to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriters that:
10
(a) Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the Effective Date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have reasonably objected in writing or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (A) the completion by you of the distribution of the Units contemplated
hereby (but in no event more than nine months after the Effective Date) and (B)
25 days after the Effective Date, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion, may be
necessary or advisable in connection with the distribution of the Units.
Promptly after you or the Company is advised thereof, you will advise the
Company or the Company will advise you, as the case may be, and confirm the
advice in writing, of the receipt of any comments of the Commission, of the
effectiveness of any post-effective amendment to the Registration Statement, of
the filing of any supplement to the Prospectus or any amended Prospectus, of any
request made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop orders or other order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of the suspension of the qualification of the
Units for offering in any jurisdiction, or the institution of any proceedings
for any of such purposes, and will use its best efforts to prevent the issuance
of any such order and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the
Underwriters and selected dealers to use the Prospectus, as amended in
connection with the sale of the Units for such period not to exceed nine months
from the Effective Date as in the reasonable opinion of counsel for you the use
thereof is required to comply with the applicable provisions of the Act and the
Rules and Regulations. In case of the happening, at any time within such period
as a Prospectus is required under the Act to be delivered in connection with
sales by an underwriter or dealer, of any event of which the Company has
knowledge and which materially affects the Company or the Securities, or which
in the opinion of counsel for the Company or counsel for the Underwriters should
be set forth in an amendment to the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units, or in case it shall be necessary to amend
or supplement the Prospectus to comply with the Act or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The
11
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to
the Prospectus shall be without expense to the Underwriters, except that in
case the Underwriters are required, in connection with the sale of the Units,
to deliver a Prospectus nine months or more after the Effective Date, the
Company will upon request of and at your expense, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriters with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
(b) The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder in connection with the offering and issuance of
the Units.
The Company will use its best efforts to qualify or register the Securities
for sale under the securities or "blue sky" laws of such jurisdictions as you
may have designated in writing prior to the execution hereof and will make such
applications and furnish such information to counsel for the Underwriters as may
be required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service process in any
jurisdiction. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as you may reasonably request. Legal fees for
such qualifications shall be itemized based on the time expended and costs
incurred, shall be reasonable and shall not in any event exceed $30,000.00,
exclusive of filing fees.
(c) The Company will instruct its transfer agent to provide you with
copies of the Depository Trust Company stock transfer sheets on a weekly basis
for a period of six months from the First Closing Date and on a monthly basis
thereafter for six additional months.
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective on the Effective Date.
(e) For so long as the Company is a reporting company under either
Section 12(g), 13 or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, stockholders' equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information of a
public nature as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the
12
extent the accounts of the Company and its subsidiary or subsidiaries are
consolidated in reports furnished to its stockholders generally.
(g) The Company will deliver to you at or before the First Closing
Date one signed copy of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon your order, from time to time until the
Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may reasonably
request. The Company will deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
(h) The Company will make generally available to its security holders
and deliver to you as soon as it is practicable to do so, but in no event later
than 90 days after the end of 12 months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date which shall satisfy the
requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(j) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
opinion of Freshman, Marantz, Orlanski, Xxxxxx & Xxxxx, counsel to you may be
reasonably necessary or advisable in connection with the distribution of the
Units and will use its best efforts to cause the same to become effective as
promptly as possible.
(k) Prior to the Effective Date, the Company will cause LLK and all
of the Company's directors, executive officers and shareholders to enter into a
written agreement with the Representative, which, among other things, shall
provide that for a period of 12 months following the closing date of the
Offering, such persons will not sell, assign, hypothecate or pledge any of the
shares of Common Stock of the Company owned by them on the Effective Date, or
subsequently acquired by the exercise of any options or warrants or conversion
of any convertible security of the Company held by them on the Effective Date
directly or indirectly, except with your prior written consent, which consent
may be unreasonably withheld and such shareholders will permit all certificates
evidencing those shares to be stamped with an appropriate restrictive legend,
and will cause the transfer agent for the Company to note such restrictions on
the transfer books and records of the Company.
(l) The Company shall, upon the initial filing of the Registration
Statement, make all filings required to obtain approval for the quotation of the
Shares and Warrants on the American Stock Exchange and will use its best efforts
to effect and maintain the aforesaid
13
approval, or similar approval from the New York Stock Exchange or Nasdaq
National Market for at least five (5) years from the date of this Agreement.
Within ten (10) days after the Effective Date, the Company shall cause the
Company to be listed in the Xxxxx'x OTC Industrial Manual or in Standard and
Poor=s corporation reports and cause such listing to be maintained for five
years from the date of this Agreement.
(m) The Company represents that it has not taken, and agrees that it
will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Units, Shares or Warrants or
to facilitate the sale or resale of the Securities.
(n) During the period of the offering, and for a period of eighteen
(18) months from the Effective Date, the Company will not sell or otherwise
dispose of any securities of the Company (except for up to 545,400 shares
reserved for issuance under the Company's Stock Option Plan) without your prior
written consent, which consent may be withheld in your reasonable discretion.
For a period of twenty-four (24) months from the Effective Date, the Company
will not issue, sell or otherwise dispose of any securities of the Company
pursuant to Regulation S under the Act without your prior written consent, which
consent will not be unreasonably withheld.
(o) The Company shall retain a public relations firm acceptable to
you, and shall continue to retain such firm, or any alternate firm acceptable to
you, for a minimum period of one (1) year.
(p) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Warrants and the Representative=s Option outstanding from time to time.
(q) So long as any Warrants are outstanding, the Company will cause
the amendments to the Registration Statement, which may be on Form XX-0, X-0,
X-0 or S-3, to become effective in compliance with the Act and without any
lapse of time between the effectiveness of any such post-effective
amendments, and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to each
Underwriter and each dealer as many copies of each such Prospectus as such
Underwriters or dealers may reasonably request. In addition, for so long as
any Warrant is outstanding, the Company will provide you with copies of all
filings made by the Company pursuant to the provisions of the Act and the
Securities Exchange Act of 1934, as amended.
(r) The Company shall deliver to you, at the Company's expense, three
(3) bound volumes in form and content acceptable to you, containing the
Registration Statement and all exhibits filed therewith, and all amendments
thereto, and all other material correspondence, filings, certificates and other
documents filed and/or delivered in connection with this offering. The Company
shall use its best efforts to deliver such volumes with one hundred eighty (180)
days of the First Closing Date.
14
(s) The Company shall deliver to you an executed financial consulting
agreement in form and substance acceptable to you whereby you agree to act as a
financial consultant for a period of two years from the effective date for a fee
of $3,000 per month payable in full upon the First Closing Date.
(t) For a period of forty-eight (48) months from the First Closing
Date, the Representative shall have the right to designate one member of the
Board of Directors provided that the designee is acceptable to the Company and
each of Xxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxx and LLK shall vote the shares of the
Company held by them in favor of electing such designee to the Board of
Directors of the Company. If notified by the Representative of its election to
designate said member, the Company will cause such election to occur within 30
days of the date of election. If the Representative requests said inclusion of
designee, this request shall be satisfied by a resolution of the Board of
Directors increasing the authorized number of directors to accommodate the
designee and then electing such designee to fill the newly-created vacancy. In
addition, the Company shall cause such designee to be on the slate of directors
presented to the Company=s stockholders for election at any annual or special
meeting of stockholders where directors of the Company are elected and the
Company and each of Xxxxx X Xxxxxxx, Xxxxx X. Xxxxxxxx and LLK shall cause such
designee to be included in any of their respective proxy material prepared for
use at such meeting. Such members shall be entitled to the same compensation,
reimbursements and indemnification as other members of the Company=s Board of
Directors. In the event that the Company is unable to obtain the Directors= and
Officers= Liability Insurance described in subparagraph (v) below, the
Representative shall have the right for such forty-eight (48) month period to
designate a consultant to the Board of Directors of the Company, which
consultant shall have the right to attend all Board and Board committee meetings
and shall be compensated on the same basis as outside members of the Board.
(u) The Company shall have acquired reasonable amount of Director and
Officer Liability Insurance (provided that such insurance can be obtained at a
reasonable cost as determined by the Company and the Representative) from a
responsible insurer, all satisfactory to the Representative and the Company.
(v) The Company will not solicit Warrant exercises other than through
the Representative. Upon exercise of any Warrants, the Company will pay the
Representative a fee of 2% of the aggregate exercise price, if (i) the market
price of the Company Common Shares on the date the Warrant is exercised is
greater than the then exercise price of the Warrant; (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. who is so designated in writing by the holder exercising the
Warrant; (iii) the Warrant is not held in a discretionary account except where
prior specific written approval for the exercise has been received; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; (v) the solicitation of the
exercise of the Warrant was not in violation of the Exchange Act; and (vi) the
Representative provides bona fide services in connection with the solicitation
of the Warrant. No solicitation fee will be paid to the Representative on
Warrants exercised within one year of the Effective Date or on Warrants
voluntarily exercised at any time without solicitation.
(w) The Company=s monthly burn rate after the Offering will not
exceed $185,000 without the prior written consent of the Representative, for a
period of eighteen (18)
15
months after the Offering, such limitation shall be exclusive of amounts
expended for equipment, facilities and research and development.
4. CONDITIONS OF OBLIGATIONS OF XXXXXX XXXXXXX & ASSOCIATES, INC.
The obligations of the Underwriters to purchase and pay for the Units which
they have agreed to purchase hereunder are subject to the accuracy (as of the
date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 5:00 p.m., New York time, on
the date of this Agreement, or at such later time or on such later date as to
which you may agree in writing; on the Closing Dates, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to the knowledge of any Underwriter or to the knowledge of the
Company, shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Freshman, Marantz, Orlanski, Xxxxxx & Xxxxx, counsel
to you; and no stop order shall be in effect denying or suspending effectiveness
of the Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of:
(i) Xxxxxx Xxxxxxx LLP, counsel for the Company and Xxxxxxx X.
Xxxxx, Esq., counsel for LLK, in form and substance reasonably satisfactory
to counsel for you, to the effect that:
(A) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of California and is duly qualified or licensed to do business as a
foreign corporation in good standing in each other jurisdiction in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where (other than the
State of California) failure to so qualify will not have a material
adverse effect on the business, properties or financial condition of
the Company. The Company has the corporate power to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement, the Warrant Agreement and the Representative Warrants;
(B) the authorized capitalization of the Company as of the date
of the Prospectus was as set forth in the Prospectus; all of the
shares of the Company's outstanding stock requiring authorization for
issuance by the Company's Board of Directors have been duly authorized
and validly issued, are fully paid and non-
16
assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock of the Company have
not been issued in violation of the preemptive rights of any
stockholder and the stockholders of the Company do not have any
preemptive rights or other rights to subscribe for or to purchase;
there are no restrictions upon the voting or transfer of, any of the
Shares, except as otherwise set forth in the Registration Statement;
the Common Stock, the Warrants, the Underwriter's Warrant and the
Warrant Agreement dated as of December 5, 1997 between and among the
Company and Xxxxx Xxxxxx Shareholder Services (the "Warrant Agreement")
conform in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares and Warrants to be issued as
contemplated in the Registration Statement and this Agreement have been
duly authorized and, when paid, will be validly issued, fully paid and
non-assessable and free of preemptive rights contained in the Company's
certificate of incorporation or By-laws, or any other document,
instrument or agreement known to counsel; a sufficient number of
shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and the Representative's Option; neither the filing of
the Registration Statement nor the offering or sale of the Securities
as contemplated by this Agreement gives rise to any registration
rights, or other rights, known to counsel, other than those
contemplated by the Representative's Option or which have been waived
or satisfied, for or relating to the registration of the Securities.
The Company has no subsidiaries;
(C) this Agreement, the Warrant Agreement and the
Representative's Option (sometimes hereinafter collectively referred
to as the "Representative Agreements") have been duly and validly
authorized, executed and delivered by the Company, and assuming due
execution and delivery of this Agreement by you, and of the Warrant
Agreement by you and the Warrant Agent, all of such agreements are, or
when duly executed will be, the valid and legally binding obligations
of the Company except as enforceability may be limited by bankruptcy,
insolvency, moratorium or other laws affecting the rights of
creditors, or by general equitable principles; provided that no
opinion need be expressed as to the enforceability of the indemnity
provisions contained in Section 6 or the contribution provisions
contained in Section 7 of this Agreement;
(D) the certificates evidencing the Shares and Warrants are in
valid and proper legal form; the Warrants and the Representative's
Option will be exercisable for shares of Common Stock of the Company
in accordance with the terms of the Warrants and the Representative's
Option and at the prices therein provided for; the shares of Common
Stock of the Company issuable upon exercise of the Warrants and the
Underwriter's Warrants have been duly authorized and reserved for
issuance upon such exercise, and such shares, when issued upon such
exercise in accordance with the terms of the Warrants and the
Representative=s Option and when the price is paid shall be fully paid
and non-assessable;
(E) Such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which are
required to
17
be described or referred to in the Registration Statement which are
not so described or referred to;
(F) The execution and delivery of this Agreement, the Warrant
Agreement and the Representative's Option and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated will not result in a
violation of, or constitute a default under, the certificate or
articles of incorporation or by-laws of the Company, or in a violation
of or default under any obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any of the contracts, indentures, mortgages, loan
agreements, leases, joint ventures or other agreements or instruments
to which the Company is a party that are filed as Exhibits to the
Registration Statement or otherwise known to counsel;
(G) The Registration Statement has become effective under the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, no
proceedings for that purpose have been instituted or are pending
before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except, in the case of both the
Registration Statement and any Amendment thereto, and the Prospectus
and any supplement thereto for the financial statements and notes and
schedules thereto, and other financial information or statistical data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations;
(H) All descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts,
plans, options and other documents are accurate and fairly present the
information required to be shown, and such counsel is familiar with
all contracts and other documents referred to in the Registration
Statement and the Prospectus and any such amendment or supplement, or
filed as exhibits to the Registration Statement, and such counsel does
not know of any contracts or documents of a character required to be
summarized or described therein or to be filed as exhibits thereto
which are not so summarized, described or filed;
(I) No authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the
execution, delivery and performance of this Agreement, the Warrant
Agreement or the Underwriter's Warrant by the Company or in connection
with the taking of any action contemplated herein or therein, or the
issuance of the Underwriter's Warrant or the Securities underlying the
Warrants and Underwriter's Warrant, other than registration or
qualification of the Securities under applicable state or foreign
securities or blue sky laws (as to which such counsel need express no
opinion) and registration under the Act; and
18
(J) The statements in the Registration Statement under the
caption "Description of Securities," to the extent that such
statements constitute a matter of law or legal conclusion have been
reviewed by such counsel and are correct in all material respects; and
(K) The Common Stock and Warrants have been approved for listing
on the American Stock Exchange.
(L) The Company is not, and after receipt of payment for the
Common Stock and Warrants will not be an "investment company" within
the meaning of Investment Company Act.
(M) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale", to the best knowledge of such
counsel, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under
the Registration Statement or included in the offering contemplated by
this Agreement.
(N) To the best of their counsel's knowledge, neither the
Company nor LLK is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable
to the Company or is in default in the performance and observance of
any obligation, agreement, covenant or condition contained in any
existing instrument.
Such counsel has participated in the preparation of the
Registration Statement and the Prospectus and although such counsel
has not reviewed the accuracy or completeness of the statements
contained in the Registration Statement or Prospectus nothing has come
to the attention of such counsel that caused such counsel to believe
that the Registration Statement or any amendment thereto at the time
it became effective contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of
a material fact or omits to state a material fact necessary in order
to make statements therein in light of the circumstances under which
they were made not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus
and any supplement thereto, for the financial statements, notes and
schedules thereto and other financial information and statistical data
contained therein, as to which such counsel need express no opinion);
In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or LLK or public officials
as to matters of fact; and in rendering such opinion may rely as to
all matters of law other than the law of the United States or of the
State of California upon opinions of counsel satisfactory to
19
you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled to so rely.
(ii) Xxxxx Xxxxxx Xxxxxx & XxXxxxx LLP, special intellectual property
counsel for the Company , in form and substance reasonably satisfactory to
counsel for you, to the effect that:
(A) IHI is listed in the records of the Patent and Trademark
Office as the holder of record of each of the patents listed on
Schedule II hereof (the "Patents") and each of the patent applications
listed on Schedule II hereof (the "Applications"). Such counsel knows
of no claims of third parties to any ownership interest or lien with
respect to any of the Patents or Applications. To such counsel's
knowledge, none of the Applications has been rejected.
(B) To such counsel's knowledge, IHI is listed in the records of
the appropriate foreign office as the sole holder of record of each of
the foreign applications listed on Schedule III. Such counsel knows
of no claims of third parties to any of such foreign applications. To
such counsel=s knowledge, none of the foreign applications has been
rejected.
(C) The statements under the Prospectus captions "Risk Factors --
IHI License and --Patents and Proprietary Rights" (collectively,
the "Intellectual Property Portion") in the Effective Prospectus and
Final Prospectus insofar as such statements constitute summaries of
the Company=s rights to the Patents and Applications are in all
material respects accurate summaries and fairly summarize in all
material respects the legal matters, documents and proceedings
relating to such Patents and Applications described therein; to the
best knowledge of such counsel, the Company owns the rights to [ ]
issued U.S. patents and [ ] pending U.S. Applications.
(D) Such counsel is not aware of any facts that would lead such
counsel to conclude that any of the Patents are invalid or that any
patent issued in respect of an Application would be invalid.
(E) Except as disclosed in the Intellectual Property Portion,
such counsel is not aware that any valid patent is infringed by the
activities of the Company described in the Effective Prospectus or
Final Prospectus or by the manufacture, use or sale of any product,
device, instrument, drug or other material made and used according to
the Applications or the Patents.
(F) Such counsel is not aware of any material defects of form in
the preparation or filing of the Applications on behalf of IHI. The
Applications are being diligently pursued by IHI.
20
(G) Such counsel knows of no pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or
otherwise violating any patents, copyrights or trade secrets.
(H) Such counsel is not aware of any pending or threatened
actions, suits proceedings or claim by others challenging the validity
or scope of the Applications or the Patents.
(I) Such counsel is not aware of any infringement on the part of
any third party of the Patents, Applications, trade secrets, know-how
or other proprietary rights of either IHI or the Company.
(J) Nothing has come to the attention of such counsel which
causes such counsel to believe that the information contained in the
Intellectual Property Portion of the Registration Statement, at the
time the Registration Statement became effective, contained an untrue
statement of a material fact or omitted or omits 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, or that, at the Closing Date, the information contained in
the Intellectual Property Portion of the Effective Prospectus and
Final Prospectus or any amendment or supplement to the Regulatory
Portion thereof contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Freshman, Marantz,
Orlanski, Xxxxxx & Xxxxx, counsel to the Underwriters, and you shall have
received from such counsel a signed opinion, dated as of the First Closing Date,
with respect to the validity of the issuance of the Units, the form of the
Registration Statement and Prospectus (other than the financial statements and
other financial data contained therein), the execution of this Agreement and
other related matters as you may reasonably require. The Company shall have
furnished to counsel for the Underwriters such documents as they may reasonably
request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter on and as of the Effective Date
and again on and as of the First Closing Date, in each instance describing
procedures carried out to a date within five (5) days of the date of the letter,
from KPMG Peat Marwick LLP, independent public accountants for the Company,
substantially in the form approved by you.
(e) At each of the Closing Dates, (i) the representations and
warranties of the Company and LLK contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date, and each
of the Company and LLK shall have performed all of its obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus and any
amendments or
21
supplements thereto shall contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations, and
shall in all material respects conform to the requirements thereof, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statements of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
under which they were made; (iii) there shall have been, since the respective
dates as of which information is given, no material adverse change in the
business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the Effective Date and the Company shall not have
incurred any material liabilities nor entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration
Statement, and no proceedings shall be pending or threatened against the
Company before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, property,
condition (financial or otherwise), results of operations or general affairs
of the Company. In addition, you shall have received, at the First Closing
Date, a certificate signed by the President and the principal financial or
accounting officer of each of the Company and LLK, dated as of the First
Closing Date, evidencing compliance with the provisions of this subsection
(e).
(f) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the several Underwriters to purchase and pay for the Option
Units referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, no stop order suspending the effectiveness thereof shall have
been issued, and no proceedings for that purpose shall have been instituted
or shall be pending, or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any reasonable request on the
part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of Freshman, Marantz, Orlanski,
Xxxxxx & Xxxxx, counsel to the Underwriters.
(ii) At the Option Closing Date there shall have been delivered to you
the signed opinion of Xxxxxx Xxxxxxx LLP, counsel for the Company, dated as
of the Option Closing Date, in form and substance reasonably satisfactory
to Freshman, Marantz, Orlanski, Xxxxxx & Xxxxx, counsel to the
Underwriters, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinion, where
appropriate, shall cover the Option Units rather than the Firm Units. If
the First Closing Date is the same as the Option Closing Date, such
opinions may be combined. In addition, at the Option Closing Date, you
shall have received the additional opinion,
22
dated as of the Option Date, of Xxxxxx Xxxxxxx LLP, counsel for the Company
and Xxxxxxx X. Xxxxx, Esq., counsel for LLK, in form and substance
reasonably satisfactory to counsel for you, to the effect that:
(a) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding
agreement of LLK, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general equitable
principles.
(b) The execution and delivery by LLK of, and the performance by
LLK of its obligations under, this Agreement and its Custody Agreement
will not contravene or conflict with, result in a breach of, or
constitute a default under, the charter or by-laws, partnership
agreement, trust agreement or other organizational documents, as the
case may be, of LLK, or to the best of such counsel's knowledge,
violate or contravene any provision of applicable law or regulation,
or violate, result in a breach of or constitute a default under the
terms of any other agreement or instrument to which LLK is a party or
by which it is bound or any judgment, order or decree applicable to
any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over such Selling Shareholder.
(c) LLK has good and valid title to all of the Common Stock
which may be sold by LLK under the Underwriting Agreement and has the
legal right and power, and all authorizations and approvals required
under its charter and bylaws or other organizational documents, as the
case may be, to enter into this Agreement and its Custody Agreement,
to sell, transfer and deliver all of the Common Stock which may be
sold by LLK under the Underwriting Agreement and to comply with its
other obligations under the Underwriting Agreement and the Custody
Agreement of LLK has been duly authorized, executed and delivered by
LLK and is a valid and binding agreement of LLK, enforceable in
accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(d) Assuming that the Underwriters purchase the Common Stock
which is sold by LLK pursuant to the Underwriting Agreement for value,
in good faith and without notice of any adverse claim, the delivery of
such Common Stock pursuant to the Underwriting Agreement will pass
good and valid title to such Common Stock, free and clear of any
security interest, mortgage, pledge, lieu encumbrance or other claim.
23
(e) No consent, approval, authorization or other order of, or
registration or filing with, any court or governmental authority or
agency, is required for the consummation by LLK of the transactions
contemplated in the Underwriting Agreement, except as required under
the Securities Act, applicable state securities or blue sky laws, and
from the NASD.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the President and the Chairman of the Board of each
of the Company and LLK dated the Option Closing Date, in form and substance
reasonably satisfactory to Freshman, Marantz, Orlanski, Xxxxxx & Xxxxx,
counsel to the Underwriters, substantially the same in scope and substance
as the certificates furnished to you at the First Closing Date pursuant to
Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from KPMG Peat
Marwick LLP, dated the Option Closing Date and addressed to you, confirming
the information in their letter referred to in Section 4(d) hereof as of
the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more
than five (5) days prior to the Option Closing Date which would require any
change in said letter if it were required to be dated the Option Closing
Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be
reasonably satisfactory in form and substance to you, and you and Freshman,
Marantz, Orlanski, Xxxxxx & Xxxxx, counsel to the Underwriters, shall have
been furnished with all such documents and certificates as you may request
in connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of
each of the Company and LLK or either of their compliance with any of the
covenants or conditions contained therein.
(g) If any of the conditions herein provided for in this Section
shall not have been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriters under this Agreement may be
canceled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of
any Underwriter to the Company and LLK, as applicable, except as otherwise
provided herein.
5 CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND LLK.
The obligation of the Company and LLK, as applicable, to sell and deliver
the Units is subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m. New York time, on the date of this Agreement, or on such later
date or time as you and the Company may agree in writing.
24
(b) On the Closing Dates, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company and LLK, provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company and LLK to sell and deliver the Option
Units on exercise of the option provided for in Section 2(b) hereof shall be
affected.
6 INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS BY THE COMPANY. The Company
agrees to indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any untrue
statements or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein, or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law, or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or Warrants or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i) or (ii) above, PROVIDED that the Company shall not be
liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all reasonable expenses (including the fees and
disbursements of counsel chosen by Xxxxxx Xxxxxxx & Associates, Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; PROVIDED, HOWEVER,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged
25
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Representative expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); AND PROVIDED, FURTHER, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased units, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to the provision hereunder and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Units
to such person, and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage, liability or
expense. The indemnity agreement set forth in this Section 6(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) INDEMNIFICATION OF THE UNDERWRITERS BY LLK. LLK agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto, or arises out of or is based
upon the omission or alleged omission to state therein a material fact required
to be stated thereon or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by LLK expressly for use therein,
or (ii) in whole or in part upon any inaccuracy in the representations and
warranties of LLK contained herein, or (iii) in whole or in part upon any
failure of LLK to perform its obligations hereunder or under law, or (iv) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or Warrants or
the offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based upon
any matter covered by clause (i) above, PROVIDED that LLK shall not be liable
under this clause (iv) to the extent that a court of competent jurisdiction
shall have determined by a final judgment that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its bad faith or
willful misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of counsel
chosen by Xxxxxx Xxxxxxx & Associates, Inc.) As such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; PROVIDED,
26
HOWEVER, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representative expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); AND PROVIDED, FURTHER,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased
units, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to the provision
hereunder and a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Units to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage, liability or expense. The indemnity agreement set
forth in this Section 6(a) shall be in addition to any liabilities that LLK
may otherwise have.
(c) INDEMNIFICATION OF THE COMPANY, LLK AND EACH OF THEIR DIRECTORS
AND OFFICERS. Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors, officers and employees,
LLK and each of its directors, officers and employees, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act, against any loss, claim, damage, liability or expense, as incurred to which
the Company, LLK or any such director, officer, employee or controlling person
may become subject, under the Securities Act, the Exchange Act, or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto, or arises out of or is based
upon the omission or alleged omission to state therein a material fact required
to be stated thereon or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company or LLK by the Representative
expressly for use therein; and to reimburse the Company, LLK, or any such
director, officer, employee or controlling person for any legal and other
expense reasonably incurred by the Company, LLK, or any such director, officer,
employee or controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action. Each of the Company and LLK hereby acknowledges that the
only information that the Underwriters have furnished to the Company and LLK
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (A) as the last paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters and (B) in the table in the first
paragraph, and information under the caption
27
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this Section
6(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 6 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 6, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 6 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the provisions to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (Xxxxxx Xxxxxxx & Associates. In the case of
Section 6(c) and Section 7), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 6 shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
6(d) hereof, the indemnifying party
28
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the entry
of judgment in any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
7 CONTRIBUTION.
If the indemnification provided for in Section 6 is for any reason held to
be unavailable to or otherwise insufficient to hold harmless an indemnified
party of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
paid or payable by such indemnified party, as incurred, as a result of any
losses, claims, damages, liabilities or expenses referred to therein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and LLK, on the one hand, and the Underwriters, on the other hand, from
the offering of the Units pursuant to this Agreement or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, and LLK, on
the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company, and LLK, on the one hand, and the Underwriters, on the
other hand, in connection with the offering of the Units pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Units pursuant to this Agreement (before
deducting expenses) received by the Company, and LLK, and the total underwriting
discount received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus bear to the aggregate initial public offering price
of the Units as set forth on such cover. The relative fault of the Company, and
LLK, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company, or
LLK, on the one hand, or the Underwriters, on the other hand, and the parties=
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 6(d), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 6(d) with
respect to notice of commencement of any action shall apply if a claim for
29
contribution is to be made under this Section 7; PROVIDED, HOWEVER, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 6(c) for purposes of indemnification.
The Company, LLK and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 7.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Units underwritten by it and
distributed to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters= obligations to contribute pursuant to this
Section 9 are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in SCHEDULE I. For
purposes of this Section 7, each officer and employee of an Underwriter and each
person, if any, who controls an Underwriter within the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director, officer and employee of the Company, and each
person, if any, who controls the Company with the meaning of the Securities Act
and the Exchange Act shall have the same rights to contribution as the Company.
8 COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of
the Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company, including
but not limited to the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the National Association of Securities Dealers, Inc.
("NASD") in connection with the filing required by the NASD relating to the
offering of the Units contemplated hereby; all expenses, including reasonable
fees (but not in excess of the amount set forth in Section 3(b)) and
disbursements of counsel to the Underwriters, in connection with the
qualification of the Units under the State Securities or Blue Sky Laws which you
shall designate; the cost of printing and furnishing to you copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Warrant Agreement and the Blue Sky Memorandum; the cost of
printing the certificates representing the Securities, the expenses of Company
due diligence meetings and presentations, (but not of any Underwriter or
Underwriter's counsel in connection therewith) and the expense of placing one or
more "tombstone" advertisements as directed by you. The Company shall pay any
and all taxes (including any transfer, franchise, capital stock or other tax
imposed by any jurisdiction) on sales to the Underwriters hereunder. The
Company will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any
30
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to you the balance of a non-accountable expense allowance
of 3.0% of the gross proceeds of the offering. In the event the over-allotment
option is exercised in part or in full, the Company shall pay to you at the
Option Closing Date an additional amount equal to 3.0% of the gross proceeds
received upon exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated for any reason, the Company
shall be liable for your actual accountable out-of-pocket expenses, including
legal fees. If the contemplated transactions are not consummated by reason of
breach by the Company of this Agreement or of any representation, warranty,
covenant or condition contained herein, the Company shall be liable for your
accountable out-of-pocket expenses.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from any Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless each Underwriter, and the Underwriters
agree to indemnify and hold harmless, severally and not jointly, the Company
from and against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), to which the indemnified party may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9 DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Option Closing Date, as the case may
be, any one or more of the several Underwriters fail or refuse to purchase Units
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Units which such defaulting Underwriters agreed but failed
or refused to purchase does not exceed 10% of the aggregate number of the Units
to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Units set forth opposite
their respective names on SCHEDULE A bears to the aggregate number of Firm Units
set forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Units which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Units
and the aggregate number of Units with respect to which such default occurs
exceeds 10% of the aggregate number of Units to be purchased on such date, and
arrangements satisfactory to the Representative and the Company for the purchase
of such Units are not made within 48 hours after such default, this Agreement
shall terminate without liability of any party to any other party except that
the provisions of Section 6, Section 7 and Section 8 shall at all times be
effective and shall survive such
31
termination. In any such case either the Representative or the Company shall
have the right to postpone the First Closing Date or the Option Closing Date,
as the case may be, but in no event for longer than seven days in order that
the required changes, if any, to the Registration Statement and the
Prospectus or any other document or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
9. Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10 EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until the earlier to occur of 10:00
A.M., New York time on the first full business day following the Effective Date
as you in your discretion shall first commence the initial public offering by
you of any of the Units. The time of the initial public offering shall mean the
time of release by you of the first newspaper advertisement with respect to the
Units, or the time when the Units are first generally offered by you to dealers
by letter or telecopier, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as provided above,
except that Sections 6, 7, 8, 13, 14, 15 and 16 shall remain in effect
notwithstanding such termination.
11 TERMINATION.
(a) This Agreement, except for Sections 6, 7, 8, 13, 14, 15 and 16,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2(b), if exercised, may be canceled, at any time prior to
the Option Closing Date, by you if in your judgment it is impracticable to offer
for sale or to enforce contracts made by you for the resale of the Units agreed
to be purchased hereunder, by reason of (i) the Company having sustained a
material loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited, (iii)
material governmental restrictions having been imposed on trading in securities
generally which are not in force and effect on the date hereof, (iv) a banking
moratorium having been declared by federal or New York State authorities, (v) an
outbreak of major international hostilities or other national or international
calamity having occurred, (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by you to have a material adverse impact on
the business, financial condition or financial statements of the Company, (vii)
any material adverse change in the financial or securities markets beyond normal
fluctuations in the United States having occurred since the date of this
Agreement, or (viii) any material adverse change having occurred, since the
respective dates for which information is given in the Registration Statement
and Prospectus, in the earnings, business, prospects or general condition of the
Company, financial or otherwise, whether or not arising in the ordinary course
of business.
32
(b If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or facsimile
transmission, confirmed by letter.
12. REPRESENTATIVE'S OPTION.
On the First Closing Date, the Company will issue to you, for a
consideration of $290.00 and upon the terms and conditions set forth in the form
of Representative's Option annexed as an exhibit to the Registration Statement,
the Representative's Option to purchase 290,000 Units. In the event of conflict
in the terms of this Agreement and the Representative's Option, the language of
the Representative's Option shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Existing Shareholders, where appropriate,
and you, set forth in or made pursuant to this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
persons and will survive delivery of and payment for the Units and the
termination of this Agreement.
14. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to any Underwriter, will be mailed, delivered
or telecopied and confirmed to it at Xxxxxx Xxxxxxx & Associates, Inc., 0000
Xxxxxxxx Xxxxxxxxx, Xxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, with a copy
sent to Xxxxxx X. Xxxxxxx, Esq. at Freshman, Marantz, Orlanski, Xxxxxx & Xxxxx,
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx Xxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000,
or if sent to the Company, will be mailed, delivered, or facsimiled and
confirmed to Ontro, Inc., 00000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxx, Xxxxxxxxxx
00000, with a copy sent to Xxxxx X. Xxxxxx, Esq. at Xxxxxx Xxxxxxx LLP, 0000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xx Xxxxx, Xxxxxxxxxx 00000-0000, or if sent to
LLK, will be mailed, delivered, or facsimiled and confirmed to L.L.
Xxxxxxxxxxxxx Company, Inc, 00000 Xxxxxxxx Xxxxxx Xxxxx, Xxxx Xxxxxx 00000, with
a copy to Xxxxxxx X. Xxxxx, Esq. at Law Offices of Xxxxxx X. Xxxxx, 00
Xxxxxxxxxxx, Xxxx Xxxxxx, Xxxxxxxxxx 00000.
15. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriters, the Company and, to the extent expressed, LLK, any person
controlling the Company, LLK or any Underwriter, and directors of the Company,
nominees for directors of the Company (if any) named in the Prospectus, the
officers of the Company who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns, and no other
person shall acquire for have any right under or by virtue of this Agreement.
The term
33
"successors and assigns" shall not include any purchaser, as such purchaser,
from any Underwriter of the Units.
16. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of California applicable to agreements made and to be entirely
performed within California.
34
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Underwriting Agreement, whereupon it will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
Ontro, Inc.
Dated: , 1997 By:
----------- -----------------------------------------------
Xxxxx X. Xxxxxxx
President and Chief Executive Officer
L.L. Xxxxxxxxxxxxx Company, Inc.
By:
----------------------------------------------
Name:
Its:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
Xxxxxx Xxxxxxx & Associates, Inc.
As Representative of the several Underwriters
named in Schedule I hereto
Date: , 1997 By:
----------- -----------------------------------------------
Name:
Its:
Authorized Officer
35
SCHEDULE I
Underwriting Agreement dated , 1997
------------
Number of Firm Units
Underwriter to be Purchased
----------- ----------------
Xxxxxx Xxxxxxx & Associates, Inc.
2,900,000
---------
---------
36
SCHEDULE II
UNITED STATES PATENTS AND PATENT APPLICATIONS
U.S. Patent Applications
Docket No. Title Serial No. Filing Date
---------- ----- ---------- -----------
Issued U.S. Patents
Docket No. Title Serial No. Filing Date
---------- ----- ---------- -----------
37
SCHEDULE III
FOREIGN PATENT APPLICATIONS
Registration or
Docket No. Country Title Application No. Status
---------- ------- ----- --------------- ------
38
