EXHIBIT 1.01
UNDERWRITING AGREEMENT
BETWEEN
SPECIALTY CATALOG CORP.
AND
GKN SECURITIES CORP.
DATED: ________________
TABLE OF CONTENTS
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PAGE
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INDEX OF DEFINITIONS................................................. v
1. Purchase and Sale of Securities................................... 1
1.1 Firm Securities............................................. 1
1.1.1 Purchase of Firm Securities.......................... 1
1.1.2 Payment and Delivery................................. 1
1.2 Over-Allotment Option....................................... 2
1.2.1 Option Securities.................................... 2
1.2.2 Exercise of Option................................... 2
1.2.3 Payment and Delivery................................. 2
1.3 Underwriter's Purchase Option............................... 2
1.3.1 Purchase Option...................................... 2
1.3.2 Payment and Delivery................................. 3
2. Representations and Warranties of the Company..................... 3
2.1 Filing of Registration Statement............................ 3
2.1.1 Pursuant to the Act.................................. 3
2.1.2 Pursuant to the Exchange Act......................... 3
2.2 No Stop Orders, Etc......................................... 3
2.3 Disclosures in Registration Statement....................... 3
2.3.1 Securities Act and Exchange Act Representation....... 3
2.3.2 Disclosure of Contracts.............................. 4
2.3.3 Prior Securities Transactions........................ 4
2.4 Changes After Dates in Registration Statement............... 4
2.4.1 No Material Adverse Change........................... 4
2.4.2 Recent Securities Transactions, Etc.................. 5
2.5 Independent Accountants..................................... 5
2.6 Financial Statements........................................ 5
2.7 Authorized Capital; Options; Etc............................ 5
2.8 Valid Issuance of Securities; Etc........................... 5
2.8.1 Outstanding Securities............................... 5
2.8.2 Securities Sold Pursuant to this Agreement........... 6
2.9 Registration Rights of Third Parties........................ 6
2.10 Validity and Binding Effect of Agreements................... 6
2.11 No Conflicts, Etc........................................... 6
2.12 No Defaults; Violations..................................... 7
2.13 Corporate Power; Licenses; Consents......................... 7
2.13.1 Conduct of Business................................. 7
2.13.2 Transactions Contemplated Herein.................... 7
2.14 Title to Property; Insurance................................ 7
2.15 Litigation; Governmental Proceedings........................ 7
2.16 Good Standing............................................... 8
2.17 Taxes....................................................... 8
2.18 Employees' Options.......................................... 8
2.19 Transactions Affecting Disclosure to NASD................... 8
2.19.1 Finder's Fees....................................... 8
PAGE
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2.19.2 Payments Within Twelve Months...................... 8
2.19.3 Use of Proceeds.................................... 9
2.19.4 Insiders' NASD Affiliation......................... 9
2.20 Foreign Corrupt Practices Act.............................. 9
2.21 Nasdaq Eligibility......................................... 9
2.22 Intangibles................................................ 9
2.23 Relations With Employees................................... 9
2.23.1 Employee Matters................................... 9
2.23.2 Employee Benefit Plans............................. 10
2.24 Officers' Certificate...................................... 10
2.25 Reserved................................................... 10
2.26 Agreements With Insiders................................... 10
2.26.1 Lock-Up Agreements................................. 10
2.26.2 Lock-up Agreements with Holders of Preferred Stock. 10
2.27 Subsidiaries............................................... 11
2.28 Unaudited Financials....................................... 11
2.29 Employment Agreements...................................... 11
2.30 UCC, Lien and Title Searches............................... 11
3. Covenants of the Company......................................... 11
3.1 Amendments to Registration Statement........................ 11
3.2 Federal Securities Laws..................................... 11
3.2.1 Compliance........................................... 11
3.2.2 Filing of Final Prospectus........................... 11
3.2.3 Exchange Act Registration............................ 12
3.3 Blue Sky Filing............................................. 12
3.4 Delivery to the Underwriter of Prospectuses................. 12
3.5 Events Requiring Notice to the Underwriter.................. 12
3.6 Review of Financial Statements.............................. 12
3.7 Reserved.................................................... 12
3.8 Nasdaq Maintenance.......................................... 13
3.9 Reserved.................................................... 13
3.10 Reserved.................................................... 13
3.11 Reports to the Underwriter.................................. 13
3.11.1 Periodic Reports, Etc............................... 13
3.11.2 Transfer Sheets and Weekly Position Listings........ 13
3.12 Agreements between the Underwriter and the Company.......... 13
3.12.1 Underwriter's Purchase Option....................... 13
3.13 Disqualification of Form S-1 (or other appropriate form).... 13
3.14 Payment of Expenses......................................... 13
3.14.1 General Expenses.................................... 13
3.14.2 Non-Accountable Expenses............................ 14
3.15 Application of Net Proceeds................................. 15
3.16 Delivery of Earnings Statements to Security Holders......... 15
3.17 Key Person Life Insurance................................... 15
3.18 Stabilization............................................... 15
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3.19 Internal Controls........................................... 15
3.20 Accountants and Lawyers..................................... 15
3.21 Transfer Agent.............................................. 15
3.22 Sale of Securities.......................................... 15
3.23 Options..................................................... 15
4. Conditions of the Underwriter's Obligations....................... 16
4.1 Regulatory Matters........................................... 16
4.1.1 Effectiveness of Registration Statement............... 16
4.1.2 NASD Clearance........................................ 16
4.1.3 No Blue Sky Stop Orders............................... 16
4.2 Company Counsel Matters...................................... 16
4.2.1 Effective Date Opinion of Counsel..................... 16
4.2.2 Closing Date and Option Closing Date Opinion
of Counsel........................................... 20
4.2.3 Reliance.............................................. 20
4.3 Cold Comfort Letter.......................................... 20
4.4 Officers' Certificates....................................... 21
4.4.1 Officers' Certificate................................. 21
4.4.2 Secretary's Certificate............................... 22
4.5 No Material Changes.......................................... 22
4.6 Delivery of Agreements....................................... 22
4.7 Opinion of Counsel for the Underwriter....................... 23
5. Indemnification................................................... 23
5.1 Indemnification of the Underwriter........................... 23
5.1.1 General............................................... 23
5.1.2 Procedure............................................. 23
5.2 Indemnification of the Company............................... 24
5.3 Contribution................................................. 24
5.3.1 Contribution Rights................................... 24
5.3.2 Contribution Procedure................................ 25
6. [Intentionally Omitted].......................................... 25
7. Additional Covenants............................................. 25
7.1 Attendance at Board Meetings................................ 25
7.2 Press Releases.............................................. 25
7.3 Form S-8 or any Similar Form................................ 25
7.4 Compensation and Other Arrangements......................... 26
8. Representations and Agreements to Survive Delivery............... 26
9. Effective Date of This Agreement and Termination Thereof......... 26
9.1 Effective Date.............................................. 26
9.2 Termination................................................. 26
9.3 Notice...................................................... 26
9.4 Expenses.................................................... 27
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9.5 Indemnification............................................. 27
10. Miscellaneous................................................... 27
10.1 Notices................................................... 27
10.2 Headings.................................................. 27
10.3 Amendment................................................. 27
10.4 Entire Agreement.......................................... 28
10.5 Binding Effect............................................ 28
10.6 Governing Law, Jurisdiction............................... 28
10.7 Execution in Counterparts................................. 28
10.8 Waiver, Etc............................................... 28
INDEX OF DEFINITIONS
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Term Section
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Act................................................................ 2.1.1
Closing Date....................................................... 1.1.2
Code...............................................................2.23.2
Commission......................................................... 2.1.1
Common Stock....................................................... 1.1.1
Company..................................................... Introductory
Paragraph
Effective Date..................................................... 1.2.2
ERISA..............................................................2.23.2
ERISA Plans........................................................2.23.2
Exchange Act....................................................... 2.1.2
Filing Date........................................................2.19.2
Firm Securities.................................................... 1.1.1
Insiders...........................................................2.26.1
Intangibles........................................................ 2.22
NASD...............................................................2.19.1
Nasdaq............................................................. 2.21
Option Closing Date................................................ 1.2.2
Option Securities.................................................. 1.2.1
Over-allotment Option.............................................. 1.2.1
Preliminary Prospectus............................................. 2.1.1
Principal Stockholders............................................. 7.2
Prospectus......................................................... 2.1.1
Public Securities.................................................. 1.2.1
Registration Statement............................................. 2.1.1
Regulations........................................................ 2.1.1
Securities..........................................................1.3.1
Subsidiary(ies).................................................... 2.27
Unaudited Financials............................................... 2.28
Underwriter................................................. Introductory
Paragraph
Underwriter's Purchase
Option........................................................... 1.3.1
Underwriter's Securities........................................... 1.3.1
Underwriter's Shares............................................... 1.3.1
SPECIALTY CATALOG CORP.
1,500,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
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New York, New York
October __, 0000
XXX Securities Corp.
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
The undersigned, Specialty Catalog Corp., a Delaware corporation (the
"Company"), hereby confirms its agreement with GKN Securities Corp. (being
referred to herein variously as "you" or the "Underwriter") as follows:
1. Purchase and Sale of Securities.
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1.1 Firm Securities.
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1.1.1 Purchase of Firm Securities. On the basis of the representations
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and warranties herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to the Underwriter and the
Underwriter agrees to purchase from the Company 1,500,000 shares of the
Company's Common Stock, at a purchase price of $________ per share ("Common
Stock") (these shares of Common Stock being referred to herein as "Firm
Securities").
1.1.2 Payment and Delivery. Delivery and payment for the Firm
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Securities shall be made at 10:00 A.M., New York time, on or before the third
business day following the date that the Firm Securities commence trading or at
such earlier time as the Underwriter shall determine, or at such other time as
shall be agreed upon by the Underwriter and the Company at the offices of the
Underwriter or at such other place as shall be agreed upon by the Underwriter
and the Company. The hour and date of delivery and payment for the Firm
Securities are called the "Closing Date." Payment for the Firm Securities shall
be made on the Closing Date at the Underwriter's election by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of the
Company upon delivery to you of certificates (in form and substance satisfactory
to the Underwriter) representing the Firm Securities for the account of the
Underwriter. The Firm Securities shall be registered in such name or names and
in such authorized denominations as the Underwriter may request in writing at
least two full business days prior to the Closing Date. The Company will permit
the Underwriter to examine and package the Firm Securities for delivery, at
least one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Securities except upon tender of payment
by the Underwriter for all the Firm Securities.
1.2 Over-Allotment Option.
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1.2.1 Option Securities. For the purposes of covering any over-
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allotments in connection with the distribution and sale of the Firm Securities,
the Underwriter is hereby granted an option to purchase up to an additional
225,000 shares of Common Stock from the Company ("Over-allotment Option"). Such
additional 225,000 shares of Common Stock are hereinafter referred to as the
"Option Securities." The Firm Securities and the Option Securities are
hereinafter referred to collectively as the "Public Securities." The purchase
price to be paid for the Option Securities will be the same price per Option
Security as the price per Firm Security set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted pursuant
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to Section 1.2.1 hereof may be exercised by the Underwriter as to all or any
part of the Option Securities at any time, from time to time, within forty-five
days after the effective date ("Effective Date") of the Registration Statement
(as hereinafter defined). The Underwriter will not be under any obligation to
purchase any Option Securities prior to the exercise of the Over-allotment
Option. The Over-allotment Option granted hereby may be exercised by the giving
of oral notice to the Company from the Underwriter, which must be confirmed by a
letter or telecopy setting forth the number of Option Securities to be
purchased, the date and time for delivery of and payment for the Option
Securities and stating that the Option Securities referred to therein are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Securities. If such notice is given at least
two full business days prior to the Closing Date, the date set forth therein for
such delivery and payment will be the Closing Date. If such notice is given
thereafter, the date set forth therein for such delivery and payment will not be
earlier than five full business days after the date of the notice. If such
delivery and payment for the Option Securities does not occur on the Closing
Date, the date and time of the closing for such Option Securities will be as set
forth in the notice (hereinafter the "Option Closing Date"). Upon exercise of
the Over-allotment Option, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth herein, the
Underwriter will become obligated to purchase, the number of Option Securities
specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option Securities will be
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at the Underwriter's election by certified or bank cashier's check(s) in New
York Clearing House funds, payable to the order of the Company at the offices of
the Underwriter or at such other place as shall be agreed upon by the
Underwriter and the Company upon delivery to you of certificates representing
such securities for the Underwriter. The certificates representing the Option
Securities to be delivered will be in such denominations and registered in such
names as the Underwriter requests not less than two full business days prior to
the Closing Date or the Option Closing Date, as the case may be, and will be
made available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to such Closing Date.
1.3 Underwriter's Purchase Option.
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1.3.1 Purchase Option. The Company hereby agrees to issue and sell to
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the Underwriter (and/or its designees) on the Closing Date, for an aggregate of
$100, an option ("Underwriter's Purchase Option") for the purchase of an
aggregate of 150,000 shares of Common Stock at an initial exercise price of ___
percent of the initial offering price of a share of Common Stock i.e., $________
per share of Common Stock ("Underwriter's Shares"). Each of the Underwriter's
Shares is identical to the Firm Securities. The Underwriter's Purchase Option
and the
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Underwriter's Shares are hereinafter referred to collectively as the
"Underwriter's Securities." The Public Securities and the Underwriter's
Securities are hereinafter referred to collectively as the "Securities."
1.3.2 Payment and Delivery. Delivery and payment for the Underwriter's
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Purchase Option shall be made on the Closing Date. The Company shall deliver to
the Underwriter, upon payment therefor, certificates for the Underwriter's
Purchase Option in the name or names and in such authorized denominations as the
Underwriter may request.
2. Representations and Warranties of the Company. The Company represents and
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warrants to the Underwriter as follows:
2.1 Filing of Registration Statement.
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2.1.1 Pursuant to the Act. The Company has filed with the Securities
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and Exchange Commission ("Commission") a registration statement and an amendment
or amendments thereto, on Form S-1, File No. 333-10793, including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Public Securities under the Securities Act of 1933, as amended ("Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations ("Regulations") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is hereinafter called the "Registration
Statement," and the form of the final prospectus dated the Effective Date (or,
if applicable, the form of final prospectus filed with the Commission pursuant
to Rule 424 of the Regulations), is hereinafter called the "Prospectus." The
Registration Statement has been declared effective by the Commission on the date
hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with the
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Commission a registration statement on Form 8-A, File No. ____________,
providing for the registration under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), of the Public Securities. Such registration of the
Securities has been declared effective by the Commission on the date hereof.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the best of the
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Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
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2.3.1 Securities Act and Exchange Act Representation. At the time the
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Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment or supplement
thereto contained and will contain all material statements which are required to
be stated therein in accordance with the Act and the Regulations, and conformed
and will conform in all material respects to the requirements of the
Act and the Regulations; neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, during such time period and on such
dates, contained or will contain any untrue statement of a material fact or
3
omitted or will omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, nor did they or will
they contain any untrue statement of a material fact or did they or will they
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. When any Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto at the time such filing was made
complied in all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section 2.3.1
does not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriter by the Underwriter expressly for use in the Registration Statement
or Prospectus or any amendment thereof or supplement thereto.
2.3.2 Disclosure of Contracts. The description in the Registration
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Statement and the Prospectus of contracts and other documents is accurate and
presents fairly the information required to be disclosed and there are no
contracts or other documents required to be described in the Registration
Statement or the Prospectus or to be filed with the Commission as exhibits to
the Registration Statement which have not been so described or filed. Each
contract or other instrument (however characterized or described) to which the
Company is a party or by which its property or business is or may be bound or
affected and (i) which is referred to in the Prospectus, or (ii) is material to
the Company's business, has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder. None
of the material provisions of such contracts or instruments violates or will
result in a violation of any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its respective assets or businesses,
including, without limitation, those relating to environmental laws and
regulations.
2.3.3 Prior Securities Transactions. No securities of the Company have
-----------------------------
been sold by the Company or by or on behalf of, or for the benefit of, any
person or persons controlling, controlled by, or under common control with the
Company within the three years prior to the date hereof, except as disclosed in
the Registration Statement.
2.4 Changes After Dates in Registration Statement.
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2.4.1 No Material Adverse Change. Since the respective dates as of
--------------------------
which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, business or business prospects of the Company, including, but not
limited to, a material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, whether or
not arising in the ordinary course of business, and (ii) there have been no
transactions entered into by the Company, other than those in the ordinary
course of business, which are material with respect to the condition, financial
or otherwise, or to the results of operations, business or business prospects of
the Company.
4
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
------------------------------------
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.
2.5 Independent Accountants. Deloitte & Touche LLC, whose report is filed
-----------------------
with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the notes
--------------------
thereto and supporting schedules included in the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company at the dates and for the periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved; and
the supporting schedules included in the Registration Statement present fairly
the information required to be stated therein.
2.7 Authorized Capital; Options; Etc. The Company had at the date or dates
---------------------------------
indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date and on the Closing Date
there will be no options, warrants, or other rights to purchase or otherwise
acquire any authorized but unissued shares of Common Stock of the Company,
including any issuances pursuant to anti-dilution provisions, or any security
convertible into shares of Common Stock of the Company, or any contracts or
commitments to issue or sell shares of Common Stock or any such options,
warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
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2.8.1 Outstanding Securities. All issued and outstanding securities of
----------------------
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company. The outstanding options and warrants to purchase
shares of Common Stock constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms. The authorized Common
Stock and outstanding options and warrants to purchase shares of Common Stock
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus. The offers and sales of the outstanding Common
Stock, options and warrants to purchase shares of Common Stock were at all
relevant times either registered or qualified under the Act and the applicable
state securities or Blue Sky Laws or exempt from such registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities have
------------------------------------------
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities
are not and will not be subject to the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company;
and all corporate action
5
required to be taken for the authorization, issuance and sale of the Securities
has been duly and validly taken. When issued, the Underwriter's Purchase Option
will constitute a valid and binding obligation of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of securities of
the Company called for thereby and the Underwriter's Purchase Option will be
enforceable against the Company in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.9 Registration Rights of Third Parties. Except as set forth in the
------------------------------------
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any
such securities of the Company under the Act or to include any such securities
in a registration statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. This Agreement has been
-----------------------------------------
duly and validly authorized by the Company and this Agreement constitutes, and
the Underwriter's Purchase Option when executed and delivered pursuant to this
Agreement will constitute, the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
------------------
Company of this Agreement and the Underwriter's Purchase Option and the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms hereof and thereof have been
duly authorized by all necessary corporate action and do not and will not, with
or without the giving of notice or the lapse of time or both, (i) result in a
breach of, or conflict with any of the terms and provisions of, or constitute a
default under, or result in the creation, modification, termination or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to the terms of any indenture, mortgage, deed of trust, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company is subject; (ii) result in any violation of
the provisions of the Certificate of Incorporation or the By-Laws of the
Company; (iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business; or (iv) have
a material adverse effect on any permit, license, certificate, registration,
approval, consent, license or franchise concerning the Company.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
-----------------------
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other material agreement or instrument
to which the Company is a party or by which the Company may be bound or to which
any of the properties or assets of the Company is subject. The Company is not
in violation of any term
6
or provision of its Certificate of Incorporation or By-Laws or in violation of
any franchise, license, permit, applicable law, rule, regulation, judgment or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business, except as
described in the Prospectus.
2.13 Corporate Power; Licenses; Consents.
-----------------------------------
2.13.1 Conduct of Business. The Company has all requisite corporate
-------------------
power and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own or lease its properties and conduct its business as
described in the Prospectus, and the Company is and has been doing business in
compliance with all such material authorizations, approvals, orders, licenses,
certificates and permits and all federal, state and local laws, rules and
regulations. The disclosures in the Registration Statement concerning the
effects of federal, state and local regulation on the Company's business as
currently contemplated are correct in all material respects and do not omit to
state a material fact.
2.13.2 Transactions Contemplated Herein. The Company has all corporate
--------------------------------
power and authority to enter into this Agreement and to carry out the provisions
and conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained. No consent, authorization
or order of, and no filing with, any court, government agency or other body is
required for the valid issuance, sale and delivery, of the Securities pursuant
to this Agreement and the Underwriter's Purchase Option, and as contemplated by
the Prospectus, except with respect to applicable federal and state securities
laws.
2.14 Title to Property; Insurance. The Company has good and marketable
----------------------------
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable. The Company has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar business.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
------------------------------------
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or threatened
against, or involving the properties or business of, the Company which might
materially and adversely affect the financial position, prospects, value or the
operation or the properties or the business of the Company, or which question
the validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to, or in connection with,
this Agreement. There are no outstanding orders, judgments or decrees of any
court, governmental agency or other tribunal naming the Company and enjoining
the Company from taking, or requiring the Company to take, any action, or to
which the Company, its properties or business is bound or subject.
2.16 Good Standing. The Company has been duly organized and is validly
-------------
existing as a corporation and is in good standing under the laws of the state of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
material adverse effect on the Company.
7
2.17 Taxes. The Company has filed all returns (as hereinafter defined)
-----
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. The Company has paid
all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company. The
provisions for taxes payable, if any, shown on the financial statements filed
with or as part of the Registration Statement are sufficient for all accrued and
unpaid taxes, whether or not disputed, and for all periods to and including the
dates of such consolidated financial statements. Except as disclosed in writing
to the Underwriter, (i) no issues have been raised (and are currently pending)
by any taxing authority in connection with any of the returns or taxes asserted
as due from the Company, and (ii) no waivers of statutes of limitation with
respect to the returns or collection of taxes have been given by or requested
from the Company. The term "taxes" mean all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments, or charges
of any kind whatever, together with any interest and any penalties, additions to
tax, or additional amounts with respect thereto. The term "returns" means all
returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.
2.18 Employees' Options. No more than 910,149 shares of Common Stock are
------------------
eligible for sale pursuant to Rule 701 promulgated under the Act in the 12 month
period following the Effective Date.
2.19 Transactions Affecting Disclosure to NASD.
-----------------------------------------
2.19.1 Finder's Fees. Except as described in the Prospectus, there are
-------------
no claims, payments, issuances, arrangements or understandings for services in
the nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
2.19.2 Payments Within Twelve Months. The Company has not made any
-----------------------------
direct or indirect payments (in cash, securities or otherwise) to (i) any
person, as a finder's fee, investing fee or otherwise, in consideration of such
person raising capital for the Company or introducing to the Company persons who
provided capital to the Company, (ii) to any NASD member, or (iii) to any person
or entity that has any direct or indirect affiliation or association with any
NASD member within the twelve month period prior to the date on which the
Registration Statement was filed with the Commission ("Filing Date") or
thereafter, other than payments to the Underwriter.
2.19.3 Use of Proceeds. None of the net proceeds of the offering will
---------------
be paid by the Company to any participating NASD member or any affiliate or
associate of any NASD member, except as specifically authorized herein.
2.19.4 Insiders' NASD Affiliation. No officer or director of the
--------------------------
Company or owner of any of the Company's unregistered securities has any direct
or indirect affiliation or association with any NASD member, except as provided
on Schedule 2.19.4 attached hereto. The Company will advise the Underwriter and
the NASD if any stockholder of the Company is or becomes an affiliate or
associated person of an NASD member participating in the offering.
8
2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
-----------------------------
officers, directors, employees, agents or any other person acting on behalf of
the Company has, directly or indirectly, given or agreed to give any money, gift
or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is, or may
be in a position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
as reflected in any of the financial statements contained in the Prospectus or
(iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Nasdaq Eligibility. As of the Effective Date, the Public Securities
------------------
have been approved for quotation on the Nasdaq National Market System
("Nasdaq").
2.22 Intangibles. The Company owns or possesses the requisite licenses or
-----------
rights to use all trademarks, service marks, service names, trade names, patents
and patent applications, copyrights and other rights (collectively,
"Intangibles") described as being licensed to or owned by it in the Registration
Statement. The Company's Intangibles which have been registered in the United
States Patent and Trademark Office have been fully maintained and are in full
force and effect. There is no claim or action by any person pertaining to, or
proceeding pending or threatened and the Company has not received any notice of
conflict with the asserted rights of others which challenges the exclusive right
of the Company with respect to, any Intangibles used in the conduct of the
Company's business except as described in the Prospectus. The Intangibles and
the Company's current products, services and processes do not infringe on any
intangibles held by any third party. To the best of the Company's knowledge, no
others have infringed upon the Intangibles of the Company.
2.23 Relations With Employees.
------------------------
2.23.1 Employee Matters. The Company has generally enjoyed a
----------------
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment practices,
terms and conditions of employment and wages and hours relating thereto. There
are no pending investigations involving the Company by the U.S. Department of
Labor or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No question concerning representation
exists respecting the employees of the Company and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 Employee Benefit Plans. Other than as set forth in the
----------------------
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to
9
contribute to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a, "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). The Company does not, and has at no time, maintained or contributed to
a defined benefit plan, as defined in Section 3(35) of ERISA. If the Company
does maintain or contribute to a defined benefit plan, any termination of the
plan on the date hereof would not give rise to liability under Title IV of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended ("Code"), which could
subject the Company to any tax penalty for prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multi-employer plan."
2.24 Officers' Certificate. Any certificate signed by any duly authorized
---------------------
officer of the Company and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
2.25 Reserved.
--------
2.26 Agreements With Insiders.
------------------------
2.26.1 Lock-Up Agreements. Subject to Section 2.26.2 directly below,
------------------
the Company has caused to be duly executed legally binding and enforceable
agreements pursuant to which all of the officers, directors and stockholders of
the Company (including their family members and affiliates) and all option
holders who would have the ability to sell the shares underlying their options
under Rule 701 under the Act (collectively, "Insiders"), agree not to sell any
shares of Common Stock owned by them (either pursuant to Rule 144 of the
Regulations or otherwise) for a period of 12 months following the Effective Date
except with the prior written approval of the Underwriter.
2.26.2 Lock-up Agreements with Holders of Preferred Stock. The Company
--------------------------------------------------
has caused to be duly executed legally binding and enforceable agreements
pursuant to which the holders of the 375,000 shares of Common Stock issuable
upon conversion of the Company's 13% Preferred Stock agree not to sell any of
such shares of Common Stock (either pursuant to Rule 144 or otherwise) for a
period of six months following the Effective Date except with the consent of the
Underwriter.
2.27 Subsidiaries. The representations and warranties made by the Company
------------
in this Agreement shall, in the event that the Company has one or more
subsidiaries (a "subsidiary(ies)") also apply and be true with respect to each
subsidiary, individually and taken as a whole with the Company and all other
subsidiaries, as if each representation and warranty contained herein made
specific reference to the subsidiary each time the term "Company" was used.
2.28 Unaudited Financials. The Company has furnished to the Underwriter as
--------------------
early as practicable prior to the date hereof a copy of the latest available
unaudited interim financial statements ("Unaudited Financials") of the Company
(which in no event shall be as of a date more than thirty days prior to the
Effective Date) which have been read by the Company's independent accountants,
as stated in their letter to be furnished pursuant to Section 4.3 hereof.
10
2.29 Employment Agreements. The Company has entered into employment
---------------------
agreements with each of Xxxxxx X. Xxxx and Xxxxxxx X. X'Xxxx in the forms filed
as exhibits to the Registration Statement.
2.30 UCC, Lien and Title Searches. The Company has provided the
----------------------------
Underwriter with the results of such UCC, lien and title searches in such
jurisdictions as have been requested by the Underwriter and Xxxxxxxx, Mollen &
Xxxxxx, counsel to the Underwriter.
3. Covenants of the Company. The Company covenants and agrees as follows:
------------------------
3.1 Amendments to Registration Statement. The Company will deliver to the
------------------------------------
Underwriter, prior to filing, any amendment or supplement to the Registration
Statement or Prospectus proposed to be filed after the Effective Date and not
file any such amendment or supplement to which the Underwriter shall reasonably
object.
3.2 Federal Securities Laws.
-----------------------
3.2.1 Compliance. During the time when a Prospectus is required to be
----------
delivered under the Act, the Company will use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to time
in force, so far as necessary to permit the continuance of sales of or dealings
in the Public Securities in accordance with the provisions hereof and the
Prospectus. If at any time when a Prospectus relating to the Public Securities
is required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriter, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission,
subject to Section 3.1 hereof, an appropriate amendment or supplement in
accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will file the Prospectus
--------------------------
(in form and substance satisfactory to the Underwriter) with the Commission
pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years from the
-------------------------
Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and Warrants under the provisions of the
Exchange Act.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in cooperation
---------------
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Public Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate, provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to service
of general process or to taxation as a foreign corporation doing business in
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may be required by the
laws of such jurisdiction.
11
3.4 Delivery to the Underwriter of Prospectuses. The Company will deliver to
-------------------------------------------
the Underwriter, without charge, from time to time during the period when the
Prospectus is required to be delivered under the Act or the Exchange Act such
number of copies of each Preliminary Prospectus and the Prospectus as the
Underwriter may reasonably request and, as soon as the Registration Statement or
any amendment or supplement thereto becomes effective, deliver to you two
original executed Registration Statements, including exhibits, and all post-
effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and all original executed consents of
certified experts.
3.5 Events Requiring Notice to the Underwriter. The Company will notify the
------------------------------------------
Underwriter immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Public Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the mailing and delivery to the Commission for filing of any amendment
or supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof which, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from the
------------------------------
Effective Date, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
Form 10-Q quarterly report and the mailing of quarterly financial information to
stockholders.
3.7 Reserved.
--------
3.8 Nasdaq Maintenance. For a period of five years from the date hereof, the
------------------
Company will use its best efforts to maintain the quotation by Nasdaq of the
Common Stock.
3.9 Reserved.
--------
3.10 Reserved.
--------
3.11 Reports to the Underwriter.
--------------------------
3.11.1 Periodic Reports, Etc. For a period of five years from the
----------------------
Effective Date, the Company will promptly furnish to the Underwriter copies of
such financial statements and other periodic and special reports as the Company
from time to time files with any governmental authority or furnishes generally
to holders of any class of its securities, and promptly furnish to the
Underwriter
12
(i) a copy of each periodic report the Company shall be required to file with
the Commission, (ii) a copy of every press release and every news item and
article with respect to the Company or its affairs which was released by the
Company, (iii) copies of each Form SR, (iv) a copy of each Form 8-K or Schedules
13D, 13G, 14D-1 or 13E-4 received or prepared by the Company, (v) a copy of
monthly statements setting forth such information regarding the Company's
results of operations and financial position (including balance sheet, profit
and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company, and (vi) such additional
documents and information with respect to the Company and the affairs of any
future subsidiaries of the Company as the Underwriter may from time to time
reasonably request.
3.11.2 Transfer Sheets and Weekly Position Listings. For a period of
--------------------------------------------
two years from the Effective Date, the Company will furnish to the Underwriter
at the Company's sole expense transfer sheets and lists of the beneficial and
record holders of the Company's securities from the transfer agent of the
Company and the weekly transfer sheets and position listings of the Depository
Trust Company.
3.12 Agreements between the Underwriter and the Company.
--------------------------------------------------
3.12.1 Underwriter's Purchase Option. On the Closing Date, the Company
-----------------------------
will execute and deliver the Underwriter's Purchase Option to the Underwriter
substantially in the form filed as an exhibit to the Registration Statement.
3.13 Disqualification of Form S-1 (or other appropriate form). For a
--------------------------------------------------------
period equal to seven years from the date hereof, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration of the Underwriter's Securities
under the Act.
3.14 Payment of Expenses.
-------------------
3.14.1 General Expenses. The Company hereby agrees to pay on each of
----------------
the Closing Date and the Option Closing Date, if any, to the extent not paid at
Closing Date, all expenses incident to the performance of the obligations of the
Company under this Agreement, including but not limited to (i) the preparation,
printing, filing, delivery and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement, the Prospectus
and the Preliminary Prospectuses and the printing and mailing of this Agreement
and related documents, including the cost of all copies thereof and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as may be required by the Underwriter, (ii) the printing, engraving,
issuance and delivery of the shares of Common Stock and the Underwriter's
Purchase Option, including any transfer or other taxes payable thereon, (iii)
the qualification of the Public Securities under state or foreign securities or
Blue Sky laws, including the filing fees under such Blue Sky laws, the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," and all amendments
and supplements thereto, fees and disbursements of the Underwriter's counsel,
and fees and disbursements of local counsel, if any, retained for such purpose,
and a one-time fee of $5,000 payable to the Underwriter's counsel for the
preparation of the Secondary Trading Memorandum, (iv) costs associated with
applications for assignments of a rating of the Public Securities by qualified
rating agencies, (v) filing fees, costs and expenses (including fees (up to an
aggregate of $5,000) and disbursements for the Underwriter's counsel) incurred
in registering the offering with the NASD, (vi) costs (up to an aggregate of
$25,000) of placing "tombstone" advertisements in The Wall Street Journal and
-----------------------
The New York Times and a third publication to be selected by the Underwriter,
------------------
(vii) fees and disbursements of the transfer agent, (viii) the Company's
expenses associated with "due
13
diligence" meetings arranged by the Underwriter, (ix) the preparation, binding
and delivery of transaction "bibles," in form and style satisfactory to the
Underwriter and in such quantities as the Underwriter may reasonably request,
and transaction lucite cubes or similar commemorative items in a style and
quantity as reasonably requested by the Underwriter, (x) any listing of the
Public Securities on Nasdaq SmallCap or Nasdaq National Market, as the case may
be, and any securities exchange or any listing in Standard & Poor's, and (xi)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section
3.15.1. Since an important part of the public offering process is for the
Company to describe appropriately and accurately both the background of the
principals of the Company and the Company's competitive position in its
industry, the Company has engaged and will pay for an investigative search firm
of the Underwriter's choice to conduct an investigation of principals of the
Company mutually selected by the Underwriter and the Company. The Underwriter
may deduct from the net proceeds of the offering payable to the Company on the
Closing Date, or the Option Closing Date, if any, the expenses set forth herein
to be paid by the Company to the Underwriter and/or to third parties.
3.14.2 Non-Accountable Expenses. The Company further agrees that, in
------------------------
addition to the expenses payable pursuant to Section 3.15.1, it will pay to the
Underwriter a non-accountable expense allowance equal to two and one half
percent (2 1/2%) of the gross proceeds received by the Company from the sale of
the Public Securities, of which $50,000 has been paid to date, and the Company
will pay the balance on the Closing Date and any additional monies owed
attributable to the Option Securities or otherwise on the Option Closing Date by
certified or bank cashier's check or, at the election of the Underwriter, by
deduction from the proceeds of the offering contemplated herein. If the
offering contemplated by this Agreement is not consummated for any reason
whatsoever then the following provisions shall apply: The Company's liability
for payment to the Underwriter of the non-accountable expense allowance shall be
equal to the sum of the Underwriter's actual out-of-pocket expenses (including,
but not limited to, counsel fees, "road-show" and due diligence expenses). The
Underwriter shall retain such part of the non-accountable expense allowance
previously paid as shall equal such actual out-of-pocket expenses. If the
amount previously paid is insufficient to cover such actual out-of-pocket
expenses, the Company shall remain liable for and promptly pay any other actual
out-of-pocket expenses. If the amount previously paid exceeds the amount of
actual out-of-pocket expenses, the Underwriter shall promptly remit to the
Company any such excess.
3.15 Application of Net Proceeds. The Company will apply the net proceeds
---------------------------
from the offering received by it in a manner consistent with the application
described under the caption "USE OF PROCEEDS" in the Prospectus.
3.16 Delivery of Earnings Statements to Security Holders. The Company will
---------------------------------------------------
make generally available to its security holders as soon as practicable, but not
later than the first day of the fifteenth full calendar month following the
Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section 11(a) of the Act) covering a period of at least twelve
consecutive months beginning after the Effective Date.
3.17 Key Person Life Insurance. The Company has purchased and will
-------------------------
maintain key person life insurance in an amount no less than $1,000,000 on the
lives of each of Xxxxxx X. Xxxx and Xxxxxxx X. X'Xxxx and pay the annual
premiums therefor naming the Company as the sole beneficiary thereof for at
least five years following the Effective Date.
14
3.18 Stabilization. Neither the Company, nor, to its knowledge, any of its
-------------
employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.19 Internal Controls. The Company maintains and will continue to
-----------------
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.20 Accountants and Lawyers. For a period of five years from the
-----------------------
Effective Date, the Company shall retain independent public accountants and
securities lawyers acceptable to the Underwriter. Deloitte & Touche LLP and
Xxxx Xxxxxxx, P.C. are acceptable to the Underwriter.
3.21 Transfer Agent. For a period of five years from the Effective Date,
--------------
the Company shall retain a transfer agent for the Common Stock and Warrants
acceptable to the Underwriter. Continental Stock Transfer & Trust Company is
acceptable to the Underwriter.
3.22 Sale of Securities. The Company agrees not to permit or cause a
------------------
private or public sale or private or public offering of any of its securities
(in any manner, including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the Insiders for a period of 12 months following the Effective
Date without obtaining the prior written consent of the Underwriter, subject to
Section 2.26.2 hereof.
3.23 Options. The exercise prices of any options granted pursuant to the
-------
Company's 1996 Stock Option Plan after the Effective Date will be equal to the
greater of the market price per share of Common Stock on the date of grant and
the per-share public offering price of the Firm Securities and options for no
more than 327,150 shares of Common Stock will be granted prior to the one-year
anniversary of the Effective Date, except in the case of options granted to
persons who become employees after the Effective Date as a result of an
acquisition, merger or other business combination.
4. Conditions of the Underwriter's Obligations. The obligations of the
-------------------------------------------
Underwriter to purchase and pay for the Securities, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date and the Option
Closing Date, if any, to the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof and to the performance by the
Company of its obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
------------------
4.1.1 Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement has been declared effective on the date of this Agreement and, at each
of the Closing Date and the Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for the purpose shall have been instituted or shall be pending
15
or contemplated by the Commission and any request on the part of the Commission
for additional information shall have been complied with to the reasonable
satisfaction of Xxxxxxxx Xxxxxx & Xxxxxx, counsel to the Underwriter.
4.1.2 NASD Clearance. By the Effective Date, the Underwriter shall
--------------
have received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriter as described in the Registration Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of the
-----------------------
Securities in any jurisdiction designated by you pursuant to Section 3.3 hereof
shall have been issued on either on the Closing Date or the Option Closing Date,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
4.2 Company Counsel Matters.
-----------------------
4.2.1 Effective Date Opinion of Counsel. On the Effective Date, the
---------------------------------
Underwriter shall have received the favorable opinion of Xxxx Xxxxxxx, P.C.,
counsel to the Company, dated the Effective Date, addressed to the Underwriter
and in form and substance satisfactory to Xxxxxxxx Mollen & Xxxxxx, counsel to
the Underwriter, to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation and is in good standing under the laws of its state of
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which it owns or leases any
real property or the character of its operations requires such qualification or
licensing.
(ii) The Company has all requisite corporate power and authority, and
has all necessary authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental or regulatory officials and bodies to own
or lease its properties and conduct its business as described in the Prospectus,
and the Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local laws, rules and regulations. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and
all consents, authorizations, approvals and orders required in connection
therewith have been obtained. No consents, approvals, authorizations or orders
of, and no filing with any court or governmental agency or body (other than such
as may be required under the Act and applicable Blue Sky laws), is required for
the valid authorization, issuance, sale and delivery of the Securities, and the
consummation of the transactions and agreements contemplated by this Agreement
and the Underwriter's Purchase Option, and as contemplated by the Prospectus or
if so required, all such authorizations, approvals, consents, orders,
registrations, licenses and permits have been duly obtained and are in full
force and effect and have been disclosed to the Underwriter.
(iii) All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company. The outstanding options and warrants to purchase shares of Common
16
Stock constitute the valid and binding obligations of the Company, enforceable
in accordance with their terms. The offers and sales of the outstanding Common
Stock and options and warrants to purchase shares of Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky Laws or exempt from such registration requirements. The
authorized and outstanding capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when issued and
paid for, will be validly issued, fully paid and non-assessable; the holders
thereof are not and will not be subject to personal liability by reason of being
such holders. The Securities are not and will not be subject to the preemptive
rights of any holders of any security of the Company or, to the best of such
counsel's knowledge after due inquiry, similar contractual rights granted by the
Company. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. When
issued, the Underwriter's Purchase Option will constitute a valid and binding
obligation of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for thereby
and the Underwriter's Purchase Option, when issued, will be enforceable against
the Company in accordance with its terms, except (a) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (b) as enforceability of any indemnification
provision may be limited under the federal and state securities laws, and (c)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought. The
certificates representing the Securities are in due and proper form.
(v) To the best of such counsel's knowledge, after due inquiry,
except as set forth in the Prospectus, no holders of any securities of the
Company or of any options, warrants or securities of the Company exercisable for
or convertible or exchangeable into securities of the Company have the right to
require the Company to register any such securities of the Company under the Act
or to include any such securities in a registration statement to be filed by the
Company.
(vi) To the best of such counsel's knowledge, after due inquiry, the
shares of Common Stock and the Warrants are eligible for quotation on the Nasdaq
National Market.
(vii) This Agreement and the Underwriter's Purchase Option have each
been duly and validly authorized and, when executed and delivered by the
Company, will consti tute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (b) as
enforceability of any indemnification provisions may be limited under the
federal and state securities laws, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(viii) The execution, delivery and performance by the Company of this
Agreement and the Underwriter's Purchase Option, the issuance and sale of the
Securities, the consummation of the transactions contemplated hereby and thereby
and the compliance by the Company with the terms and provisions hereof and
thereof, do not and will not, with or without the giving of notice or the lapse
of time, or both, (a) conflict with, or result in a breach of, any of the terms
or provisions of, or constitute a default under, or result in the creation or
modification of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company pursuant to the terms of, any material
mortgage, deed of trust, note, indenture, loan, contract, commitment or other
material agreement or instrument, to which the Company is a party or by which
17
the Company or any of its properties or assets may be bound, (b) result in any
violation of the provisions of the Certificate of Incorporation or the By-Laws
of the Company, (c) violate any statute or any judgment, order or decree, rule
or regulation applicable to the Company of any court, domestic or foreign, or of
any federal, state or other regulatory authority or other governmental body
having jurisdiction over the Company, its properties or assets, or (d) have a
material effect on any permit, certification, registration, approval, consent,
license or franchise of the Company.
(ix) The Registration Statement, each Preliminary Prospectus and the
Prospectus and any post-effective amendments or supplements thereto (other than
the financial statements included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations. The Securities and all other securities issued or
issuable by the Company conform in all respects to the description thereof
contained in the Registration Statement and the Prospectus. The statements in
the Prospectus under "Business," "Management," "Certain Transactions," "Risk
Factors," Principal Stockholders," "Description of Securities" and "Shares
Eligible for Future Sale" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions are correct in all material respects. No
statute or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required, nor are any contracts
or documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement not so described or filed as required.
(x) Counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriter at which the
contents of the Registration Statement, the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as otherwise set
forth in this opinion), no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or the
Prospectus or any amendment or supplement thereto, as of the date of such
opinion, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus).
(xi) The Registration Statement is effective under the Act, and, to
the best of such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act or
applicable state securities laws.
(xii) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
(tangible and intangible) stated in the Prospectus to be owned or leased by it,
free and clear of all liens, encumbrances, claims, security interests, defects
and restrictions of any material nature whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable.
(xiii) Except as described in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other material agreement
18
or instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the properties or assets of the Company is
subject. The Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws or of any franchise, license, permit,
applicable law, rule, regulation, judgment or decree of any governmental agency
or court, domestic or foreign, having jurisdiction over the Company or any of
its properties or business, except as described in the Prospectus.
(xiv) To the best of such counsel's knowledge after due inquiry, the
Company owns or possesses, free and clear of all liens or encumbrances and
rights thereto or therein by third parties, other than as described in the
Prospectus, the requisite licenses or other rights to use all Intangibles and
other rights necessary to conduct its business (including, without limitation,
any such licenses or rights described in the Prospectus as being licensed to,
owned or possessed by the Company), and there is no claim or action by any
person pertaining to, or proceeding, pending or, to the best of such counsel's
knowledge after due inquiry, threatened, which challenges the exclusive rights
of the Company with respect to any Intangibles used in the conduct of the its
business (including without limitation any such licenses or rights described in
the Prospectus as being owned or possessed by the Company); to the best of such
counsel's knowledge after due inquiry, the Company's current products, services
and processes do not infringe on any Intangibles held by third parties except as
discussed in the Prospectus; and the Company's Intangibles which have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect.
(xv) To the best of such counsel's knowledge after due inquiry,
except as described in the Prospectus, the Company does not own an interest in
any corporation, partnership, joint venture, trust or other business entity.
(xvi) To the best of such counsel's knowledge after due inquiry,
except as described in the Prospectus, there is no action, suit or proceeding
before or by any court of governmental agency or body, domestic or foreign, now
pending, or threatened against the Company, which might result in any material
and adverse change in the condition (financial or otherwise), business or
prospects of the Company, or might materially and adversely affect the
properties or assets thereof.
Unless the context clearly indicates otherwise, the term "Company" as used
in this Section 4.2.1 shall include each subsidiary of the Company. The opinion
of counsel for the Company and any opinion relied upon by such counsel for the
Company shall include a statement to the effect that it may be relied upon by
counsel for the Underwriter in its opinion delivered to the Underwriter.
4.2.2 Closing Date and Option Closing Date Opinion of Counsel. On each
-------------------------------------------------------
of the Closing Date and the Option Closing Date, if any, the Underwriter shall
have received the favorable opinion of Xxxx Xxxxxxx, P.C., counsel to the
Company, dated the Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriter and in form and substance satisfactory to Xxxxxxxx
Mollen & Xxxxxx, counsel to the Underwriter, confirming as of the Closing Date
and, if applicable, the Option Closing Date, the statements made by Xxxx
Xxxxxxx, P.C. in their opinion delivered on the Effective Date.
4.2.3 Reliance. In rendering such opinion, such counsel may rely (i)
--------
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which
19
they are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance reasonably satisfactory to Underwriter's counsel) of other counsel
reasonably acceptable to Underwriter's counsel, familiar with the applicable
laws, and (ii) as to matters of fact, to the extent they deem proper, on
certificates or other written statements of officers of departments of various
jurisdiction having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's counsel if requested. The
opinion of counsel for the Company shall include a statement to the effect that
it may be relied upon by counsel for the Underwriter in its opinion delivered to
the Underwriter.
4.3 Cold Comfort Letter. At the time this Agreement is executed, and at
-------------------
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Underwriter and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Xxxxxxxx
Xxxxxx & Xxxxxx, counsel for the Underwriter, from Deloitte & Touche LLP, dated,
respectively, as of the date of this Agreement and as of the Closing Date and
the Option Closing Date, if any:
(i) Confirming that they are independent accountants with respect to the
Company within the meaning of the Act and the applicable Regulations;
(ii) Stating that in their opinion the financial statements of the Company
included in the Registration Statement and Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Regulations thereunder;
(iii) Stating that, based on the performance of procedures specified by
the American Institute of Certified Public Accountants for a review of the
latest available unaudited interim financial statements of the Company (as
described in SAS No.71 Interim Financial Information), with an indication of the
date of the latest available unaudited interim financial statements, a reading
of the latest available minutes of the stockholders and board of directors and
the various committees of the board of directors, consultations with officers
and other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (a) the unaudited financial
statements of the Company included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Regulations or any material modification should be made to
the unaudited interim financial statements included in the Registration
Statement for them to be in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration Statement, (b)
at a date not later than five days prior to the Effective Date, Closing Date or
Option Closing Date, as the case may be, there was any change in the capital
stock or long-term debt of the Company, or any decrease in the stockholders'
equity of the Company as compared with amounts shown in the June 29, 1996
balance sheet included in the Registration Statement, other than as set forth in
or contemplated by the Registration Statement, or, if there was any decrease,
setting forth the amount of such decrease, and (c) during the period from June
30, 1996 to a specified date not later than five days prior to the Effective
Date, Closing Date or Option Closing Date, as the case may be, there was any
decrease in revenues, net earnings or net earnings per share of Common Stock, in
each case as compared with the corresponding period in the preceding year and as
compared with the corresponding period in the preceding quarter, other than as
set forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
20
(iv) Setting forth, at a date not later than five days prior to the
Effective Date, the amount of liabilities of the Company (including a break-down
of commercial papers and notes payable to banks);
(v) Stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, and work sheets,
of the Company with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) Stating that they have not during the immediately preceding five year
period brought to the attention of the Company's management any reportable
condition related to internal structure, design or operation as defined in the
Statement on Auditing Standards No. 60 --"Communication of Internal Control
Structure Related Matters Noted in an Audit," in the Company's internal
controls; and
(vii) Statements as to such other matters incident to the transaction
contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
----------------------
4.4.1 Officers' Certificate. At each of the Closing Date and the
---------------------
Option Closing Date, if any, the Underwriter shall have received a certificate
of the Company signed by the Chairman of the Board or the President and the
Secretary of the Company, dated the Closing Date or the Option Closing Date, as
the case may be, respectively, to the effect that the Company has performed all
covenants and complied with all conditions required by this Agreement to be
performed or complied with by the Company prior to and as of the Closing Date,
or the Option Closing Date, as the case may be, and that the conditions set
forth in Section 4.5 hereof have been satisfied as of such date and that, as of
Closing Date and the Option Closing Date, as the case may be, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct. In addition, the Underwriter will have received such other and
further certificates of officers of the Company as the Underwriter may
reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and the
-----------------------
Option Closing Date, if any, the Underwriter shall have received a certificate
of the Company signed by the Secretary of the Company, dated the Closing Date or
the Option Date, as the case may be, respectively, certifying (i) that the By-
Laws and Certificate of Incorporation, as amended, of the Company are true and
complete, have not been modified and are in full force and effect, (ii) that the
resolutions relating to the public offering contemplated by this Agreement are
in full force and effect and have not been modified, (iii) all correspondence
between the Company or its counsel and the Commission, (iv) all correspondence
between the Company or its counsel and the NASD concerning inclusion on Nasdaq,
and (v) as to the incumbency of the officers of the Company. The documents
referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and the
-------------------
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the condition
or prospects or the business activities, financial or
21
otherwise, of the Company from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus, (ii) there shall have
been no transaction, not in the ordinary course of business, entered into by the
Company from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company, taken as a whole, (iii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a material adverse effect on the Company,
(iv) no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations and
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.6 Delivery of Agreements. The Company has delivered to the Underwriter an
----------------------
executed copy of the Purchase Option.
4.7 Opinion of Counsel for the Underwriter. All proceedings taken in
--------------------------------------
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Xxxxxxxx Mollen & Xxxxxx, counsel to the Underwriter, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel for the Underwriter shall
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
5. Indemnification.
---------------
5.1 Indemnification of the Underwriter.
----------------------------------
5.1.1 General. Subject to the conditions set forth below, the Company
-------
agrees to indemnify and hold harmless the Underwriter, its directors, officers,
agents and employees and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim, damage
and expense whatsoever (including but not limited to any and all legal or other
expenses reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, whether arising out of any action
between the Underwriter and the Company or between the Underwriter and any
third-party or otherwise) to which they or any of them may become subject
22
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
(i) any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time each may be amended and supplemented); (ii) in any post-
effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Underwriter's Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application, as the case may be. The Company agrees promptly to notify
the Underwriter of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the Registration
Statement or Prospectus.
5.1.2 Procedure. If any action is brought against the Underwriter or
---------
controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, the Underwriter shall promptly notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and fees of counsel
(subject to the approval of the Underwriter) and payment of actual expenses.
The Underwriter or controlling person shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the Underwriter or such controlling person unless (i)
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action, or (ii) the Company shall
not have employed counsel to have charge of the defense of such action, or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys selected by the Underwriter and/or controlling
person shall be borne by the Company. Notwithstanding anything to the contrary
contained herein, if the Underwriter or controlling person shall assume the
defense of such action as provided above, the Company shall have the right to
approve the terms of any settlement of such action which approval shall not be
unreasonably withheld.
5.2 Indemnification of the Company. The Underwriter agrees to indemnify
------------------------------
and hold harmless the Company against any and all loss, liability, claim, damage
and expense described in the foregoing indemnity from the Company to the
Underwriter, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions directly relating to the
transactions effected by the Underwriter in connection with this offering made
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement
23
thereto or in any application in reliance upon, and in strict conformity with,
written information furnished to the Company with respect to the Underwriter by
or on behalf of the Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereto or in any such application. In case any action shall be
brought against the Company or any other person so indemnified based on any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or any application, and in respect of which
indemnity may be sought against the Underwriter, the Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the Underwriter by the
provisions of Section 5.1.2.
5.3 Contribution.
------------
5.3.1 Contribution Rights. In order to provide for just and equitable
-------------------
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 5 makes claim for indemnification pursuant
hereto but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 5 provides for
indemnification in such case, or (ii) contribution under the Act, the Exchange
Act or otherwise may be required on the part of any such person in circumstances
for which indemnification is provided under this Section 5, then, and in each
such case, the Company and the Underwriter shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Company and the Underwriter, as
incurred, in such proportions that the Underwriter is responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectus bears to the initial offering price
appearing thereon and the Company is responsible for the balance; provided,
that, no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 5.3, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Public Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which the Underwriter
has otherwise been required to pay in respect of such losses, liabilities,
claims, damages and expenses. For purposes of this Section, each director,
officer and employee of the Underwriter, and each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Act shall have the same
rights to contribution as the Underwriter.
5.3.2 Contribution Procedure. Within fifteen days after receipt by any
----------------------
party to this Agreement (or its representative) of notice of the commencement of
any action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party ("contributing party"),
notify the contributing party of the commencement thereof, but the omission to
so notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or its representative of the commencement thereof
within the aforesaid fifteen days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution on account of any
settlement of any claim, action or proceeding which was effected by such party
without the written consent of such contributing party. The contribution
provisions contained in this Section are intended to supersede, to the extent
permitted by law, any right to contribution under the Act, the Exchange Act or
otherwise available.
6. [Intentionally Omitted].
-----------------------
24
7. Additional Covenants.
--------------------
7.1 Attendance at Board Meetings. For a period of three years from the
----------------------------
Effective Date, the Underwriter shall be permitted to send a representative (who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors, but who will not be entitled to vote at such
meetings. The Company agrees to give to the Underwriter written notice of each
such meeting and to provide to the Underwriter an agenda and minutes of the
meeting no later than it gives such notice and provides such items to the other
directors. The Company shall reimburse the representative of the Underwriter
for its out-of-pocket expenses incurred in connection with its attendance at the
Company's Board meetings including, but not limited to, food lodging and
transportation.
7.2 Press Releases. The Company will not issue a press release or engage in
--------------
any other publicity until 25 days after the Effective Date without the
Underwriter's prior written consent, which will not be unreasonably withheld.
7.3 Form S-8 or any Similar Form. The Company shall not file a Registration
----------------------------
Statement on Form S-8 (or any similar or successor form) for the registration of
shares of Common Stock underlying stock options for a period of one year from
the Effective Date without the Underwriter's written consent.
7.4 Compensation and Other Arrangements. The Company hereby agrees that for
-----------------------------------
a period of three years from the Effective Date, all compensation and other
arrangements between the Company and its officers, directors and affiliates
shall be approved by the Compensation Committee of the Company's Board of
Directors, a majority of the members of which shall have no affiliation or other
relationship with the Company other than as directors.
8. Representations and Agreements to Survive Delivery. Except as the context
--------------------------------------------------
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriter and Company, including the indemnity agreements contained in Section
5 hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter, the Company or any
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the Underwriter until the earlier of
the expiration of any applicable statute of limitations and the seventh
anniversary of the later of the Closing Date or the Option Closing Date, if any,
at which time the representations, warranties and agreements shall terminate and
be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
--------------------------------------------------------
9.1 Effective Date. This Agreement shall become effective on the Effective
--------------
Date at the time that the Registration Statement is declared effective.
9.2 Termination. You shall have the right to terminate this Agreement at any
-----------
time prior to any Closing Date, (i) if any domestic or international event or
act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, The Boston Stock Exchange or in the over-the-counter market shall have
been suspended, or minimum or maximum prices for trading shall have been fixed,
or maximum ranges
25
for prices for securities shall have been fixed, or maximum ranges for prices
for securities shall have been required on the over-the-counter market by the
NASD or by order of the Commission or any other government authority having
jurisdiction, or (iii) if the United States shall have become involved in a war
or major hostilities, or (iv) if a banking moratorium has been declared by a New
York State or federal authority, or (v) if a moratorium on foreign exchange
trading has been declared which materially adversely impacts the United States
securities market, or (vi) if the Company shall have sustained a material loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in your opinion, make it inadvisable to proceed with the delivery
of the Securities, or (vii) if Xxxxxx X. Xxxx or Xxxxxxx X. X'Xxxx shall no
longer serve the Company in their present capacities, or (viii) if the Company
has breached any of its representations, warranties or obligations hereunder, or
(ix) if the Underwriter shall have become aware after the date hereof of such a
material adverse change in the condition (financial or otherwise), business, or
prospects of the Company, or such adverse material change in general market
conditions as in the Underwriter's judgment would make it impracticable to
proceed with the offering, sale and/or delivery of the Securities or to enforce
contracts made by the Underwriter for the sale of the Securities.
9.3 Notice. If you elect to prevent this Agreement from becoming effective
------
or to terminate this Agreement as provided in this Section 9, the Company shall
be notified on the same day as such election is made by you by telephone or
telecopy, confirmed by letter.
9.4 Expenses. In the event that this Agreement shall not be carried out for
--------
any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.15 hereof.
9.5 Indemnification. Notwithstanding any contrary provision contained in
---------------
this Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by, such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
10. Miscellaneous.
-------------
10.1 Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Underwriter:
GKN Securities Corp.
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx
Copy to:
Xxxxxxxx Xxxxxx & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx Xxxxxx, Esq.
26
If to the Company:
Specialty Catalog Corp.
00 Xxxxxxx Xxxxx
Xxxxx Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxx, Chairman and
Chief Executive Officer
Copy to:
Xxxx Xxxxxxx, P.C.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
10.2 Headings. The headings contained herein are for the sole purpose of
--------
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may only be amended by a written instrument
---------
executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other agreements
----------------
and documents being delivered pursuant to or in connection with this Agreement)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersede all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit of
--------------
and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
10.6 Governing Law, Jurisdiction. This Agreement shall be governed by and
---------------------------
construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of or relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York or the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 10.1 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The Company agrees that the
prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys' fees and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
27
10.7 Execution in Counterparts. This Agreement may be executed in one or
-------------------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
10.8 Waiver, Etc. The failure of any of the parties hereto to at any time
------------
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way effect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement. No waiver of
any breach, non-compliance or non-fulfillment of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party or parties against whom or which enforcement of such waiver is
sought; and no waiver of any such
28
breach, non-compliance or non-fulfillment shall be construed or deemed to be a
waiver of any other or subsequent breach, non-compliance or non-fulfillment.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
SPECIALTY CATALOG CORP.
By:
----------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chairman and Chief Executive Officer
Accepted as of the date first
above written.
New York, New York
GKN SECURITIES CORP.
By:
----------------------------------
Name: Xxxxxxx Xxxxxxxxx-Xxxxxx
Title: Senior Vice President -
Investment Banking
29
