1
EXHIBIT 1.1
1,550,000 Shares of Common Stock
and
1,550,000 Redeemable Common Stock Purchase Warrants
of
KARTS INTERNATIONAL INCORPORATED
UNDERWRITING AGREEMENT
Atlanta, Georgia
September ___, 1997
X.X. Xxxxxx & Company, L.L.C.
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Gentlemen:
Karts International Incorporated, a Nevada corporation (the
"Company"), confirms its agreement with X.X. Xxxxxx & Company, L.L.C.
("X.X. Xxxxxx"), and each of the other underwriters named in Schedule I
hereto (collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 11), for whom
X.X. Xxxxxx is acting as representative (in such capacity, X.X. Xxxxxx
shall hereinafter be referred to as the "Representative"), with respect to
the sale by the Company, and the purchase by the Underwriters, acting
severally and not jointly, of One Million Five Hundred Fifty Thousand
(1,550,000) shares (the "Shares") of the Company's common stock, par value
$.001 per share (the "Common Stock"), and One Million Five Hundred Fifty
Thousand (1,550,000) Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants") ("Firm Securities"), each of the Redeemable Warrants
entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $______ per share pursuant to a warrant agreement (the
"Warrant Agreement") between the Company and the warrant agent, set forth
in Schedule II, and with respect to the grant by the Company to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 232,500 additional
Shares and 232,500 Redeemable Warrants (the "Additional Securities") for
the purpose of covering over-allotments, if any. The aforesaid Firm
Securities together with all or any part of the Additional Securities are
hereinafter collectively referred to as the "Securities." The Company also
proposes to issue and sell to the Underwriters for an approximate price of
$155 ($0.001 per warrant), non-callable warrants entitling the
Underwriters' to purchase from the Company an
Page 1
2
Underwriters' Warrant (the "Underwriters' Warrant") for the purchase of an
aggregate of 155,000 Shares (the "Underwriters' Shares") and 155,000
Redeemable Common Stock Purchase Warrants (the "Underwriters' Warrants").
The shares of Common Stock issuable upon exercise of the Redeemable
Warrants and the Underwriters' Warrants are hereinafter sometimes referred
to as the "Warrant Shares." The Shares, the Redeemable Warrants, the
Common Stock and Underwriters' Shares, Underwriters' Warrants, and the
Warrant Shares are more fully described in the Registration Statement (as
defined in Subsection 1(a) hereof) and the Prospectus (as defined in
Subsection 1(a) hereof) referred to below. Unless the context otherwise
requires, all references to the "Company" shall include all subsidiaries
(as defined in Subsection 1(e) hereof) referred to below and identified in
the Prospectus, as if separately stated herein. All representations,
warranties and opinions of counsel shall cover such subsidiaries.
1. Representations and Warranties of the Company. The
Company represents and warrants to and agrees with each of the Underwriters
as of the date hereof, and as of the Closing Date and any Option Closing
Date, (as defined in Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") in accordance with
the provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement, and an amendment or amendments thereto, on Form
SB-2 (File No. 333-24145) under the Act (the "Registration Statement"),
including a prospectus subject to completion relating to the Shares and
Redeemable Warrants which registration statement and any amendment or
amendments have been prepared by the Company in material compliance with
the requirements of the Act and the rules and regulations of the Commission
under the Act. The term "Registration Statement" as used in this Agreement
means the registration statement (including all financial schedules and
exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means
the registration statement as amended by said post-effective amendment. If
an abbreviated registration statement is prepared and filed with the
Commission in accordance with Rule 462(b) under the Act (an "Abbreviated
Registration Statement"), the term "Registration Statement" as used in this
Agreement includes the Abbreviated Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in
the Registration Statement omits information in reliance on Rule 430A under
the Act and such information is included in a prospectus filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant
to Rule 424(b). The term "Preliminary Prospectus" as used in this
Agreement means the prospectus subject to completion in the form included
in the registration
Page 2
3
statement at the time of the initial filing of the registration statement
with the Commission, and as such prospectus shall have been amended from
time to time prior to the date of the Prospectus.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or Prospectus or any
part thereof and no proceedings for a stop order have been instituted or
are pending or, to the best knowledge of the Company, threatened. Each of
the Preliminary Prospectus, the Registration Statement and Prospectus at
the time of filing thereof conformed in all material respects with the
requirements of the Act and the Rules and Regulations, and neither the
Preliminary Prospectus, the Registration Statement or Prospectus at the
time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein and
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation
and warranty does not apply to statements made or statements omitted in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date and each Option
Closing Date and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus will contain all
material statements which are required to be stated therein in material
compliance with the Act and the Rules and Regulations, and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement, nor any amendment thereto,
at the time the Registration Statement or such amendment is declared
effective under the Act, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Prospectus
at the time the Registration Statement becomes effective, at the Closing
Date and at any Option Closing Date, will not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation
and warranty does not apply to statements made or statements omitted in
reliance upon and in conformity with information supplied to the Company in
writing by or on behalf of the Underwriters expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is now,
and at the Closing Date and any Option Closing Date will be, validly
existing as a corporation in good standing under the laws of the State of
Nevada. Other than the Company's Subsidiaries (as defined in Section (e)),
the Company does not own, directly or indirectly, an interest in any
corporation, partnership, trust, joint venture or other business entity;
provided, that the foregoing shall not be applicable to the investment of
the net proceeds from the sale of the Securities in short-term, low-risk
investments as set forth under "Use of Proceeds" in the Prospectus. The
Company is duly qualified and licensed and in good
Page 3
4
standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so
register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results
of operations of the Company and the subsidiaries taken as a whole (a
"Material Adverse Effect"). The Company has all requisite power and
authority (corporate and other), and has obtained any and all necessary
material applications, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials
and bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all material
federal, state, local and foreign laws, rules and regulations; and the
Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, would have a Material Adverse Effect. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do
not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which
they were made.
(e) The Company's subsidiaries (collectively, the
"Subsidiaries") include Xxxxxxx'x Thunder Karts, Inc. and USA Industries,
Inc. Each Subsidiary is a corporation duly organized, validly existing and
in good standing in the jurisdiction of its incorporation, with full
corporate power and authority to own, lease and operate its properties and
to conduct its business, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not, singly or in the aggregate, have a Material Adverse
Effect; all of the outstanding shares of capital stock of each of the
Subsidiaries, have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company directly, or indirectly
through one of the other Subsidiaries, free and clear of any lien, adverse
claim, security interest, equity or other encumbrance.
(f) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under
"Capitalization" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon
the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for the
Company to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as otherwise described in the
Prospectus. The Securities, the Additional Securities, Underwriters
Shares, the Underwriter's Warrants, and the Warrant Shares and all other
securities issued or issuable by the Company conform or, when issued and
paid for, will conform in all material respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly
Page 4
5
authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of any
holders of any security of the Company, or similar contractual rights
granted by the Company. The Securities, the Additional Securities, the
Underwriters' Shares, and the Underwriter's Warrants to be issued and sold
by the Company hereunder, and the Warrant Shares issuable upon exercise of
the Redeemable Warrants and the Underwriter's Warrants and payment
therefor, are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and will
conform in all material respects to the descriptions thereof contained in
the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Additional Securities,
the Underwriters' Shares, and the Underwriter's Warrants, and the Warrant
Shares has been duly and validly taken; and the certificates representing
the Securities, the Underwriter's Warrants, and the Warrant Shares will be
in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Securities to be sold by the Company hereunder, the
Underwriters will acquire good and marketable title to such Securities free
and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever.
(g) The financial statements of the Company, together
with the related notes and schedules thereto, included in the Registration
Statement, the Preliminary Prospectus and the Prospectus fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and
such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved. There has been no material adverse change or development
involving a prospective change in the condition, financial or otherwise, or
in the earnings, business affairs, position, prospects, value, operation,
properties, business, or results of operation of the Company, whether or
not arising in the ordinary course of business, since the dates of the
financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company, conforms in all material
respects to the descriptions thereof contained in the Registration
Statement and in the Prospectus.
(h) X. X. Xxxxxxxx + Associates, whose report is filed
with the Commission as a part of the Registration Statement, is an
independent certified public accountant as required by the Act.
(i) The Company (i) has paid all federal, state,
local, and foreign taxes for which it is liable, including, but not limited
to, withholding taxes and taxes payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and
information returns it is required to furnish pursuant to the Code, and has
established adequate reserves for such taxes which are not due and payable,
and (iii) does not have knowledge of any tax
Page 5
6
deficiency or claims outstanding, proposed or assessed against it (other
than certain state or local tax returns, as to which the failure to file,
singly or in the aggregate, would not have a Material Adverse Effect.)
(j) The Company maintains insurance, which is in full
force and effect, of the types and in the amounts which it reasonably
believes to be necessary for its business, including, but not limited to,
personal and product liability insurance covering all personal and real
property owned or leased by the Company against fire, theft, damage and all
risks customarily insured against.
(k) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending (to the knowledge of the Company) or
threatened against (or circumstances known to the Company that may give
rise to the same), or involving the properties or business of the Company
which: (i) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects); or (ii)
singly or in the aggregate would have a Material Adverse Effect.
(l) The Company has full legal right, power and
authority to enter into this Agreement, the Underwriters' Warrant and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, the Underwriters' Warrant and the Warrant
Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement, the Underwriters'
Warrant and the Warrant Agreement, constitutes a legal, valid and binding
agreement of the Company, subject to due authorization, execution and
delivery by the Representative and/or the Underwriters, enforceable against
the Company in accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement
of creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law). Neither the Company's
execution or delivery of this Agreement, the Underwriters' Warrant, and the
Warrant Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, nor the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction
or equity of any kind whatsoever upon any property or assets (tangible or
intangible) of the Company pursuant to the terms of: (i) the Articles of
Incorporation or By-Laws of the Company; (ii) any material license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of its properties or assets (tangible or
intangible) is or may be subject, other than conflicts that, singly or in
the aggregate, will not have a Material
Page 6
7
Adverse Effect; or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction
over the Company or any of its activities or properties.
(m) No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency or other
body, domestic or foreign, is required for the issuance of the Securities
pursuant to the Prospectus and the Registration Statement, the performance
of this Agreement and the transactions contemplated hereby, except such as
have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with (i) the Underwriters'
purchase and distribution of the Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Underwriters' Warrant,
the Underwriters' Shares, the Underwriter's Warrants, the Redeemable
Warrants or the Warrant Shares.
(n) All executed agreements or copies of executed
agreements filed as exhibits to the Registration Statement to which the
Company is a party or by which the Company may be bound or to which any of
its assets, properties or businesses may be subject have been duly and
validly authorized, executed and delivered by the Company, and constitute
the legal, valid and binding agreements of the Company, enforceable against
it in accordance with its respective terms. The descriptions contained in
the Registration Statement of contracts and other documents are accurate in
all material respects and fairly present the information required to be
shown with respect thereto by the Act and the Rules and Regulations and
there are no material contracts or other documents which are required by
the Act or the Rules and Regulations to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be
copies.
(o) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company has not: (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money in any material
amount; (ii) entered into any transaction other than in the ordinary course
of business; (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock; or (iv) made any
changes in capital stock, material changes in debt (long or short term) or
liabilities other than in the ordinary course of business, material changes
in or affecting the general affairs, management, financial operations,
stockholders equity or results of operations of the Company.
(p) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, no
default exists in the due performance and observance of any material term,
covenant or condition of any license, contract, indenture, mortgage,
installment sales agreement,
Page 7
8
lease, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which the Company may be bound or to
which any of the property or assets (tangible or intangible) of the Company
is subject or affected.
(q) To the best knowledge of the Company, the Company
has generally enjoyed a satisfactory employer-employee relationship with
its employees and is in compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
(r) To the best knowledge of the Company, since its
inception, the Company has not incurred any liability arising under or as a
result of the application of the provisions of the Act.
(s) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company does not presently maintain, sponsor or contribute to, and never
has maintained, sponsored or contributed to, any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit
plan" or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(l) and 3(37) respectively of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company
does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA.
(t) The Company is not in violation in any material
respect of any domestic or foreign laws, ordinances or governmental rules
or regulations to which it is subject, except to the extent that any such
violation would not, singly or in the aggregate, have a Material Adverse
Effect.
(u) No holders of any securities of the Company or of
any options, warrants or other convertible or exchangeable securities of
the Company exercisable for or convertible or exchangeable for securities
of the Company have the right to include any securities issued by the
Company in the Registration Statement or any registration statement to be
filed by the Company within twelve (12) months of the date hereof or to
require the Company to file a registration statement under the Act during
such twelve (12) month period, except such registration rights as have been
waived or disclosed in the Prospectus.
(v) Neither the Company, nor, to the Company's best
knowledge, any of its employees, directors, principal stockholders or
affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities or otherwise.
Page 8
9
(w) Except as described in the Prospectus, to the best
of the Company's knowledge, none of the patents, patent applications,
trademarks, service marks, trade names and copyrights, or licenses and
rights to the foregoing presently owned or held by the Company is in
dispute or are in any conflict with the right of any other person or entity
within the Company's current area of operations nor has the Company
received notice of any of the foregoing. To the best of the Company's
knowledge, the Company: (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights, technology
and licenses and rights with respect to the foregoing, used in the conduct
of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right
of any person, corporation or other entity under or with respect to any of
the foregoing; and (ii) except as set forth in the Prospectus, is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service xxxx, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(x) Except as described in the Prospectus, to the best
of the Company's knowledge, the Company owns and has the unrestricted right
to use all material trade secrets, trademarks, trade names, know-how
(including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively herein "Intellectual Property") required for or
incident to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company, free and
clear of and without violating any right, lien, or claim of others,
including without limitation, former employers of its employees; provided,
however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or
identical to those of the Company.
(y) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property owned or leased by it free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred
to in the Prospectus and liens for taxes or assessments not yet due and
payable.
(z) The Company has obtained such duly executed
legally binding and enforceable agreements as required by the
Representative pursuant to which the Company's President and certain
Directors and affiliates described in the Prospectus, have agreed not to,
directly or indirectly, offer to sell, sell, grant any option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber any of
their shares of Common Stock or other securities of the Company (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose
of any beneficial interest
Page 9
10
therein for certain periods of up to 60 months subject to earlier release
upon the Company's achievement of certain performance thresholds, following
the effective date of the Registration Statement without the prior written
consent of the Representative. The Company will cause the Transfer Agent,
as defined below, to xxxx an appropriate legend on the face of stock
certificates representing all of such shares of Common Stock and other
securities of the Company.
(aa) Except as disclosed in the Prospectus, the Company
has not incurred any liability and there are no arrangements or
understandings for services in the nature of a finder's or origination fee
with respect to the sale of the Securities or any other arrangements,
agreements, understandings, payments or issuances with respect to the
Company or any of its officers, directors, employees or affiliates that may
adversely affect the Underwriters' compensation, as determined by the NASD.
(bb) The Securities have been approved for quotation on
the Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to
official notice of issuance.
(cc) Neither the Company nor to the Company's best
knowledge any of its respective officers, employees, agents or any other
person acting on behalf of the Company, has, directly or indirectly, given
or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who
was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person
to any damage or penalty in any civil, criminal or governmental litigation
or proceeding (domestic or foreign); (b) if not given in the past, might
have had a materially adverse effect on the assets, business or operations
of the Company; or (c) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company. The
Company's internal accounting controls are sufficient to cause the Company
to comply with the Foreign Corrupt Practices Xxx 0000, as amended.
(dd) Except as set forth in the Prospectus, and to the
best knowledge of the Company, no officer, director or principal
stockholder of the Company, or any "affiliate" or "associate" (as these
terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or the Company, has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, except with
respect to the beneficial ownership of not more than 1% of the outstanding
shares of capital stock of any publicly-held entity; or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Relationships and Related Transactions," there are no
existing agreements, arrangements, understandings or transactions, or
Page 10
11
proposed agreements, arrangements, understandings or transactions, between
or among the Company, and any officer, director, or principal stockholder
of the Company, or any affiliate or associate of any such person or entity,
which is required to be disclosed pursuant to Rule 404 of Regulation S-B.
(ee) Any certificate signed by any officer of the
Company and delivered to the Underwriters or to the Underwriters' Counsel
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(ff) The Company has entered into an employment
agreement with V. Xxxx Xxxxxxxx as described in the Prospectus. Unless
waived by the Representative, the Company shall use its reasonable efforts
at reasonable cost to obtain a key-man life insurance policy in the amount
of not less than $1,000,000 on the life of Xx. Xxxxxxxx, which policy
shall be owned by the Company and shall name the Company as the sole
beneficiary thereunder.
(gg) No securities of the Company have been sold by the
Company since its date of incorporation, except as disclosed in Part II of
the Registration Statement.
(hh) The minute books of the Company have been made
available to Underwriter's Counsel and contain a complete summary of all
meetings and actions of the Board of Directors and Shareholders of the
Company since the date of its incorporation.
2. Purchase, Sale and Delivery of the Securities, Additional
Securities and Agreement to Issue Underwriters' Warrant.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter, severally and not jointly, agree to
purchase from the Company at the price per share and the price per warrant
set forth below, that proportion of the number of Common Stock and
Redeemable Warrants set forth in Schedule I opposite the name of such
Underwriter that such number of Common Stock and Redeemable Warrants bears
to the total number of shares of Common Stock and Redeemable Warrants,
respectively, subject to such adjustment as the Underwriters in their
discretion shall make to eliminate any sales or purchases of fractional
Securities, plus any additional numbers of Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option
to the Underwriters, severally and not jointly, to purchase up to an
additional 232,500 Shares from the Company and 232,500 Redeemable Warrants
at the prices set forth below. The option granted hereby will expire 45
days after the date of this Agreement, and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments
which may
Page 11
12
be made in connection with the offering and distribution of the Additional
Securities upon notice by the Representative to the Company setting forth
the number of Additional Securities as to which the Underwriters are then
exercising the option and the time and date of payment and delivery for
such Additional Securities. Any such time and date of delivery shall be
determined by the Underwriters, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to
the Closing Date, as defined in paragraph (c) below, unless otherwise
agreed to between the Representative and the Company. In the event such
option is exercised, each of the Underwriters, acting severally and not
jointly, shall purchase such number of Additional Securities then being
purchased which shall have been allocated to such Underwriter by the
Representative, and which such Underwriter shall have agreed to purchase,
subject in each case to such adjustments as the Underwriters in their
discretion shall make to eliminate any sales or purchases of fractional
Securities. Nothing herein contained shall obligate the Underwriters to
make any over-allotments. No Additional Securities shall be delivered
unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of
counsel to the Representative in Atlanta, Georgia, or at such other place
as shall be agreed upon by the Underwriters and the Company. Such delivery
and payment shall be made at 10:00 a.m. (New York City time) on
___________, 1997 or at such other time and date as shall be designated by
the Representative but not less than three (3) nor more than five (5)
business days after the effective date of the Registration Statement (such
time and date of payment and delivery being hereafter called "Closing
Date"). In addition, in the event that any or all of the Additional
Securities are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for such Additional Securities shall be
made at the above-mentioned office or at such other place and at such time
(such time and date of payment and delivery being hereinafter called
"Option Closing Date") as shall be agreed upon by the Representative and
the Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Firm
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for
the Firm Securities and the Additional Securities, if any, to the order of
the Company as the case may be by certified check in New York Clearing
House funds or, at the election of the Representative, all or a portion of
the funds may be paid by Bank wire transfer of funds or by Representative's
commercial check. Certificates for the Firm Securities and the Additional
Securities, if any, shall be in definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at
least two (2) business days prior to Closing Date or the relevant Option
Closing Date, as the case may be. The certificates or the Depository Trust
Corporation electronic notifications, as the case may be, for the
Securities and the Additional Securities, if any, shall be made available
to the Underwriters at the above-mentioned office or such other place as
the Underwriters may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to Closing Date or the
relevant Option Closing Date, as the case may be.
Page 12
13
The purchase price of the Common Stock and
Redeemable Warrants to be paid by each of the Underwriters, severally and
not jointly, to the Company for the Securities purchased under Clauses (a)
and (b) above will be $______ per Share and $______ per Redeemable Warrant
(which price is net of the Underwriters' discount and commissions). The
Company shall not be obligated to sell any Securities hereunder unless all
Firm Securities to be sold by the Company are purchased hereunder. The
Company agrees to issue and sell 1,550,000 shares of the Common Stock and
the Company agrees to issue and sell 1,550,000 Redeemable Warrants to the
Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and
sell to the Underwriters the Underwriters' Warrant at a purchase price of
$155.00, which purchase option shall entitle the holders thereof to
purchase an aggregate of 155,000 Shares and 155,000 Warrants. The
Underwriters' Warrant shall be exercisable for a period of four (4) years
commencing one (1) year from the closing date of the Registration Statement
at an initial exercise price equal to one hundred twenty percent (145%) of
the initial public offering price of the Shares and Redeemable Warrants.
The Underwriter's Warrant shall be substantially in the form filed as an
Exhibit to the Registration Statement. Payment for the Underwriters'
Warrant shall be made on Closing Date. The Company has reserved and shall
continue to reserve a sufficient number of Shares for issuance upon
exercise of the Underwriters' Warrant.
3. Public Offering of the Securities. As soon after the
Registration Statement becomes effective and as the Representative deems
advisable, but in no event more than three (3) business days after such
effective date, the Underwriters shall make a public offering of the
securities (other than to residents of or in any jurisdiction in which
qualification of the Securities is required and has not become effective)
at the price and upon the other terms set forth in the Prospectus. The
Underwriters may allow such concessions and discounts upon sales to other
dealers as set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause
the Registration Statement and any amendments thereto to become effective
as promptly as practicable and will not at any time, whether before or
after the effective date of the Registration Statement, file any amendment
to the Registration Statement or supplement to the Prospectus or file any
document under the Exchange Act (i) before termination of the offering of
the Securities by the Underwriters, which the Underwriters shall not
previously have been advised and furnished with a copy, or (ii) to which
the Underwriters shall have objected or (iii) which is not in compliance
with the Act, the Exchange Act or the Rules and Regulations.
Page 13
14
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Underwriters and confirm by
notice in writing: (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said
Rule 430A and when any post-effective amendment to the Registration
Statement becomes effective; (ii) of the issuance by the commission of any
stop order or of the initiation, or the threatening of any proceeding,
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution or
proceeding for that purpose; (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of
the Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose; (iv) of
the receipt of any comments from the Commission; and (v) of any request by
the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission or regulatory
authority shall enter a stop order or suspend such qualification at any
time, the Company will make every effort to obtain promptly the lifting of
such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission
pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the
Underwriters pursuant to Rule 424(b)(4)) not later than the Commission's
close of business on the earlier of (i) the second business day following
the execution and delivery of this Agreement and (ii) the fifth business
day after the effective date of the Registration Statement.
(d) The Company will give the Underwriters notice of
its intention to file or prepare any amendment to the Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which the
Company proposes for use by the Underwriters in connection with the
offering of the Securities which differs from the corresponding prospectus
on file at the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) of the Rules and Regulations), will furnish the
Underwriters with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be,
and will not file any such prospectus to which the Underwriters or Xxxxxxx
& Xxxxxxxxxx ("Underwriters' Counsel") shall reasonably object.
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as the Underwriters may reasonably designate, and shall
cooperate with the Underwriters and Underwriters' Counsel in the making of
such applications, and filing such documents and shall furnish such
information as may be required for such purpose; provided, however, the
Company shall not be required to: (i) qualify as a foreign corporation or
file a general
Page 14
15
consent to service of process in any such jurisdiction; or (ii) qualify or
"blue sky" in any state which requires a lock-up of inside securities for a
period greater than five (5) years (or such earlier date if the
Representative has exercised the Underwriters' Warrant). In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriters agree that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements
or reports at such times as are or may reasonably be required by the laws
of such jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to
be delivered under the Act, the Company shall use all reasonable efforts to
comply with all requirements imposed upon it by the Act and the Exchange
Act, as now and hereafter amended and by the Rules and Regulations, as from
time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions
hereof and the Prospectus, or any amendments or supplements thereto. If at
any time when the Prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or Underwriters' Counsel,
the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to comply with the
Act, the Company will notify the Underwriters promptly and prepare and file
with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters a reasonable number of copies of such amendment
or supplement.
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period commencing on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (90 days in the event
that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its security holders,
in the manner specified in Rule 158(b) of the Rules and Regulations, and to
the Underwriters, an earnings statement which will be in such form and
detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations,
which statement need not be audited unless required by the Act, covering a
period of at least 12 consecutive months after the effective date of the
Registration Statement.
(h) During a period of five (5) years after the date
hereof and provided that the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will provide
the Representative's director Designee or Attendee, as defined herein,
copies of the below described documents prior to release where applicable
and will furnish to its stockholders and to the Underwriter as soon as
practicable, annual reports (including financial statements audited by
independent public accountants):
Page 15
16
(i) as soon as they are available, copies of
all reports (financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of
all reports and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
(iii) every press release and every material
news item or article of interest to the financial community in respect of
the Company and any future subsidiaries or their affairs which was released
or prepared by the Company;
(iv) any additional information of a public
nature concerning the Company and any future subsidiaries or their
respective businesses which the Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1,
13E-3 or 13E-4 received or filed by the Company from time to time;
(vi) such other information as may be
requested with reference to the property, business, stockholders and
affairs of the Company and its subsidiaries.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries
are consolidated, and will be accompanied by similar financial statements
for any significant subsidiary which is not so consolidated.
(i) For as long as the Company is required to file
reports with the Commission under Section 12 of the Exchange Act, the
Company will maintain a Transfer Agent and a Warrant Agent, which may be
the same entity, and, if necessary under the jurisdiction of incorporation
of the Company, a Registrar (which may be the same entity as the Transfer
and Warrant Agent) for its Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or
pursuant to the Underwriters' direction, without charge, at such place as
the Underwriters may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective
date of the Registration Statement, in each case as soon as available and
in such quantities as the Underwriters may reasonably request.
(k) Neither the Company, nor its officers or
directors, nor affiliates of any of them (within the meaning of the Rules
and Regulations) will take, directly or indirectly, any action
Page 16
17
designed to, or which might in the future reasonably be expected to cause
or result in, stabilization or manipulation of the price of any securities
of the Company.
(1) The Company shall apply the net proceeds from the
sale of the Securities in substantially the manner, and subject to the
provisions, set forth under "Use of Proceeds" in the Prospectus. Except
for the redemption of the Company's outstanding Convertible Preferred Stock
as disclosed in the Prospectus, no portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports,
forms or other documents as may be required (including but not limited to a
Form SR as may be required pursuant to Rule 463 under the Act) from time to
time, under the Act, the Exchange Act, and the Rules and Regulations, and
all such reports, forms and documents filed will comply as to form and
substance with the applicable requirements under the Act, the Exchange Act,
and the Rules and Regulations.
(n) The Company shall furnish to the Underwriters as
early as practicable prior to each of the date hereof, the Closing Date and
each Option Closing Date, if any, but no later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim
financial statements of the Company (which in no event shall be as of a
date more than forty-five (45) days prior to the date of the Registration
Statement) which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to Section
6(k) hereof.
(o) For a period of five (5) years from the Closing
Date (or such earlier date if the Representative has exercised the
Underwriters' Warrant), the Company shall furnish to the Underwriters at
the Company's sole expense, (i) daily consolidated transfer sheets relating
to the Securities upon the Representative's reasonable request; (ii) a list
of holders of Securities upon the Representative's reasonable request;
(iii) a list of, if any, the securities positions of participants in the
Depository Trust Company upon the Representative's reasonable request.
(p) For a period of five (5) years after the
effective date of the Registration Statement (or such earlier date if the
Representative has exercised the Underwriters' Warrant), the Company shall
use its best efforts to cause one (1) individual (the "Designee") selected
by the Representative to be elected to the Board of Directors of the
Company (the "Board"), if requested by the Representative. Alternatively,
the Representative shall be entitled to appoint an individual who shall be
permitted to attend all meetings of the Board (the "Advisor") and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. Upon election to the Board, the Designee
shall be entitled to call special meetings of the Board and to serve on the
Audit and Compensation Committees. The Designee may be removed by the
Board only for "justifiable cause" as that term is defined in the
Employment Contract between the Company and V. Xxxx Xxxxxxxx. The Company
shall reimburse the Representative's Designee or Advisor for his or her
out-of-pocket expenses reasonably incurred and authorized in advance by the
Company in connection with his or her attendance of the Board meetings and
a fee equal to the
Page 17
18
amount paid to the other outside directors of the Company. The Designee or
Advisor shall also be entitled to participate in any Stock Option Plans of
the Company for non-employees. To the extent permitted by law, the Company
agrees to indemnify and hold the Designee (as a director or Advisor) and
the Representative harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or Advisor and
in the event the Company maintains a liability insurance policy affording
coverage for the action of its officer and directors, to include such
Designee and the Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5)
years from the date hereof, or (ii) the sale to the public of the Warrant
Shares, the Company will use its best efforts not to take any action or
actions which may prevent or disqualify the Company's use of Forms S-1 or,
if applicable, S-2 and S-3 (or other appropriate form) for the registration
under the Act of the Warrant Shares.
(r) For a period of five (5) years from the date
hereof, the Company shall use its best efforts at its cost and expense to
maintain the listing of the Securities on the Nasdaq SmallCap Market or
NASDAQ National Market System if the Company meets all of the requirements
and qualifications promulgated by the NASD.
(s) On or before the effective date of the
Registration Statement, the Company shall retain or make arrangements to
retain a financial public relations firm and a publicist reasonably
satisfactory to the Representative which shall be continuously engaged from
such engagement date to a date 24 months from the effective date of the
Registration Statement. Upon the expiration of such two (2) year period,
such engagement shall continue until the expiration of any lock-up period
provided for in the Lock-Up Agreement(s) with certain officers and
directors of the Company subject to the Company's right to terminate any
such firm with the consent of the Underwriter's director Designee.
Further, the Company shall engage for a period of two years at least three
firms (one of which shall be the Representative and one of which shall be
Standard & Poor's Stock Reports Professional Edition) which are reasonably
acceptable to the Representative to provide industry research and advice to
the Company. Upon the expiration of such two-year period, such engagement
shall continue until the expiration of any lock-up period provided
hereunder, subject to the Company's right to terminate any such firm with
the consent of the Underwriters' director designee.
(t) The Company shall (i) file a Form 8-A with the
Commission providing for the registration under the Exchange Act of the
Securities and (ii) promptly take all necessary and appropriate actions to
be included in Standard and Poor's Corporation Descriptions and/or Xxxxx'x
OTC Manual and to continue such inclusion for a period of not less than
five (5) years, as soon as practicable, but in no event more than five (5)
business days' after the effective date of the Registration Statement.
(u) Following the Effective Date of the Registration
Statement and for a period of five (5) years thereafter (or such earlier
date if the Representative has exercised the Underwriters'
Page 18
19
Warrant), the Company shall, at its sole cost and expense, prepare and file
such blue sky trading applications with such jurisdictions as the
Representative may reasonably request after consultation with the Company,
and on the Representative's request, furnish the Underwriters with a
secondary trading survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of
any written employment agreement nor Lock-Up Agreement between the Company
and any executive officer, director or affiliate, during the term thereof,
in a manner more favorable to such employee or entity, without the express
written consent of the Representative until such time as the Underwriters'
Warrant has been exercised in full.
(w) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, which consent shall not be
unreasonably withheld, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
(x) Commencing one (1) year from the date hereof, upon
the exercise of any Warrant, the exercise of which was solicited by the
Underwriters in accordance with the applicable rules and regulations of the
NASD prevailing at the time of such solicitation, the Company shall pay to
the soliciting Underwriter a fee of 5% of the aggregate exercise price of
such Warrant (the "Warrant Solicitation Fee") within five (5) business days
of such exercise, so long as the Underwriters provided bona fide services
in exchange for the Warrant Solicitation Fee and the Underwriters have been
specifically designated in writing by the holders of the Warrants as the
broker. The Company further agrees that it will not solicit the exercise
of any Warrant other than through the Underwriters, unless either: (i) the
Underwriters cannot legally solicit the exercise of the Warrants at the
time of such solicitation; (ii) the Representative declines, in writing, to
solicit the exercise of the Warrants within five (5) business days of such
a written request by the Company; or (iii) the Representative consents to
the solicitation of the exercise of the Warrants by the Company or another
entity.
(y) The Company will use its best efforts to maintain
its registration under the Exchange Act in effect for a period of five (5)
years from the Closing Date.
(z) For a period of twenty-four (24) months commencing
on the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Warrant), except with the written consent of
the Underwriters, which consent shall not be unreasonably withheld, the
Company will not issue or sell, directly or indirectly, any shares of its
capital stock, or sell or grant options, or warrants or rights to purchase
any shares of its capital stock, except pursuant to (i) this Agreement,
(ii) the Underwriters' Warrants, (iii) warrants and options of the Company
heretofore issued and described in the Prospectus, and (iv) the grant of
options and the issuance of shares issued upon
Page 19
20
exercise of options issued or to be issued under a stock option plan to be
adopted in the future by the Company with terms that are reasonable for a
public entity the size of the Company which is described in the Prospectus;
except that, during such period, the Company may issue up to ______ shares
pursuant to certain employee stock options as is described in the
Prospectus, and issue securities in connection with an acquisition, merger
or similar transaction, provided that such securities are not publicly
registered or issued pursuant to Regulation S of the Act, and the acquirer
of the securities is not granted registration rights with respect thereto
which are effective prior to 24 months after the Effective Date and until
the Underwriters' Warrant is exercised, the Underwriter grants its consent.
Notwithstanding anything to the contrary set forth in the prior sentence,
the Company may not issue any class or series of Preferred Stock for a
period of 24 months from the Effective Date without the unanimous vote or
consent of all members of the Board of Directors of the Company. Prior to
the Effective Date, the Company will not issue any options or warrants
without the prior written consent of the Underwriters.
(aa) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the 12 months
following the Closing Date without the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is
given in the Registration Statement and Prospectus and prior to the Closing
Dates, except as disclosed in or contemplated by the Registration Statement
and Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material
transactions other than in the ordinary course of business; (ii) there
shall not have been any change in the capital stock, funded debt (other
than regular repayments of principal and interest on existing indebtedness)
or other securities of the Company, any adverse change in the condition
(financial or other), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect
the condition (financial or other), business, operations, income, net worth
or properties of the Company; and (iii) the Company shall not pay or
declare any dividend or other distribution on its Common Stock or its other
securities or redeem or repurchase any of its Common Stock or other
securities.
(cc) The Company, for a period of twenty-four (24)
months following the Effective Date (or such earlier date if the
Representative has exercised the Underwriters' Warrant), shall not redeem
any of its securities, except as disclosed in the Registration Statement,
and shall not pay any dividends or make any other cash distribution in
respect of its securities in excess of the amount of the Company's current
or retained earnings derived after the Effective Date without obtaining the
Underwriters' prior written consent, which consent shall not be
unreasonably withheld. The Underwriters shall either approve or disapprove
such contemplated redemption of securities or dividend payment or
distribution within five (5) business days from the date the Underwriters
receive written notice of the Company's proposal with respect thereto; a
failure of the Underwriters to respond within the five (5) business day
period shall be deemed approval of the transaction.
Page 20
21
(dd) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary in order to permit preparation of financial
statements in accordance with generally accepted accounting principles and
to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences, and (v) all quarterly reports filed on Form 10-Q shall
be reviewed by the Company's accountant in accordance with SAS 71.
(ee) The Company, for a period of twenty-four (24)
months following the Effective Date (or such earlier date if the
Representative has exercised the Underwriters' Warrant), shall implement
the following procedures:
(i) Thirty days prior to fiscal year end, the
President will present to the Board of Directors a business plan to be
adopted by the Board of Directors at fiscal year end. The business plan
will include the following:
a) quarterly projections - including
balance sheet, profit/loss statement and cash flow
statements with underlying assumptions
b) upon board approval, this
document becomes the annual budget
(ii) No later than the 20th day of each month,
the Company will provide the Board with comparative financial statements
for the previous month showing actual balance sheet, profit/loss and cash
flow vs. budget with written explanations for deviation in excess of
$50,000 or 10% of line item presented.
(iii) Monthly Board meetings (which may be by
telephone) by the 25th of each month to include discussion of the Monthly
Report and approval of any changes to the business plan based on change of
circumstances.
(iv) Implementation of a compensation
committee, which will be headed by an outside director and include one of
the Underwriters' Designee Directors, to make recommendations to the Board
for compensation for all outside consultants, officers and outside
directors.
(v) Implementation of an audit committee
which will have as its members the Underwriter's Designee Director and one
outside Director.
Page 21
22
If the Company fails to comply with or breaches any
provisions of this Section 4 of this Agreement, after 30 days notice from
the Representative of such default or breach, the Underwriters may cause
the Company to retain one or more consultants, accountants or other
professionals to assist the Company in curing the breach or failure and the
Company will reimburse such third party directly for costs and expenses
incurred.
(ff) Financial Advisory Agreement. On the Closing
Date, the Company shall execute a Financial Advisory Agreement with you for
services, which shall include without limitation (i) advising the Company
in connection with possible acquisitions (ii) facilitating shareholder
communications and relations, including the preparation of the Company's
annual report and (iii) advising and assisting the Company with long-term
financial planning, corporate reorganization, expansion and capital
structure and other financial matters. Such agreement shall have a term of
two years and provide for compensation of $2,000 per month which amount
shall be prepaid in full on the Closing Date. The Financial Advisory
Agreement shall further provide that during the term of such agreement, in
the event that you (i) introduce, negotiate or arrange on the Company's
behalf a non-public equity financing or (ii) arrange on the Company's
behalf a non-public debt financing or (iii) arrange for the purchase or
sale of assets, or for a merger acquisition or joint venture for the
Company, then the Company will compensate you (based on the Transaction
Value, as defined below) for such services in an amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000;
3% on the amount from $2,000,001 to $3,000,000;
2% on the amount from $3,000,001 to $4,000,000;
1% on the amount from $4,000,001 to $5,000,000;
1% on the amount in excess of $5,000,000.
"Transaction Value" shall mean the aggregate value of all cash,
securities and other property (i) paid to the Company, its affiliates or
their shareholders in connection with any transaction referred to above
involving any investment in or acquisition of the Company or any
affiliates (or the assets of either), (ii) paid by the Company or any
affiliate in any such transaction involving an investment in or
acquisition of another party or its equity holdings by the Company or any
affiliate, or (iii) paid or contributed by the Company or any affiliate
and by the other party or parties in the event of any such transaction
involving a merger, consolidation, joint venture or similar joint
enterprise or undertaking. The value of any such securities (whether debt
or equity) or other property shall be the fair market value thereof as
determined by mutual agreement of the Company and the Underwriters or by
an independent appraiser jointly selected by the Company and the
Underwriters.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the
Closing Date and the Option Closing Date (to the extent not paid at the
Closing Date) all expenses and fees (other than
Page 22
23
fees of Underwriters' Counsel, except as provided in (iv) below) incident
to the performance of the obligations of the Company under this Agreement,
including, without limitation: (i) the fees and expenses of accountants and
counsel for the Company; (ii) all costs and expenses incurred in connection
with the preparation, duplication, printing, filing, delivery and mailing
(including the payment of postage with respect thereto) of the Registration
Statement and the Prospectus and any amendments and supplements thereto and
the printing, mailing and delivery of this Agreement, the Selected Dealer
Agreements, the Agreement Among Underwriters, Underwriters Questionnaires,
Powers of Attorney and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriters in
quantities as hereinabove stated; (iii) the printing, engraving, issuance
and delivery of the Securities including any transfer or other taxes
payable thereon; (iv) disbursements and fees of Underwriters' Counsel in
connection with the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, which Underwriters'
Counsel blue sky fees (exclusive of filing fees and disbursements) shall be
$1,000 for each state in which application for registration or
qualification is made up to an aggregate of $35,000 for all states
combined; (v) fees and expenses of the transfer agent; (vi) the fees
payable to the NASD; (vii) the fees and expenses incurred in connection
with the listing of the Securities on the Nasdaq SmallCap Market and any
other fees for application and admission to a registered Stock Exchange for
which the Underwriter requires the Company to register its Securities;
(viii) fees and expenses for any tombstone advertisements reasonably
requested by the Representative; (ix) Closing Binders; and (x) Lucite cubes
containing a miniature definite Prospectus. All fees and expenses payable
to the Underwriters shall be payable at the Closing Date or Option Closing
Date, as applicable.
(b) If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 6, Section 10(a)
or Section 12, the Company shall reimburse and indemnify the Underwriters
for all of their out-of-pocket expenses reasonably incurred in connection
with the transactions contemplated hereby.
(c) The Company further agrees that, in addition to
the expenses payable pursuant to subsection (a) of this Section 5, it will
pay to the Underwriters a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of
the Securities, none of which has been paid to date to the Underwriters.
The Company will pay the remainder of the non-accountable expense allowance
on the Closing Date by direct payment to third parties for fees and
expenses including, but not limited to, fees and expenses of Underwriter's
Counsel and the balance by deduction from the proceeds of the offering
contemplated herein. In the event the Underwriters elect to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Underwriters on the Option Closing Date (by deduction
from the proceeds of the offering) a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company
from the sale of the Additional Securities.
Page 23
24
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company
herein as of the Closing Date and each Option Closing Date, if any, as if
they had been made on and as of the Closing Date or each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of officers of the Company
made pursuant to the provisions hereof; and the performance by the Company
on and as of the Closing Date and each Option Closing Date, if any, of each
of its covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M., New York City time, on the date of this
Agreement or such later date and time as shall be consented to in writing
by the Underwriters, and, at Closing Date and each Option Closing Date, if
any, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending or contemplated by the Commission
and any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Underwriter
and Underwriters' Counsel. If the Company has elected to rely upon Rule
430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains
an untrue statement of fact which, in the Underwriters' opinion, is
material or omits to state a fact which, in the Underwriters' opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any
supplement thereto, contains an untrue statement of fact which, in the
Underwriters' reasonable opinion, is material, or omits to state a fact
which, in the Underwriters' reasonable opinion, is material and is required
to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date and each Option
Closing Date, as the case may be, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the
organization of the Company the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Underwriters reasonably may request and such counsel shall have received
such papers and information as they request to enable them to pass upon
such matters.
Page 24
25
(d) At the Closing Date and the Option Closing Date
the Underwriters shall have received an opinion of Looper, Reed, Xxxx &
XxXxxx, counsel to the Company, dated the Closing Date, or Option Closing
Date, as the case may be, addressed to the Underwriter and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company: (A) has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Nevada with full corporate power and authority to own and
operate its properties and to carry on its business as set forth in the
Registration Statement and Prospectus; (B) to the best knowledge of such
counsel, the Company is duly registered or qualified as a foreign
corporation in all jurisdictions in which by reason of maintaining an
office in such jurisdiction or by owning or leasing real property in such
jurisdiction it is required to be so registered or qualified except where
failure to register or qualify does not have, singly or in the aggregate, a
Material Adverse Effect; and (C) to the best knowledge of such counsel, the
Company has not received any notice of proceedings relating to the
revocation or modification of any such registration or qualification.
(ii) The Registration Statement, each
Preliminary Prospectus that has been circulated and the Prospectus and any
post-effective amendments or supplements thereto (other than the financial
statements, schedules and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and Regulations and the
conditions for use of a registration statement on Form SB-2 have been
satisfied by the Company. Such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company and representatives of the Underwriters at which the contents of
the Registration Statement, the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective or the Prospectus as of the date thereof contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or to make the statements therein in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished
in writing to the Company on behalf of any Underwriter expressly for use in
the Registration Statement or the Prospectus).
(iii) To the best of such counsel's knowledge,
the Company has a duly authorized, issued and outstanding capitalization as
set forth in the Prospectus as of the date indicated therein, under
"Capitalization." The Shares, Redeemable Warrants,
Page 25
26
the Underwriters' Warrants, and the Warrant Shares conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof, to counsel's best
knowledge, 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 holder of any security of the Company.
(iv) The issuance of the Shares, Redeemable
Warrants and the Warrant Shares have been duly authorized and when issued
and paid for in accordance with this Agreement and the Warrant Agreement,
respectively, will be validly issued, fully paid and non-assessable
securities of the Company. The holders of the Securities when issued and
paid for, will not be subject to personal liability by reason of being such
holders. To the best of such counsel's knowledge, the Securities are not
and will not be subject to the preemptive or similar contractual rights of
any shareholder of the Company. All corporate action required to be taken
for the authorization, issuance and sale of the Securities has been duly
and validly taken. The certificates representing the Shares and Redeemable
Warrants are in due and proper form.
(v) Based solely on telephonic, verbal
confirmation provided to such counsel by the staff of the Commission, the
Registration Statement and all post-effective amendments, if any, have
become effective under the Act, and, if applicable, filing of all pricing
information has been timely made in the appropriate form under Rule 430A,
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and to the best
of such counsel's knowledge, no proceedings for that purpose have been
instituted or are pending or threatened or contemplated under the Act; and
any required filing of the Prospectus pursuant to Rule 424(b) has been
made.
(vi) To the best of such counsel's knowledge,
(A) there are no material contracts or other documents required to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as exhibits thereto,
and (B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto regarding such material contracts
or other documents to which the Company is a party or by which it is bound,
are accurate in all material respects and fairly represent the information
required to be shown by Form SB-2 and the Rules and Regulations.
(vii) This Agreement, the Underwriters'
Warrant, the Warrant Agreement, and the Financial Advisory Agreement have
each been duly and validly authorized, executed and delivered by the
Company, and assuming that it is a valid and binding agreement of the
Underwriters, so as the case may be, constitutes a legal, valid and binding
agreement of the Company enforceable as against the Company in accordance
with its respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement
Page 26
27
of creditors rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law or pursuant to public
policy).
(viii) Neither the execution or delivery by the
Company of this Agreement, the Underwriters' Warrant, and the Warrant
Agreement, nor its performance hereunder or thereunder, nor its
consummation of the transactions contemplated herein or therein, nor the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, nor the issuance of
the securities conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any
kind whatsoever upon any property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the Articles of Incorporation of the
Company, or (B) to the best knowledge of such counsel, and except to the
extent it would not have a Material Adverse Effect on the Company, any
statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body, having jurisdiction over the Company
or any of its respective activities or properties.
(ix) No consent, approval, authorization or
order, and no filing with, any court, regulatory body, government agency or
other body, (other than such as may be required under state securities
laws, as to which no opinion need be rendered) is required in connection
with the issuance by the Company of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this
Agreement, the Underwriters' Warrant, the Financial Advisory Agreement
and the Warrant Agreement by the Company, and the taking of any action by
the Company contemplated hereby or thereby, which has not been obtained.
(x) To the best of such counsel's knowledge,
except as described in the Prospectus, no person, corporation, trust,
partnership, association or other entity holding securities of the Company
has the contractual right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement for twelve months from the date hereof.
(xi) After the public offering, the Securities
will be eligible for listing on the Nasdaq SmallCap Market.
In rendering such opinion such counsel may rely, (A) as to
matters involving the application of laws other than the laws of the United
States, the corporate laws of Nevada and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form
and in substance reasonably satisfactory to Underwriters' Counsel) of other
counsel reasonably acceptable to Underwriters' Counsel, familiar with the
applicable laws, and (B) as to matters of fact, to the extent they deem
Page 27
28
proper, on certificates and written statements of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company; provided, that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and, in their opinion, the Underwriters and
they are justified in relying thereon.
(e) At each Option Closing Date, if any, the
Underwriters shall have received the an opinion of counsel to the Company,
each dated the Option Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel confirming as of
Option Closing Date the statements made by such firm, in their opinion,
delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the
Option Closing Date, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
(g) Prior to the Closing Date and each Option Closing
Date, if any: (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects or the business activities of the Company, whether or
not in the ordinary course of business, from the latest dates as of which
such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii)
the Company shall not be in material default under any provision of any
instrument relating to any outstanding indebtedness; (iv) no material
amount of the assets of the Company shall have been pledged or mortgaged,
except as set forth in the Registration Statement and Prospectus; (v) no
action, suit or proceeding, at law or in equity, shall have been pending or
to its knowledge threatened against the Company, or affecting any of its
properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect the
business, operations, prospects or financial condition or income of the
Company, except as set forth in the Registration Statement and Prospectus;
and (vi) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated
by the Commission.
(h) At the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received a certificate of the Company
signed by the principal executive officer and by the
Page 28
29
chief financial or chief accounting officer of the Company, dated the
Closing Date or Option Closing Date, as the case may be, to the effect
that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the
Company has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as the
case may be;
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the
best of each of such person's knowledge, are contemplated or threatened
under the Act;
(iii) The Registration Statement and the
Prospectus and, if any, each amendment and each supplement thereto, contain
all statements and information required to be included therein, and none of
the Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading and neither the Preliminary Prospectus nor any
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus
and except as otherwise contemplated therein: (A) the Company has not
incurred up to and including the Closing Date or the Option Closing Date as
the case may be, other than in the ordinary course of its business, any
material liabilities or obligations, direct or contingent; (B) the Company
has not paid or declared any dividends or other distributions on its
capital stock; (C) the Company has not entered into any transactions not in
the ordinary course of business; (D) there has not been any change in the
capital stock or any increase in long-term debt or any increase in the
short-term borrowings (other than any increase in the short term borrowings
in the ordinary course of business) of the Company; (E) the Company has not
sustained any material loss or damage to its property or assets, whether or
not insured; (F) there is no litigation which is pending or threatened
against the Company which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its
officers or affiliates shall have taken, and the Company, its officers and
affiliates will not take, directly or indirectly, any action designed to,
or which might reasonably be expected to, cause or result in the
stabilization or manipulation of the price of the Company's securities to
facilitate the sale or resale of the Shares.
Page 29
30
References to the Registration Statement and the
Prospectus in this subsection (i) are to such documents as amended and
supplemented at the date of such certificate.
(i) By the Closing Date, the Underwriters shall have
received clearance from NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to
the Representative in form and substance satisfactory in all respects
(including the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) to the Underwriters, from X. X. Xxxxxxxx
+ Associates:
(i) confirming that they are independent
public accountants with respect to the Company within the meaning of the
Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
condensed financial statements and supporting schedules of the Company
included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Underwriters may rely upon
the opinion of X.X. Xxxxxxxx + Associates with respect to the financial
statements and supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited
review which included a reading of the latest available unaudited interim
condensed financial statements of the Company (with an indication of the
date of the latest available unaudited interim condensed financial
statements), a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other employees
of the Company responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the unaudited condensed 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 Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
condensed financial statements of the Company included in the Registration
Statement, or (B) at a specified date not more than five (5) days prior to
the effective date of the Registration Statement, there has been any change
in the capital stock, or any increase in total borrowings of the Company,
or any decrease in the stockholders' equity or working capital of the
Company as compared with amounts shown in the financial statements included
in the Registration Statement, other than as set forth in or contemplated
by the Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during the
period from ____________ to a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there was any
decrease in revenue, net earnings or increase in net income
Page 30
31
or earnings per common share of the Company, in each case as compared with
the corresponding period of the prior year other than as set forth in or
contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific
dollar amounts, numbers of Securities, percentages of revenue and earnings,
statements and other financial information pertaining to the Company set
forth in the Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures did not constitute an
examination in accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement; and
(v) statements as to such other matters
incident to the transaction contemplated hereby as the Underwriters may
reasonably request.
(k) At the Closing Date and each Option Closing Date,
the Underwriters shall have received from X. X. Xxxxxxxx + Associates, a
letter, dated as of the Closing Date, or Option Closing Date, as the case
may be, to the effect that they reaffirm that statements made in the letter
furnished pursuant to Subsection (j) of this Section, except that the
specified date referred to shall be a date not more than five days prior to
the Closing Date and, if the Company has elected to rely on Rule 430A of
the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (iii) of subsection (j) of this Section
with respect to certain amounts, percentages and financial information as
specified by the Underwriters and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages
and financial information to be in agreement with the records specified in
such clause (iii).
(l) On each of the Closing Date and the Option Closing
Date, if any, there shall have been duly tendered to the Underwriters for
the several Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in
any jurisdiction designated by the Underwriters pursuant to subsection (e)
of Section 4 hereof shall have been issued on either the Closing Date or
the Option Closing Date, if any, and no proceedings for that purpose shall
have been instituted or to its knowledge or that of the Company shall be
contemplated.
If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant
Option Closing Date, as the case may be, is not so fulfilled, the
Underwriters may terminate this Agreement or, if the Underwriters so elect,
it may waive any such conditions which have not been fulfilled or extend
the time for their fulfillment.
Page 31
32
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each of the Underwriters, including specifically each person who may be
substituted for an Underwriter as provided in Section 11 hereof and each
person, if any, who controls any Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), whatsoever (including but not
limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever), as such are incurred, to which such
Underwriter or such controlling person may become subject under the Act,
the Exchange Act or any other federal or state statutory laws or
regulations at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained (i) in any Preliminary
Prospectus (except that the indemnification contained in this paragraph
with respect to any preliminary prospectus shall not inure to the benefit
of the Underwriter or to the benefit of any person controlling the
Underwriter on account of any loss, claim, damage, liability or expense
arising from the sale of the Securities by the Underwriter to any person if
a copy of the Prospectus, as amended or supplemented, shall not have been
delivered or sent to such person within the time required by the Act, and
the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus, as amended and supplemented, and such
correction would have eliminated the loss, claim, damage, liability or
expense), the Registration Statement or the Prospectus (as from time to
time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
Underwriters' Warrant; or (iii) in any application or other document or
written communication (in this Section 8 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq Stock Market, Inc. or any other securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or
on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any application, as the case may
be, or (iv) any failure of the Company to comply with any provision of this
Underwriting Agreement resulting in a claim or loss to the Underwriters.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or
otherwise.
Page 32
33
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each
other person, if any, who controls the Company within the meaning of
Section 20 of the Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to the Underwriters but only
with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment
thereof or supplement thereto in any post-effective amendment, new
registration statement or prospectus, or in any blue sky application or any
other such application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment
thereof or supplement thereto or in any post-effective amendment, new
registration statement or prospectus, or in any such application, provided
that such written information or omissions only pertain to disclosures in
the Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto, in any post-effective amendment,
new registration statement or prospectus or in any such application,
provided, further, that the liability of each Underwriter to the Company
shall be limited to the amount of the net proceeds of the Offering received
by the Company. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the
cover page in the Prospectus have been furnished by the Underwriters
expressly for use therein and any information furnished by or on behalf of
the Underwriter filed in any jurisdiction in order to qualify the
Securities under State Securities laws or filed with the Commission, the
NASD or any securities exchange constitute the only information furnished
in writing by or on behalf of the Underwriters for inclusion in the
Prospectus and the Underwriters hereby confirm that such statements and
information are true and correct.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is
to be made against one or more indemnifying parties under this Section 7,
notify each party against whom indemnification is to be sought in writing
of the commencement thereof (but the failure so to notify an indemnifying
party shall not relieve it from any liability which it may have under this
Section 7 except to the extent that it has been prejudiced in any material
respect by such failure or from any liability which it may have otherwise
avoided). In case any such action is brought against any indemnified party,
and it notifies an indemnifying party or parties of the commencement
thereof, the indemnifying party or parties will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing the
indemnified party or parties shall have the right to employ its or their
own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying
Page 33
34
parties in connection with the defense of such action at the expense of the
indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of
the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnifying party or parties
shall have reasonably concluded that there may be defenses available to it
or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events such fees and
expenses of one additional counsel shall be borne by the indemnifying
parties. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action
effected without its written consent; provided however, that such consent
was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Section 7
provide for indemnification in such case, or (ii) contribution under the
Act may be required on the part of any indemnified party, then each
indemnifying party in lieu of indemnifying such indemnified party shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, expenses or liabilities (or actions
in respect thereof) (A) in such proportion as is appropriate to reflect the
relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand from the offering
of the Securities or (B) if the allocation provided by clause (A) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (A) above but
also the relative fault of each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable
considerations. In any case where the Company is the contributing party
and the Underwriters are the indemnified party the relative benefits
received by the Company on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses)
bear to the total underwriting discounts and commissions received by the
Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
Page 34
35
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriters
shall not be required to contribute any amount in excess of the amount of
the net proceeds of the Offering received by the Company. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 7, each
person, if any, who controls the Company within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and
each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subparagraph (d). Any party
entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in
respect to which a claim for contribution may be made against another party
or parties under this subparagraph (d), notify such party or parties from
whom contribution may be sought, but the omission so to notify such party
or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such
party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or
otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant
hereto, shall be deemed to be representations, warranties and agreements at
the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the indemnity
agreements contained in Section 7 hereof, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf
of any Underwriter, the Company, or any controlling person, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters.
9. Effective Date.
This Agreement shall become effective: (i) upon the execution and
delivery hereof by the parties hereto; or (ii) if, at any time this
Agreement is executed and delivered, it is necessary for the Registration
Statement or a post-effective amendment thereto to be declared effective
before the offering of the Shares may commence, when notification of the
effectiveness of the Registration Statement or such post-effective
amendment has been released by the Commission and communicated to the
Company and Representative. Until such time as this Agreement shall have
become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
Page 35
36
10. Termination.
(a) The Underwriters shall have the right to terminate
this Agreement (i) if any calamitous domestic or international event or act
or occurrence has materially disrupted, or in the Underwriters' opinion
will in the immediate future materially disrupt general securities markets
in the United States; or (ii) if trading on the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market, or in the
over-the-counter market shall have been suspended or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the
NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a
war or major hostilities; or (iv) if a banking moratorium has been declared
by a New York State or federal authority; or (v) if a moratorium in foreign
exchange trading has been declared; or (vi) if the Company shall have
sustained a material adverse loss, whether or not insured, by reason of
fire, flood, accident or other calamity that materially impairs the
investment quality of the Securities; or (vii) if there shall have been
such material adverse change in the conditions or prospects of the Company,
involving a change not contemplated by the Registration Statement.
(b) Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 9 and 10
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 shall not be in any way affected by such election
or termination or failure to carry out the terms of this Agreement or any
part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 6,
Section 10 or Section 12 hereof) to purchase the Securities which it or
they are obligated to purchase on such date under this Agreement (the
"Defaulted Securities), the Underwriters shall have the right, within 24
hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other Underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Underwriters shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on such
date, the non-defaulting Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters; or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters.
Page 36
37
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in
a termination of this Agreement, the Underwriters shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver
the number of Securities which it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur
with respect to any Option Securities to be purchased on an Option Closing
Date, the Underwriters may at the Underwriters option, by notice from the
Underwriters to the Company, terminate the Underwriters' several
obligations to purchase Securities from the Company on such date) without
any liability on the part of any non-defaulting party other than pursuant
to Section 5 and Section 7 hereof. No action taken pursuant to this
Section shall relieve the Company from liability, if any, in respect of
such default.
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Underwriters shall be directed
to the Representative at X.X. Xxxxxx & Company, L.L.C., 0000 Xxxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxx, XX 00000, with a copy to Xxxxxxx & Xxxxxxxxxx,
One Buckhead Plaza, 0000 Xxxxxxxxx Xxxx, X.X., Xxxxx 000, Xxxxxxx, Xxxxxxx
00000, Attention: Xxxxxx X. Xxxxxxxxx, Esq. Notices to the Company shall
be directed to the Company at the address on the signature page.
14. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 7
hereof, and their respective successors, legal representatives and assigns,
and their respective heirs and legal representatives and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Georgia
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original,
and all of which taken together shall be deemed to be one and the same
instrument.
Page 37
38
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
KARTS INTERNATIONAL INCORPORATED
000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
By:
-----------------------------------
V. Xxxx Xxxxxxxx, President, Chief
Executive Officer and Chairman of
the Board
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN
ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL UNDERWRITERS
NAMED IN SCHEDULE I HERETO:
X.X. Xxxxxx & Company, L.L.C., as
Representative of the Several Underwriters
By:
--------------------------------------------
Name:
---------------------------------------
Title:
Page 38
39
SCHEDULE I
Underwriter Number of Securities
----------- --------------------
X.X. Xxxxxx & Company, L.L.C. 1,550,000 Shares of Common Stock
1,550,000 Redeemable Common Stock
Purchase Warrants
Page 39
40
SCHEDULE II
Warrant Agent - Securities Transfer Corporation
Page 40
