Exhibit 1.1
Network-1 Security Solutions, Inc.
1,875,000 Shares of Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. New York, New York
000 Xxxxx Xxxxxx _________ __, 0000
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
Network-1 Security Solutions, Inc, a Delaware corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") 1,700,000 shares of common stock, par value $.01 per share (the
"Offered Shares"), which Offered Shares are presently authorized but unissued
shares of the common stock, par value $.01 per share (individually, a "Common
Share" and collectively the "Common Shares"), of the Company. In addition, the
Underwriter, in order to cover over-allotments in the sale of the Offered
Shares, may purchase up to an aggregate of 255,000 Common Shares (the "Optional
Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"). The Shares are described in the
Registration Statement, as defined below. The Company also proposes to issue and
sell to the Underwriter for its own account and the accounts of its designees,
warrants to purchase an aggregate of 170,000 Common Shares at an exercise price
of $9.30 per share (the "Underwriter's Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement (as
hereinafter defined).
The Company hereby confirms its agreement with the Underwriter as
follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $5.40 per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $6.00 per
Offered Share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the Company by
wire transfer or certified or official bank check or checks payable to its order
in New York Clearing House funds, at the offices of the Underwriter, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, against delivery of the Offered Shares to the
Underwriter. Such payment and delivery will be made at , New York City time, on
the third business day following the Effective Date (the fourth business day
following the Effective Date in the event that trading of the Offered Shares
commences on the day following the Effective Date), the date and time of such
payment and delivery being herein called the "Closing Date." The certificates
representing the Offered Shares to be delivered will be in such denominations
and registered in such names as the Underwriter may request not less than two
full business days prior to the Closing Date, and will be made available to the
Underwriter for inspection, checking and packaging at the office of the
Company's transfer agent or correspondent in New York City, American Stock
Transfer & Trust Company, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, not less
than one full business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the
Underwriter limited to officers and partners of the Underwriter, members of
the selling group and/or their officers or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form
of, and in accordance with, the provisions of the Underwriter's Warrant
attached as an exhibit to the Registration Statement. The aggregate purchase
price for the Underwriter's Warrants is $100.00. The Underwriter's Warrants
will be restricted from sale, transfer, assignment or hypothecation for a
period of one year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company
by check or checks payable to its order on the Closing Date against delivery
of the certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and
such names as the Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over- allotments in
connection with the distribution and sale of the Offered Shares as contemplated
by the Prospectus, the Underwriter is hereby granted an option to purchase all
or any part of the Optional Shares from the Company. The purchase price to be
paid for the Optional Shares will be the same price per Optional Share
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as the price per Offered Share set forth in Section 1 hereof. The option granted
hereby may be exercised by the Underwriter as to all or any part of the Optional
Shares at any time within 45 days after the Effective Date. The Underwriter will
not be under any obligation to purchase any Optional Shares prior to the
exercise of such option.
(b) The option granted hereby may be exercised by the Underwriter
by giving oral notice to the Company, which must be confirmed by a letter, telex
or telegraph setting forth the number of Optional Shares to be purchased, the
date and time for delivery of and payment for the Optional Shares to be
purchased and stating that the Optional Shares referred to therein are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option, the Company will become obligated to convey
to the Underwriter, and, subject to the terms and conditions set forth in
Section 3(d) hereof, the Underwriter will become obligated to purchase, the
number of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, at the office of the Underwriter,
against delivery of the Optional Shares purchased to the Underwriter. The
certificates representing the Optional Shares to be delivered will be in such
denominations and registered in such names as the Underwriter requests not less
than two full business days prior to the Option Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay for any
of the Optional Shares is subject to the accuracy and completeness (as of the
date hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its
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officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder, to the satisfaction by the Company
of the conditions, as of the date hereof and as of the Option Closing Date, set
forth in Section 3(b) hereof, and to the delivery to the Underwriter of
opinions, certificates and letters dated the Option Closing Date substantially
similar in scope to those specified in Section 5, 6(b), (c), (d), (e) and (f)
hereof, but with each reference to "Offered Shares" and "Closing Date" to be,
respectively, to the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with full power
and authority, corporate and other, to own or lease and operate, as the case may
be, its properties, whether tangible or intangible, and to conduct its business
as described in the Registration Statement and to execute, deliver and perform
this Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company has no subsidiaries
other than Network- 1 Acquisition Corp. (the "Subsidiary"). The Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, with full power and authority, corporate and other, to
own or lease, as the case may be, and operate its properties, whether tangible
or intangible, and to conduct its business as described in the Registration
Statement. Each of the Company and the Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary, except in such jurisdictions where the
failure so to qualify or be in good standing would not have a material adverse
effect on the financial condition, results of operations, business or properties
of the Company and the Subsidiary taken as a whole.
The Company owns 100% of the issued and outstanding shares of
capital stock of the Subsidiary, and such shares are free and clear of any
security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of the Subsidiary.
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(b) This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company, and the
Underwriter's Warrant Agreement, when executed and delivered by the Company on
the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
execution, delivery and performance of this Agreement and the Underwriter's
Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Certificate of Incorporation or By-Laws, each as
amended, of the Company or the Subsidiary; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or the Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their properties or assets is or may be bound or affected;
(iii) violate any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or the Subsidiary or any of their properties or
business; or (iv) have any effect on any permit, certification, registration,
approval, consent, order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or the Subsidiary to own
or lease and operate their properties and to conduct their business or the
ability of the Company or the Subsidiary to make use thereof.
(c) No Permits of any court or governmental agency or body, other
than under the Securities Act of 1933, as amended (the "Act"), the Regulations
(as hereinafter defined) and applicable state securities or Blue Sky laws, are
required for (i) the valid authorization, issuance, sale and delivery of the
Shares to the Underwriter, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement or the Underwriter's Warrant
Agreement.
(d) The conditions for use of a registration statement on Form
SB-2 set forth in the General Instructions to Form SB-2 have been satisfied with
respect to the Company, the transactions contemplated herein and in the
Registration Statement. The Company has prepared in conformity with the
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requirements of the Act and the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-59617) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares
under the Act, including the related preliminary prospectus or preliminary
prospectuses (each thereof being herein called a "Preliminary Prospectus") and a
proposed final prospectus. Each Preliminary Prospectus was endorsed with the
legend required by Item 501(a)(5) of Regulation S-B of the Regulations and, if
applicable, Rule 430A of the Regulations. Such registration statement, including
any documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the "Registration
Statement" and the "Prospectus," except that, (i) if the prospectus filed by the
Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus,
the term "Prospectus" will also include the prospectus filed pursuant to Rule
424(b), and (ii) if the Registration Statement is amended or such Prospectus is
supplemented after the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or has instituted or, to the
best of the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(f) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of the Closing Date
and the Option Closing Date, referred to below, will contain all statements
which are required to be stated therein in accordance with the Act and the
Regulations and will in all material respects conform to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company in connection with the Registration
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Statement or Prospectus or any amendment or supplement thereto by the
Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. Based on the assumptions stated in
the Registration Statement and the Prospectus, the Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement or the Prospectus, on the Effective Date and
on the Closing Date, there will be no options to purchase, warrants or other
rights to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of the Company's capital
stock or any such warrants, convertible securities or obligations. Except as set
forth in the Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities registered
under the Act.
(h) The descriptions in the Registration Statement and the
Prospectus of contracts and other documents are accurate and present fairly the
information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) Xxxxxxx X. Xxxxxx & Company, LLP, the accountants who have
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The financial statements and schedules and the notes thereto filed as part of
the Registration Statement and included in the Prospectus are complete, correct
and present fairly the financial position of the Company as of the dates
thereof, and the results of operations and changes in financial position of the
Company for the periods indicated therein, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus. The selected financial data set forth in the Registration
Statement and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited and unaudited
financial statements included in the Registration Statement and the Prospectus.
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(j) The Company and the Subsidiary each has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic taxes, whether or not
disputed, and for all periods to and including the dates of such financial
statements. Except as disclosed in writing to the Underwriter, neither the
Company nor the Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company or the Subsidiary.
(k) The outstanding Common Shares, the outstanding shares of
Series B Preferred Stock, par value $.01 per share of the Company (the "Series B
Preferred Shares") and outstanding options and warrants to purchase Common
Shares have been duly authorized and validly issued. The outstanding Common
Shares and Series B Preferred Shares are fully paid and nonassessable. The
Company has reserved an aggregate of [562,836] shares of Series C Preferred
Stock, par value $.01 per share of the Company (the "Series C Preferred Shares")
for issuance upon the conversion of [$2,954,888] principal amount of outstanding
indebtedness, plus interest, on the Closing Date. Upon issuance, the Series C
Preferred Shares will be duly authorized, validly issued, fully paid and
nonassessable. The outstanding options and warrants to purchase Common Shares
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms. None of the outstanding Common Shares or Series B
Preferred Shares or options or warrants to purchase Common Shares has been
issued in violation of the preemptive rights of any shareholder of the Company.
The issuance of the Series C Preferred Shares on the Closing Date will not
violate the preemptive rights of any shareholder of the Company. None of the
holders of the outstanding Common Shares or Series B Preferred Shares is subject
to personal liability solely by reason of being such a holder. Upon issuance of
the Series C Preferred Shares, none of the holders of such shares will be
subject to personal liability solely by reason of being such a holder. Upon
conversion of the outstanding Series B Preferred Shares into Common Shares on
the
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Closing Date, such shares will be duly authorized, validly issued, fully paid
and non-assessable, and none of the holders thereof will be subject to personal
liability solely by reason of being such a holder. The Company has reserved
sufficient number of Common Shares for future issuance upon the conversion of
the Series C Preferred Shares. Upon conversion of the Series C Preferred Shares
into Common Shares, such shares will be duly authorized, validly issued, fully
paid and non-assessable, and none of the holders thereof will be subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and Series B Preferred Shares and outstanding
options and warrants to purchase Common Shares were at all relevant times, and
the offer and sale of the Series C Preferred Shares on the Closing Date will be,
either registered under the Act and the applicable state securities or Blue Sky
laws or exempt from such registration requirements. The authorized Common
Shares, Series B Preferred Shares and Series C Preferred Shares and outstanding
options and warrants to purchase Common Shares conform to the descriptions
thereof contained in the Registration Statement and Prospectus. Except as set
forth in the Registration Statement and the Prospectus, on the Effective Date
and the Closing Date, there will be no outstanding options or warrants for the
purchase of, or other outstanding rights to purchase, Common Shares or
securities convertible into Common Shares.
(l) No securities of the Company have been sold by the Company or
by or on behalf of, or for the benefit of, any person or persons controlling,
controlled by, or under common control with the Company within the three years
prior to the date hereof, except as disclosed in the Registration Statement.
(m) The issuance and sale of the Shares have been duly authorized
and, when the Shares have been issued and duly delivered against payment
therefor as contemplated by this Agreement, the Shares will be validly issued,
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. The Shares will not
be subject to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Common Shares issuable upon
exercise of the Underwriter's Warrants have been duly authorized and, when such
Common Shares have been duly delivered against payment therefor, as contemplated
by the Underwriter's Warrant Agreement, such Common Shares will be validly
issued, fully paid and nonassessable. Holders of Common Shares issuable upon the
exercise of the Underwriter's Warrants will not be subject to personal liability
solely by reason of being such holders. Neither the Underwriter's Warrants nor
the
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Common Shares issuable upon exercise thereof will be subject to preemptive
rights of any shareholder of the Company. The Common Shares issuable upon
exercise of the Underwriter's Warrants have been duly reserved for issuance upon
exercise of the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform to the
descriptions thereof contained in the Registration Statement and the Prospectus.
(o) Neither the Company nor the Subsidiary is in violation of, or
in default under, (i) any term or provision of its Certificate of Incorporation
or By-Laws, each as amended; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or other
agreement or instrument to which it is a party or by which it or any of its
property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
the Subsidiary or any of the Company's or the Subsidiary's properties or
business. Each of the Company and the Subsidiary owns, possesses or has obtained
all governmental and other (including those obtainable from third parties)
Permits, necessary to own or lease, as the case may be, and to operate its
properties, whether tangible or intangible, and to conduct the business and
operations of the Company and the Subsidiary as presently conducted, and all
such Permits are outstanding and in good standing, and there are no proceedings
pending or, to the best of the Company's knowledge, threatened, or any basis
therefor, seeking to cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's
knowledge, threatened against the Company or the Subsidiary or involving the
Company's or the Subsidiary's properties or business which, if determined
adversely to the Company or the Subsidiary, would, individually or in the
aggregate, result in any material adverse change in the financial position,
shareholders' equity, results of operations, properties, business, management or
affairs or business prospects of the Company or the Subsidiary or which question
the validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to, or in connection with,
this Agreement; nor, to the best of the Company's knowledge, is there any basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any court,
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governmental agency or other tribunal naming the Company or the Subsidiary and
enjoining the Company or the Subsidiary from taking, or requiring the Company or
the Subsidiary to take, any action, or to which the Company or the Subsidiary or
the Company's or the Subsidiary's properties or business is bound or subject.
(q) Neither the Company nor any of its affiliates has incurred
any liability for any finder's fees or similar payments in connection with the
transactions herein contemplated.
(r) Each of the Company and the Subsidiary owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of the Company's knowledge, neither the Company nor
the Subsidiary has infringed nor is infringing upon the rights of others with
respect to the Intangibles; and neither the Company nor the Subsidiary has
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company or the Subsidiary, and the Company knows
of no basis therefor; and, to the best of the Company's knowledge, no others
have infringed upon the Intangibles of the Company or the Subsidiary.
(s) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and the Company's latest
financial statements, except as set forth in or contemplated by the Registration
Statement or the Prospectus, neither the Company nor the Subsidiary has incurred
any material liability or obligation, direct or contingent, or entered into any
material transaction, whether or not incurred in the ordinary course of
business, or has sustained any material loss or interference with its business
from fire, storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree; and since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there have not been, and prior to the
Closing Date referred to below there will not be, any changes in the capital
stock or any material increases in the long-term debt of the Company or the
Subsidiary or any material adverse change in or affecting the general affairs,
management, financial condition, shareholders' equity, results of operations or
prospects of the
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Company or the Subsidiary, otherwise than as set forth or contemplated in the
Prospectus.
(t) Neither the Company nor the Subsidiary owns any real
property. Each of the Company and the Subsidiary has good title to all personal
property (tangible and intangible) owned by it, free and clear of all security
interests, charges, mortgages, liens, encumbrances and defects, except such as
are described in the Registration Statement and Prospectus or such as do not
materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or the Subsidiary. The leases, licenses or other contracts or
instruments under which the Company or the Subsidiary leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company or
the Subsidiary, and all rentals, royalties or other payments accruing thereunder
which became due prior to the date of this Agreement have been duly paid, and
neither the Company nor the Subsidiary, nor, to the best of the Company's
knowledge, any other party is in default thereunder and, to the best of the
Company's knowledge, no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute a default thereunder. Neither
the Company nor the Subsidiary has received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties. Each of the Company and the Subsidiary has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar business located in its
geographic area.
(u) Each contract or other instrument (however characterized or
described) to which the Company or the Subsidiary is a party or by which their
properties or business is or may be bound or affected and to which reference is
made in the Prospectus has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company or the Subsidiary, and neither the Company nor the
Subsidiary, nor, to the best of the Company's knowledge, any other party, is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder.
None of the material provisions of such contracts or instruments
violates any existing applicable law, rule,
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regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or the Subsidiary or any of their assets or
business.
(v) The employment, consulting and confidentiality agreements
between the Company or the Subsidiary and their respective officers, employees
and consultants, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(w) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(x) To the best of the Company's knowledge, no labor problem
exists with any of the Company's or the Subsidiary's employees or is imminent
which could adversely affect the Company or the Subsidiary.
(y) The Company has not, directly or indirectly, at any time (i)
made any contributions to any candidate for political office, or failed to
disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(z) The Shares have been approved for listing on the Nasdaq
SmallCap Market.
(aa) The Company has provided to Xxxxxx Xxxxxxxxxx LLP, counsel
to the Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information requested pursuant to
the Due Diligence List of Xxxxx Xxxxxx & Xxxx, LLP, counsel for the Company
("Company Counsel"), dated May 5, 1998 and the supplemental requests of
Underwriter's Counsel dated June 26, 1998 and October 2, 1998.
-13-
Any certificate signed by an officer of the Company and delivered
to the Underwriter or to Underwriter's Counsel shall be deemed to be a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
5. Certain Covenants of the Company. The Company covenants with the
Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares by the
Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter, without charge,
from time to time until the Effective Date, as many copies of each Preliminary
Prospectus as the Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the Act. The
Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request upon request. The Company has furnished or will furnish to
the Underwriter two signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or
-14-
after the Registration Statement becomes effective, two copies of all exhibits
filed therewith and two signed copies of all consents and certificates of
experts.
(d) The Company will comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Shares for offering and sale
under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its security
holders, in the manner specified in Rule 158(b) under the Act, and deliver to
the Underwriter and Underwriter's Counsel as soon as practicable and in any
event not later than 45 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective Date, the
Company will deliver to the Underwriter and to Underwriter's Counsel on a timely
basis (i) a copy of each report or document, including, without limitation,
reports on Forms 8-K, 10-C, 10-K (or 10-KSB), 10-Q (or 10-QSB) and 10-C and
exhibits thereto, filed or furnished to the Commission, any securities exchange
or the National Association of Securities Dealers, Inc.
-15-
(the "NASD") on the date each such report or document is so filed or furnished;
(ii) as soon as practicable, copies of any reports or communications (financial
or other) of the Company mailed to its security holders; (iii) as soon as
practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 received or
prepared by the Company from time to time; (iv) monthly statements setting forth
such information regarding the Company's results of operations and financial
position (including balance sheet, profit and loss statements and data regarding
outstanding purchase orders) as is regularly prepared by management of the
Company; and (v) such additional information concerning the business and
financial condition of the Company as the Underwriter may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the $50,000 previously paid to it, and
the Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement, the issuance
and delivery of the Shares to the Underwriter; all taxes, if any, on the
issuance of the Shares; the fees, expenses and other costs of qualifying the
Shares for sale under the Blue Sky or securities laws of those states in which
the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the filing fees incident to securing
any required review by the NASD and either the Boston Stock Exchange or Pacific
Stock Exchange; the cost of printing and mailing the "Blue Sky Survey," the cost
of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs (up to
$12,000) of placing "tombstone advertisements" in any publications which may be
selected by the Underwriter; and all other costs and expenses
-16-
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option Closing Date, as
the case may be, the Underwriter will deduct from the payment for the Offered
Shares or any Optional Shares three percent (3%) of the gross proceeds of the
offering (less the sum of $50,000 previously paid to the Underwriter), as
payment for the Underwriter's nonaccountable expense allowance relating to the
transactions contemplated hereby, which amount will include the fees and
expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date). Prior to the Closing
Date, Underwriter's Counsel will deliver a copy of the "Blue Sky Survey" to the
Company.
(j) If the transactions contemplated by this Agreement or related
hereto are not consummated because the Company decides not to proceed with the
offering for any reason or because the Underwriter decides not to proceed with
the offering as a result of a breach by the Company of its representations,
warranties or covenants in this Agreement or as a result of material adverse
changes in the affairs of the Company, then the Company will be obligated to
reimburse the Underwriter for its accountable out-of-pocket expenses up to the
sum of $75,000, inclusive of amounts theretofore paid to the Underwriter by the
Company. In all cases other than those set forth in the preceding sentence, if
the Company or the Underwriter decides not to proceed with the offering for any
other reason, the Company will only be obligated to reimburse the Underwriter
for its accountable expenses up to $50,000, inclusive of amounts theretofore
paid to the Underwriter by the Company. In no event, however, will the
Underwriter, in the event the offering is terminated, be entitled to retain or
receive more than an amount equal to its actual accountable out-of-pocket
expenses.
(k) The Company intends to apply the net proceeds from the sale
of the Shares for the purposes set forth in the Prospectus. No portion of the
net proceeds from the sale of the Shares will be used to repay any indebtedness
other than (i) $575,000 principal amount of indebtedness plus accrued interest
thereon and (ii) up to $95,000 of indebtedness to be assumed by the Company in
connection with the acquisition of CommHome Systems Corp., provided that [,
except as described in the
-17-
Registration Statement,] none of such amounts described in (i) and (ii) of this
Section 5(k) will be repaid to any person or entity that is, or will be prior to
the Closing Date, an officer, director or securityholder beneficially owning
five percent (5%) or more of the Common Shares (a "Principal Securityholder"),
or any affiliate of any such person or entity. The Company will file with the
Commission all required reports in accordance with the provisions of Rule 463
promulgated under the Act and will provide a copy of each such report to the
Underwriter and its counsel.
(l) During the period of twelve (12) months from the Effective
Date (the "Initial Lock-up Period"), neither the Company nor any of its
officers, directors or security holders will offer for sale or sell or otherwise
dispose of, directly or indirectly, any securities of the Company, in any manner
whatsoever, other than by a private sale or gift in connection with which the
transferee agrees to be bound by the terms of this agreement, whether pursuant
to Rule 144 of the Regulations or otherwise, and no holders of registration
rights relating to securities of the Company will exercise any such registration
rights, in either case, without the prior written consent of the Underwriter. In
addition, during the twelve (12) month period following the Initial Lock-up
Period, no officer, director or Principal Securityholder will sell, transfer or
otherwise dispose of any of its Common Shares during any three-month period in
excess of the amount that such person would be allowed to sell if it were deemed
an "affiliate" of the Company and its shares were deemed "restricted," as those
terms are defined in Rule 144 promulgated under the Act, other than by a private
sale or gift in connection with which the transferee agrees to be bound by the
terms of this agreement, without the prior written consent of the Underwriter.
(m) 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 twelve (12) months from the
Effective Date, without the Underwriter's prior written consent.
(n) The Company maintains and will continue to maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
-18-
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) The Company will use its best efforts to maintain the listing
of the Shares on the Nasdaq SmallCap Market and will, if so qualified, list the
Shares, and maintain such listing for so long as qualified, on the Nasdaq
National Market System.
(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(g) of the Exchange Act and the Company will maintain such
registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the Underwriter
and its successors will have the right to designate a nominee for election, at
its or their option, either as a member of or a non-voting advisor to the Board
of Directors of the Company (which Board, during such period, shall be comprised
of at least five (5) persons, a majority of the members of which Board must,
during such period, be persons not otherwise affiliated with the Company, its
management or its founders), and the Company will use its best efforts to cause
such nominee to be elected and continued in office as a director of the Company
or as such advisor until the expiration of five (5) years from the Effective
Date. Except to the extent waived by the Underwriter, each of the Company's
current officers, directors and shareholders agrees to vote all of the Common
Shares owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to indemnify
and hold such director or advisor harmless, to the maximum extent permitted by
law, against any and all claims, actions, awards and judgments arising out of
his service as a director or advisor and to maintain a liability insurance
policy affording coverage for the acts of its officers and directors, to include
such director or advisor as an insured under such policy. The rights and
benefits of such indemnification and the benefits of such insurance shall, to
the extent possible, extend to the Underwriter insofar as it may be or may be
alleged to be responsible for such director or advisor.
-19-
If the Underwriter does not exercise its option to designate a
member of or advisor to the Company's Board of Directors, the Underwriter shall
nonetheless have the right to send a representative (who need not be the same
individual from meeting to meeting) to observe each meeting of the Board of
Directors. The Company agrees to give the Underwriter notice of each such
meeting and to provide the Underwriter with an agenda and minutes of the meeting
no later than it gives such notice and provides such items to the directors.
(r) The Company shall retain a transfer agent for the Common
Shares, reasonably acceptable to the Underwriter, for a period of five (5) years
from the Effective Date. In addition, for a period of five (5) years from the
Effective Date, the Company, at its own expense, shall cause such transfer agent
to provide the Underwriter, if so requested in writing, with copies of the
Company's daily transfer sheets, and, when requested by the Underwriter, a
current list of the Company's securityholders, including a list of the
beneficial owners of securities held by a depository trust company and other
nominees.
(s) The Company hereby agrees, at its sole cost and expense, to
supply and deliver to the Underwriter and Underwriter's Counsel, within a
reasonable period from the date hereof, four bound volumes, including the
Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(t) The Company shall, as of the date hereof, have applied for
listing in Standard & Poor's Corporation Records Service (including annual
report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five years from the Effective Date.
(u) For a period of five (5) years from the Effective Date, the
Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the Underwriter
more frequently than annually if prepared more frequently by management, and
revised forecasts shall be prepared and provided to the Underwriter when
required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
(v) For a period of five (5) years from the Effective Date, or
until such earlier time as the Common Shares
-20-
are listed on the New York Stock Exchange or the American Stock Exchange, the
Company shall cause its legal counsel to provide the Underwriter with a list, to
be updated at least annually, of those states in which the Common Shares may be
traded in non- issuer transactions under the Blue Sky laws of the 50 states.
(w) For a period of five (5) years from the Effective Date, the
Company shall continue to retain Xxxxxxx X. Xxxxxx & Company, LLP (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants.
(x) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(w) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to shareholders.
(y) For a period of twenty-five (25) days from the Effective
Date, the Company will not issue press releases or engage in any other publicity
without the Underwriter's prior written consent, other than normal and customary
releases issued in the ordinary course of the Company's business or those
releases required by law.
(z) The Company will not increase or authorize an increase in the
compensation of its five (5) most highly paid employees in excess of the
compensation paid to such employees as of the Effective Date, without the prior
written consent of the Underwriter, for a period of three (3) years from the
Effective Date.
(aa) For a period of five (5) years from the Effective Date, the
Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.
(ab) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities (i) pursuant to Regulation
S promulgated under the Act or which are convertible or exercisable into Common
Shares at a price which may be adjusted from time to time based on the future
market price of the Common Shares, without the prior written consent of the
Underwriter, or (ii) at a discount to market or in a discounted transaction
(other than as described in clause (i)
-21-
above), without the prior written consent of the Underwriter, which shall not be
unreasonably withheld.
(ac) For a period of three (3) years from the Effective Date, the
Company will provide to the Underwriter ten days' written notice prior to any
issuance by the Company or its subsidiaries of any equity securities or
securities exchangeable for or convertible into equity securities of the
Company, except for (i) Common Shares issuable upon exercise of currently
outstanding options and warrants or conversion of currently outstanding
convertible securities and (ii) options (and shares issuable upon exercise of
such options) available for future grant pursuant to any stock option plan in
effect on the Effective Date or a future plan approved by the Company's
shareholders.
(ad) For a period of five (5) years from the Effective Date, the
Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(ae) Prior to the Effective Date, the Company shall have obtained
directors' and officers' insurance naming the Underwriter as an additional
insured party, in an amount equal to twenty-five percent (25%) of the gross
proceeds of the offering, and the Company will maintain such insurance for a
period of at least three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase Shares from
the Company. The obligation of the Underwriter to purchase and pay for the
Offered Shares which it has agreed to purchase from the Company is subject (as
of the date hereof and the Closing Date) to the accuracy of and compliance in
all material respects with the representations and warranties of the Company
herein, to the accuracy of the statements of the Company or its officers made
pursuant hereto, to the performance in all material respects by the Company of
its obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not
later than __.M., New York City time, on the date hereof, or at such later
time or on such later date as the Underwriter may agree to in writing; prior
to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement will have been issued and no proceedings for that
purpose will have been initiated or will be pending or, to the best of the
Underwriter's or the Company's knowledge, will be contemplated by the
Commission; and any request on the part of
-22-
the Commission for additional information will have been complied with to the
satisfaction of Underwriter's Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter a signed opinion
of Company Counsel, dated as of the date hereof or the Closing Date, as the case
may be (and any other opinions of counsel referred to in such opinion of Company
Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, and with all Permits necessary to own
or lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement. The Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware, with full power and
authority, corporate and other, to own or lease, as the case may be, and operate
its properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Each of the Company and the Subsidiary
is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is necessary, except in
such jurisdictions where the failure so to qualify or be in good standing would
not have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and the Subsidiary taken as a
whole.
The Company owns 100% of the issued and outstanding
shares of capital stock of the Subsidiary, and such shares are free and clear of
any security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of the Subsidiary.
(ii) The Company has full power and authority, corporate and
other, to execute, deliver and perform this Agreement and the Underwriter's
Warrant Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of
-23-
this Agreement and the Underwriter's Warrant Agreement have been duly authorized
by all necessary corporate action, and this Agreement has been duly executed and
delivered by the Company. This Agreement is (assuming for the purposes of this
opinion that it is valid and binding upon the other party thereto) and, when
executed and delivered by the Company on the Closing Date, the Underwriter's
Warrant Agreement will be, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions set forth in Section 7 hereof
and the contribution provisions set forth in Section 8 hereof may be limited by
the federal securities laws or public policy underlying such laws.
(iii) The execution, delivery and performance of this
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement and the
Underwriter's Warrant Agreement do not, and will not, with or without the giving
of notice or the lapse of time, or both, (A) result in a violation of the
Certificate of Incorporation or ByLaws, each as amended, of the Company or the
Subsidiary, (B) result in a breach of or conflict with any terms or provisions
of, or constitute a default under, or result in the modification or termination
of, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or the
Subsidiary pursuant to any indenture, mortgage, note, contract, commitment or
other material agreement or instrument to which the Company or the Subsidiary is
a party or by which the Company or the Subsidiary or any of the Company's or the
Subsidiary's properties or assets are or may be bound or affected; (C) violate
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or the Subsidiary or any of the Company's or the Subsidiary's properties
or business; or (D) have any effect on any Permit necessary for the Company or
the Subsidiary to own or lease and operate its properties or conduct its
business or the ability of the Company or the Subsidiary to make use thereof.
(iv) To the best of Company Counsel's knowledge, no Permits
of any court or governmental agency or body (other than under the Act, the
Regulations and applicable state securities or Blue Sky laws) are required for
the valid authorization, issuance, sale and delivery of the Shares or the
-24-
Underwriter's Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement or the Underwriter's Warrant
Agreement.
(v) The Registration Statement has become effective under
the Act; to the best of Company Counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or are pending, threatened or
contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as of
the Effective Date, and each amendment or supplement thereto as of its effective
or issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) 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.
(vii) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
13 of Form SB-2 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or the Subsidiary or any of their assets or
business.
(viii) The outstanding Common Shares and outstanding options
and warrants to purchase Common Shares have been duly authorized and validly
issued. The outstanding Common Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. None of the outstanding Common Shares or options or warrants to purchase
Common Shares has been issued in violation of the preemptive rights of any
shareholder of the
-25-
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. To the best of Company
Counsel's knowledge, except as set forth in the Prospectus, no holders of any of
the Company's securities has any rights, "demand," "piggyback" or otherwise, to
have such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
are not subject to preemptive rights of any shareholder of the Company. The
certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Common Shares issuable upon
exercise of the Underwriter's Warrants have been duly authorized and, when such
Common Shares have been duly delivered against payment therefor, as contemplated
by the Underwriter's Warrant Agreement, such Common Shares will be validly
issued, fully paid and nonassessable. Holders of Common Shares issuable upon
exercise of the Underwriter's Warrants will not be subject to personal liability
solely by reason of being such holders. Neither the Underwriter's Warrants nor
the Common Shares issuable upon exercise thereof will be subject to preemptive
rights of any shareholder of the Company. The Warrant Shares issuable upon
exercise of the Underwriter's Warrants have been duly reserved for issuance upon
exercise of the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform to the
descriptions thereof in the Registration Statement and Prospectus.
(xi) Upon delivery of the Offered Shares to the Underwriter
against payment therefor as provided in this Agreement, the Underwriter
(assuming it is a bona fide purchaser within the meaning of the Uniform
Commercial Code) will acquire good title to the Offered Shares, free and clear
of all liens, encumbrances, equities, security interests and claims.
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(xii) Assuming that the Underwriter exercises the
over-allotment option to purchase any of the Optional Shares and makes payment
therefor in accordance with the terms of this Agreement, upon delivery of the
Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or the Subsidiary or involving the Company's or the
Subsidiary's properties or business, other than as described in the Prospectus,
such description being accurate, and other than litigation incident to the kind
of business conducted by the Company which, individually and in the aggregate,
is not material.
(xiv) Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering its opinion pursuant to this Section 6(b),
Company Counsel may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that Company Counsel
shall state that they have no reason to believe, and do not believe, that they
are not justified in relying upon such opinions or such certificates of
government officials and officers of the Company as to matters of fact, as the
case may be.
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The opinion letter delivered pursuant to this Section 6(b)
shall state that any opinion given therein qualified by the phrase "to the best
of our knowledge" is being given by Company Counsel after due investigation of
the matters therein discussed. Company Counsel shall not be required to state
any opinion as to the Intangibles (as defined below) with respect to Sections
6(b)(i) through 6(b)(xiii) of the opinion letter delivered pursuant to this
Section 6(b).
(c) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter a signed opinion
of Cobrin & Gittes, special intellectual property counsel for the Company ("IP
Counsel"), dated as of the date hereof or the Closing Date, as the case may be,
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) To the best of IP Counsel's knowledge, the Company and
the Subsidiary have not infringed and are not infringing upon the rights of
others with respect to all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of their business as
described in the Prospectus (collectively the "Intangibles"); and, to the best
of IP Counsel's knowledge, neither the Company nor the Subsidiary has received
any notice that it has or may have infringed, is infringing upon or is
conflicting with the asserted rights of others with respect to the Intangibles
which might, singly or in the aggregate, materially adversely affect its
business, results of operations or financial condition, and such counsel is not
aware of any licenses with respect to the Intangibles which are required to be
obtained by the Company or the Subsidiary.
(ii) IP Counsel confirms the opinion of IP Counsel dated
June 23, 1997 and addressed to the Company (a copy of which shall be attached
thereto) in all material respects as if such opinion was given on the date
hereof (IP Counsel may restate such opinion in its entirety).
In rendering its opinion pursuant to this Section 6(c), IP
Counsel may rely upon the certificates of government officials and officers of
the Company as to matters of fact, provided that IP Counsel shall state that
they have no reason to believe, and do not believe, that they are not justified
in relying upon such opinions or such certificates of government officials and
officers of the Company as to matters of fact, as the case may be.
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The opinion letter delivered pursuant to this Section 6(c)
shall state that any opinion given therein qualified by the phrase "to the best
of our knowledge" is being given by IP Counsel after due investigation of the
matters therein discussed.
(d) At the Closing Date, there will have been delivered to the
Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing
Date, to the effect that the opinions delivered pursuant to Sections 6(b) and
6(c) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
specifying the same, and with respect to such related matters as the Underwriter
may require.
(e) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At
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the Closing Date, there will be delivered to the Underwriter a certificate
signed by the Chief Executive Officer and Chief Financial Officer or a Vice
President of the Company, dated the Closing Date, evidencing compliance with the
provisions of this Section 6(e) and stating that the representations and
warranties of the Company set forth in Section 4 hereof were accurate and
complete in all material respects when made on the date hereof and are accurate
and complete in all material respects on the Closing Date as if then made; that
the Company has performed all covenants and complied with all conditions
required by this Agreement to be performed or complied with by the Company prior
to or as of the Closing Date; and that, as of the Closing Date, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or, to the best of his
knowledge, are contemplated or threatened. In addition, the Underwriter will
have received such other and further certificates of officers of the Company as
the Underwriter or Underwriter's Counsel may reasonably request.
(f) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from Xxxxxxx X.
Xxxxxx & Company, LLP, dated the date such letter is to be received by the
Underwriter and addressed to it, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by them, in their opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a review described in SAS No. 71 of the unaudited
interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and a reading of the latest available
unaudited interim financial statements of the Company, if more recent than that
appearing in the Registration Statement and Prospectus, inquiries of officers of
the Company responsible for financial and accounting matters as to the
transactions and events subsequent to the date of the latest audited financial
statements of the Company, and a reading of the minutes of meetings of the
shareholders, the Board of Directors of the Company and any committees of the
Board of Directors, as set forth in the minute books of the Company, nothing has
come to their attention which, in their judgment, would indicate that (A) during
the period from the date of the latest financial statements of the Company
appearing in the Registration Statement and Prospectus to a specified date not
more than three business days prior to the date of such letter, there have been
any decreases in net current
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assets or net assets as compared with amounts shown in such financial statements
or decreases in net sales or decreases [increases] in total or per share net
income [loss] compared with the corresponding period in the preceding year or
any change in the capitalization or long-term debt of the Company, except in all
cases as set forth in or contemplated by the Registration Statement and the
Prospectus, and (B) the unaudited interim financial statements of the Company,
if any, appearing in the Registration Statement and the Prospectus, do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or any material modifications should
be made to such statements for them to be in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records 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 requested procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(g) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares to be sold on the Closing Date.
(h) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(i) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date or the Option Closing Date, as the case may be, for any member firm of the
NASD to execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of the Underwriter's or the Company's
knowledge, shall be contemplated by the Commission or the NASD. The Company
represents at the date hereof, and shall represent as of the Closing Date or
Option Closing Date, as the case may be, that it has no knowledge that
-31-
any such action is in fact contemplated by the Commission or the
NASD.
(j) The Company meets the current and any existing and proposed
criteria for inclusion of the Shares on the Nasdaq SmallCap Market.
(k) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares shall be reasonably satisfactory in form and
substance to the Underwriter and to Underwriter's Counsel, and such counsel
shall have been furnished with all such documents, certificates and opinions as
they may request for the purpose of enabling them to pass upon the matters
referred to in Section 6(d) hereof and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered to the
Underwriter the written undertakings of its officers, directors and
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5 (l) and (q).
If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Underwriter on notice to
the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or
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Prospectus as from time to time amended or supplemented) or (ii) in any
application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof (hereinafter
"application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from the Underwriter or other indemnified person; (B) the
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Shares to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares under
state securities
-33-
or Blue Sky laws), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, but only insofar as any such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by the
Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
8. Contribution. To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to Section 7
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on
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behalf of any director of the Company, any officer of the Company who signed the
Registration Statement and any controlling person of the Company) as one entity
and the Underwriter (including, for this purpose, any contribution by or on
behalf of each person, if any, who controls the Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee and agent of the Underwriter) as a second entity,
shall contribute to the losses, liabilities, claims, damages and expenses
whatsoever to which any of them may be subject, so that the Underwriter is
responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share set forth on the cover page of the Prospectus
represents of the initial public offering price per Share set forth on the cover
page of the Prospectus and the Company is responsible for the remaining portion;
provided, however, that if applicable law does not permit such allocation, then,
if applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any
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claim or action effected without its written consent. This Section 8 is intended
to supersede, to the extent permitted by law, any right to contribution under
the Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation
to purchase the Shares and the obligation to purchase the Optional Shares after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on
-36-
either such Exchange; (v) a banking moratorium will have been declared either by
federal or New York State authorities; (vi) any other restrictions on
transactions in securities materially affecting the free market for securities
or the payment for such securities, including the Offered Shares or the Optional
Shares, will be established by either of such Exchanges, by the Commission, by
any other federal or state agency, by action of the Congress or by Executive
Order; (vii) trading in any securities of the Company shall have been suspended
or halted by any national securities exchange, the NASD or the Commission;
(viii) there has been a materially adverse change in the condition (financial or
otherwise), prospects or obligations of the Company; (ix) the Company will have
sustained a material loss, whether or not insured, by reason of fire, flood,
accident or other calamity; (x) any action has been taken by the government of
the United States or any department or agency thereof which, in the judgment of
the Underwriter, has had a material adverse effect upon the market or potential
market for securities in general; or (xi) the market for securities in general
or political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof
or this Section 10 or if the purchases provided for herein are not consummated
because any condition of the Underwriter's obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8
hereof, the only information given by the Underwriter to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page
-37-
___ with respect to the determination of the public offering price, as such
information appears in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Underwriter, to Whale Securities Co., L.P., Attention:
Xxxxxxx X. Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, with a copy to
Xxxxxx Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq., 000 Xxxxxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000; if to the Company, addressed to it at 000 Xxxxx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, with a copy to Xxxxx Xxxxxx & Xxxx,
LLP, Attention: Xxx Xxxxxxxx, Esq., 1350 Avenue of the Xxxxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000.
This Agreement shall be deemed to have been made and delivered in
New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the benefit
of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include
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any purchaser of the Shares from the Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
NETWORK-1 SECURITY SOLUTIONS, INC.
By
------------------------------
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By
--------------------------------
Name:
Title:
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