EXHIBIT 1.1
___________________ Shares of Common Stock
and ______________________Redeemable Warrants
ISONICS CORPORATION
UNDERWRITING AGREEMENT
San Jose, California
September ___, 1996
Pryor, McClendon, Counts & Co., Inc.
National Securities Corporation
As Representatives of the Several Underwriters
c/o Pryor, McClendon, Counts & Co., Inc.
0 Xxxx Xxxxx
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Ladies and Gentlemen:
Isonics Corporation, a California corporation (the "Company"), hereby
agrees with Pryor, McClendon, Counts & Co., Inc. ("Xxxxx, XxXxxxxxx") and
National Securities Corporation ("National") and each of the underwriters named
in Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 11), for
whom Xxxxx, XxXxxxxxx and National are acting as representatives (in such
capacity, Xxxxx, XxXxxxxxx and National shall hereinafter be referred to jointly
as "you" or the "Representatives") with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective amount of shares (the "Shares") set forth in said Schedule A of the
Company's common stock, par value $.001 per share (the "Common Stock"), and
redeemable common stock purchase warrants (the "Warrants"), each to purchase one
share of Common Stock, set forth in Schedule A hereto. The aggregate
__________________ Shares and __________________ Warrants will be separately
tradeable upon issuance and are hereinafter referred to as the "Firm
Securities." Each Warrant is exercisable commencing on _________, 1996 and
until 5:30 p.m., New York City time on ________________________, 2001, unless
previously redeemed by the Company, at an initial exercise price of $_______ per
share of Common Stock. The Warrants may be redeemed by the Company at a
redemption price of $.05 per Warrant at any time after _________, 1997 on thirty
(30) days' prior written notice, provided that the closing sale price of the
Common Stock equals or exceeds $_________ per share (subject to adjustment under
certain circumstances), for any twenty (20) consecutive
trading days immediately preceding the date of the notice of redemption, all in
accordance with the terms and conditions of the Warrant Agreement (herein
defined).
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional __________________________ shares of Common Stock
and ____________________ Warrants for the purpose of covering over-allotments,
if any. Such _________________ shares of Common Stock and ___________________
Warrants are hereinafter collectively to as the "Option Securities." The
Company also proposes to issue and sell to you warrants (the "Representatives'
Warrants") pursuant to the Representatives' Warrant Agreement (the
"Representatives' Warrant Agreement") for the purchase of an additional
________________ shares of Common Stock and/or ___________________ Warrants.
The shares of Common Stock and Warrants issuable upon exercise of the
Representatives' Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the Representatives'
Warrants and the Representative's Securities (collectively, hereinafter referred
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date and the Option Closing Date, if any, as
follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. _____________________),
including any related preliminary prospectus (the "Preliminary Prospectus"), for
the registration of the Firm Securities, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
Regulations (as defined below) of the Commission under the Act. The Company
will not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any preliminary prospectus,
the Registration Statement or the Prospectus and no proceedings for a stop order
suspending the effectiveness of the
-2-
Registration Statement have been instituted, or, to the Company's knowledge, are
threatened. Each of any preliminary prospectus, the Registration Statement and
the Prospectus at the time of filing thereof conformed in all material respects
with the requirements of the Act and Regulations, and none of any preliminary
prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such preliminary prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined in Section 2(c) hereof)
and each Option Closing Date (as defined in Section 2(b) hereof), if any, and
during such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus, as amended or supplemented as required, will
contain all 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; 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,
provided, however, that this representation and warranty does not apply to
-------- -------
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of the
respective states of their incorporation. The Company does not own or control,
directly or indirectly, any corporation, partnership, trust, joint venture or
other business entity other than the subsidiaries listed in Exhibit 21 of the
Registration Statement. Each of the Company and its subsidiaries is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material and
adverse effect on the condition, financial or otherwise, or the business
affairs, operations, properties, or results of operations of the Company and its
subsidiaries, taken as a whole (the "Business"). Each of the Company and its
subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company and each of its
subsidiaries have been doing business in compliance
-3-
in all material respects with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the Business. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder as
set forth in the Prospectus conforms in all material respects with the
requirements of the Act. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company.
(f) The Securities are not and will not be subject to any preemptive
or other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to
-4-
be sold by the Company hereunder, the Underwriters or the Representatives, as
the case may be, will acquire good and marketable title to such Securities free
and clear of any lien, charge, claim, encumbrance, pledge, security interest,
defect, or other restriction or equity of any kind whatsoever. No stockholder
of the Company has any right which has not been waived in writing to require the
Company to register the sale of any shares owned by such stockholder under the
Act in the public offering contemplated by this Agreement. No further approval
or authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Shares, the Option Shares and the
Representatives' Warrants to be sold by the Company as contemplated herein.
(g) The consolidated financial statements of the Company and its
consolidated subsidiaries, together with the related notes and schedules
thereto, included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the consolidated financial position, changes in
stockholders' equity and the results of operations of the Company and its
consolidate subsidiaries at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Regulations,
consistently applied throughout the periods involved. There has been no
material adverse change or development involving a material prospective change
in the Business, whether or not arising in the ordinary course of business since
the date of the financial statements included in the Registration Statement and
the Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and its subsidiaries taken as a
whole conform in all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. Financial information set forth
in the Prospectus under the headings "Prospectus Summary - Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited consolidated financial
statements included in the Prospectus.
(h) The Company (i) has paid all federal, state, local, franchise, and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
-5-
(j) There is no action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation or governmental proceeding (including,
without limitation, any involving environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or businesses of, the Company which
(i) questions the validity of the capital stock of the Company, this Agreement
or the Representatives' Warrant Agreement, or of any action taken or to be taken
by the Company pursuant to or in connection with this Agreement or the
Representatives' Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the business, affairs, position,
stockholders' equity, operation, properties, or results of operations of the
Company and its subsidiaries taken as a whole.
(k) The Company has the corporate power and authority to authorize,
issue, deliver, and sell the Securities and to enter into this Agreement, the
Warrant Agreement, and the Representatives' Warrant Agreement, and to consummate
the transactions provided for in such agreements; and this Agreement, the
Warrant Agreement and the Representatives' Warrant Agreement have each been duly
and properly authorized, executed, and delivered by the Company. Each of this
Agreement, the Warrant Agreement and the Representatives' Warrant Agreement
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms (except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the issue and
sale of the Securities, execution, delivery or performance by the Company of
this Agreement, the Warrant Agreement, and the Representatives' Warrant
Agreement, the consummation by the Company of the transactions contemplated
herein and therein, or the conduct of the Company's businesses as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
articles of incorporation or by-laws of the Company, as amended and restated,
(ii) any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which it is or may
be bound or to which its properties or assets (tangible or intangible) is or may
be subject, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
-6-
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance and sale of the Securities pursuant
hereto, to the Prospectus and the Registration Statement, the performance of
this Agreement, the Warrant Agreement, and the Representatives' Warrant
Agreement, and the transactions contemplated hereby and thereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Securities, except such as have been or may be obtained under the Act or may be
required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Firm Securities, the Option
Securities, and the Representatives' Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material reduction
in the future earnings of the Company; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock, and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale of the
Firm Securities, the Option Securities and the Representatives' Warrants
hereunder and upon the exercise of options and warrants described in the
Registration Statement) of, or indebtedness material to, the Company (other than
in the ordinary course of business); (v) the Company has not issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money;
-7-
and (vi) there has not been any material adverse change in the condition
(financial or otherwise), business, properties, results of operations, or
prospects of the Company and its subsidiaries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, and subject to the risks and uncertainties described in the
Prospectus under the headings entitled "Risk Factors - Protection of
Intellectual Property" and "Business - Patents and Proprietary Rights," (i) the
Company has sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals and governmental authorizations to conduct its business as
now conducted; (ii) the expiration of any trademarks, trade names, patent
rights, copyrights, licenses, approvals or governmental authorizations would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company; (iii) the Company
has no knowledge of any infringement by it or its subsidiaries of trademark,
trade name rights, patent rights, copyrights, licenses, trade secret or other
similar rights of others; and (iv) there is no claim being made against the
Company regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company.
(p) No default exists in the due performance and observance of any
term, covenant or condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company are subject or affected, except for such defaults, if
any, which individually and in the aggregate would not have a material adverse
effect on the Business.
(q) To the Company's knowledge, there are no investigations involving
the Company by any governmental agency. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or to its knowledge is
imminent.
(r) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of
-8-
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(s) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in unlawful stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) Xxxxx Xxxxxxxx ("Xxxxx Xxxxxxxx"), whose report is filed with the
Commission as a part of the Registration Statement, is an independent certified
public accountant as required by the Act and the Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all persons or entities, other than
Xxxxx Xxxx who has entered into a modified agreement as described in the
Prospectus, and Xxx Xxxxxxx who has refused to sign any such agreement, that
directly or beneficially own Common Stock, as of the effective date of the
Registration Statement, have agreed not to, directly or indirectly, offer, offer
to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into Common Stock, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Regulations or otherwise) or dispose of any
interest therein for a period from the date of the Prospectus until and
including the day of like number in the twelfth consecutive month next following
the date that the Registration Statement becomes effective, without the prior
written consent of Xxxxx, XxXxxxxxx (the "Lock-up Agreements"). The Company
will cause the Transfer Agent (as defined herein) to place "stop transfer"
orders on the Company's stock ledgers in order to effect the Lock-up Agreements.
(w) There are no claims, payments, arrangements or understandings,
whether oral or written, for services in the nature of a finder's or origination
fee with respect to the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments
-9-
or issuance with respect to the Company or any of its officers, directors,
stockholders, employees or affiliates that may affect the Underwriters'
compensation as determined by the Commission and the National Association of
Securities Dealers, Inc. (the "NASD").
(x) The Securities have been approved for quotation on the Nasdaq
SmallCap Market.
(y) Neither the Company nor any of its officers, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign). The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director
or stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 of the Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus, there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, principal
shareholder (as such term is used in the Prospectus) of the Company, or any
affiliate or associate of any of the foregoing persons or entities which are
required to be disclosed in the Prospectus.
(aa) The Company is not, and does not intend to conduct its
business in a manner in which it would become an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(ab) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel (as defined in
Section 4(d) herein) shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
-10-
(ac) The minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ad) The Company has not distributed and will not distribute any
offering material in connection with the offering and sale of the Shares in this
offering other than the Prospectus, the Registration Statement and the other
materials permitted by the Act. Except as described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company as part of the Registration Statement or to
require the Company to file a registration statement under the Act and no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ae) Each of the Company and its subsidiaries maintains insurance
by insurers of recognized financial responsibility of the types and in the
amounts as the Company believes are prudent and adequate for the business in
which it is engaged, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect. The Company
has delivered to the Underwriter's Counsel satisfactory summaries of these
insurance policies. The Company has no reason to believe that it will not be
able to renew existing insurance coverage with respect to the Company as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business, in either case, at a cost that
would not have a material adverse effect on the financial condition, operations,
business, assets or properties of the Company. The Company has not failed to
file any material claims, has no material disputes with its insurance company
regarding any claims submitted under its insurance policies, and has complied in
material respects with all material provisions contained in its insurance
policies.
2. Purchase, Sale and Delivery of the Securities.
----------------------------------------------
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly agrees to purchase from the Company, at a price equal
to $_______________ per Share and $_____________ per Warrant, that number of
Firm Securities set forth in Schedule A opposite the name of such Underwriter,
subject to such adjustment as the Representatives in their discretion shall make
to eliminate any sales or purchases of fractional shares, plus any additional
numbers of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warran-
ties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all
-11-
or any part of an additional _______________ shares of Common Stock at a price
of $__________ per share of Common Stock and an additional ___________________
Warrants at a price of $__________ per Warrant. The option granted hereby will
expire 45 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the Regulations, or
(ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Regulations, and may be exercised in whole or in part from time
to time (but not on more than two (2) occasions) only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representatives, but shall not
be later than three full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representatives and the Company. Nothing herein contained
shall obligate the Underwriters to exercise the over-allotment option described
above. No Option Securities shall be delivered unless the Firm Securities shall
be simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of Pryor,
McClendon, Counts & Co., Inc., 3 Penn Plaza, 0000 Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxxxxxxxx, Xxxxxxxxxxxx, or at such other place as shall be agreed upon by
the Representatives and the Company. Such delivery and payment shall be made at
9:00 a.m. (New York time) on ______________, 1996, or at such other time and
date as shall be agreed upon by the Representatives and the Company, but no more
than four (4) business days after the date hereof (such time and date of payment
and delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above mentioned office of Xxxxx, XxXxxxxxx or at
such other place as shall be agreed upon by the Representatives and the Company
on each Option Closing Date as specified in the notice from the Representatives
to the Company. Delivery of the certificates for the Firm Securities and the
Option Securities, if any, shall be made to the Underwriters against payment by
the Underwriters of the purchase price for the Firm Securities and the Option
Securities, if any, to the order of the Company. In the event Option Securities
are to be purchased by the Underwriters, each of the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number of
Option Securities then being purchased which the number of Firm Securities set
forth in Schedule A hereto opposite the name of such Underwriter bears to the
total number of Firm Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Firm Securities and the
Option Securities, if any, shall be in definitive, fully registered form, shall
bear no restrictive legends and shall be in such denominations and registered in
such names as the Underwriters may request in writing at least three (3)
business days prior to Closing Date or the relevant Option Closing Date, as the
case may be. The certificates for the Firm Securities and the Option Securities,
if any, shall be made available to the Representatives at such office or such
other
-12-
place as the Representatives may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell the
Representatives' Warrants to the Representatives at a purchase price of $0.0001
per warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of _________________ shares of Common Stock and _________________
Warrants. The Representatives' Warrants shall expire five (5) years after the
effective date of the Registration Statement and shall be exercisable for a
period of four (4) years commencing on the first anniversary of the effective
date of the Registration Statement at a price equaling one hundred twenty
percent (120%) of the initial public offering price of the Shares. The
Representatives' Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
Payment for the Representatives' Warrants shall be made on the Closing Date.
3. Public Offering of the Shares and the Warrants. As soon after the
----------------------------------------------
Registration Statement becomes effective as the Representatives deem advisable,
the Underwriters shall make a public offering of the Shares and the Warrants
(other than to residents of or in any jurisdiction in which qualification of the
Shares and the Warrants is required and has not become effective) at the price
and upon the other terms set forth in the Prospectus. The Representatives may
from time to time increase or decrease the public offering price to such extent
as the Representatives, in their sole discretion, deem advisable and as
permitted by the Act and Regulations. The Underwriters may enter into one or
more agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. Covenants of the Company. The Company covenants and agrees with
------------------------
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
and the Warrants by the Underwriters of which the Representatives shall not
previously have been advised and furnished with a copy, or to which the
Representatives shall have objected or which is not in compliance with the Act,
the Exchange Act or the Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation,
-13-
or the threatening, of any proceeding, suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
shall enter a stop order or suspend such qualification at any time, the Company
will use its best efforts to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) in accordance with the requirements of the
Act.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement to which the
Representatives or Camhy Xxxxxxxxx & Xxxxx LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may reasonably designate to
permit the sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
--------
however, the Company shall not be required to qualify as a foreign corporation
-------
or become subject to service of process in any such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Representatives agree that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are required by the laws of such jurisdiction to
continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Securities in
-14-
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Company will notify the Representatives promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act, each such amendment or supplement to be satisfactory
to Underwriters' Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Representatives, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date hereof,
until and including the like day and month in 2001, the Company will furnish to
its stockholders, as soon as practicable, annual reports (including consolidated
financial statements of the Company and its consolidated subsidiaries audited by
independent public accountants) and will make available to its stockholders
consolidated unaudited quarterly reports (except for the last quarter of each
fiscal year) of earnings of the Company and its consolidated subsidiaries, and
will deliver to the Representatives:
(i) concurrently with furnishing such quarterly reports to
its stockholders, a consolidated statement of income of the Company and
its consolidated subsidiaries for each quarter in the form furnished to
the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a consolidated balance sheet of the Company and its
consolidated subsidiaries as at the end of the preceding fiscal year,
together with statements of consolidated operations, stockholders'
equity, and cash flows of the Company and its consolidated
subsidiaries for such fiscal year, accompanied by a copy of the report
thereon of independent certified public accountants;
-15-
(iii) as soon as they are available, copies of all other
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
Nasdaq or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by or on behalf
of the Company; and
(vi) any additional information of a public nature
concerning the Company and its Businesses which the Representatives
may reasonably request.
During such five-year period, the foregoing financial statements will
be accompanied by similar financial statements for any significant subsidiary
which is not consolidated.
(i) The Company will maintain a transfer agent (the "Transfer
Agent") and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent)
for the Securities and the Representatives' Warrants.
(j) The Company will furnish to the Representatives, without
charge, at such place as the Representatives may designate, copies of each
preliminary prospectus, the Registration Statement, the Prospectus and any pre-
effective or post-effective amendments thereto (two of which copies will be
signed and will include all financial statements and exhibits), in each case as
soon as available and in such quantities as the Representatives may reasonably
request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with true copies of
duly executed Lock-up Agreements. On or before the Closing Date, the Company
shall deliver instructions to the Transfer Agent authorizing it to place
appropriate stop transfer orders on the Company's ledgers.
(l) The Company shall use its best efforts to cause its officers,
directors, stockholders or affiliates (within the meaning of the Regulations)
not to take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, unlawful stabilization
or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities substantially in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus.
-16-
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Regulations.
(o) The Company shall use its best efforts to cause the
Securities to be quoted on the Nasdaq SmallCap Market, and for a period of two
(2) years from the date hereof shall use its best efforts to maintain the
quotation of the Securities to the extent outstanding.
(p) For a period of two (2) years from the Closing Date, the
Company shall furnish to the Representatives, at the Company's sole expense,
monthly transfer sheets relating to the Common Stock and Warrants.
(q) For a period of five (5) years after the effective date of
the Registration Statement the Company shall, at the Company's sole expense,
take all necessary and appropriate action to qualify the Common Stock and
Warrants in all jurisdictions of the United States which do not require the
Company to qualify as a foreign corporation or to file a general consent to
service of process in order to permit secondary sales of such securities
pursuant to the Blue Sky laws of those jurisdictions.
(r) The Company (i) prior to the effective date of the
Registration Statement has filed a Form 8-A with the Commission providing for
the registration of the Common Stock and Redeemable Warrants under the Exchange
Act and (ii) as soon as practicable will use its best efforts to take all
necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Xxxxx'x OTC Manual and to continue such inclusion
for a period of not less than five (5) years.
(s) The Company agrees that for a period of twelve (12) months
following the effective date of the Registration Statement it will not, without
the prior written consent of Pryor, McClendon, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any Common Stock
or securities convertible into Common Stock, except for the issuance of shares
of Common Stock registered under the Act pursuant to the registration Statement.
(t) Until the completion of the distribution of the Securities,
the Company shall not without the prior written consent of Xxxxx, XxXxxxxxx or
Underwriters' Counsel, issue, directly or indirectly any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices.
-17-
(u) For a period equal to the lesser of (i) five (5) years from
the date hereof, and (ii) the sale to the public of the Representatives's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of an appropriate form for the registration under
the Act of the Representatives's Securities.
(v) The Company agrees that it shall use its best efforts, which
shall include, but shall not be limited to, the solicitation of proxies, to
elect one (1) designee of Xxxxx, XxXxxxxxx and National to the Company's Board
of Directors for a period of five (5) years following the Closing Date, provided
that such designee is reasonably acceptable to the Company and that such
director may be excluded from consideration of certain confidential matters
which, in the good faith judgment of a majority of the other directors, make
such director's presence not appropriate.
(w) The Company agrees that within forty-five (45) days after the
Closing Date it shall retain a public relations firm which is reasonably
acceptable to Xxxxx, XxXxxxxxx and National. The Company shall keep such public
relations firm and any replacement for a total period of two (2) years from the
Closing Date. Any replacement public relations firm shall be retained only with
the consent of Xxxxx, XxXxxxxxx and National, which shall not be unreasonably
withheld.
(x) The Company agrees that any and all future transactions
between the Company and any of its officers, directors, principal stockholders
and the affiliates of the foregoing persons will be on terms no less favorable
to the Company than could reasonably be obtained in arm's length transactions
with independent third parties, and that any such transactions also be approved
by a majority of the Company's outside independent directors disinterested in
the transaction.
(y) The Company shall prepare and deliver, at the Company's sole
expense, to Xxxxx, XxXxxxxxx and National within the one hundred and twenty
(120) day period after the later of the effective date of the Registration
Statement and the latest Option Closing Date, as the case may be, one bound
volume each containing all correspondence with regulatory officials, agreements,
documents and all other materials in connection with the offering to which such
Registration Statement relates as requested by the Underwriters' Counsel.
5. Payment of Expenses.
-------------------
(a) The Company hereby agrees to pay on each of the Closing Date
and each Option Closing Date (to the extent not previously paid) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below of this Section 5) incident to the performance of the obligations of the
Company under this Agreement, the Warrant Agreement, and the Representatives'
Warrant Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing, delivery and
mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and
-18-
any amendments and supplements thereto and the duplication, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreements, the Powers of Attorney, and related documents, including the cost of
all copies thereof and of the preliminary prospectuses and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters and
such dealers as the Underwriters may request, in quantities as hereinabove
stated, (iii) the printing, engraving, issuance and delivery of the
certificates representing the Securities, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of word processing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to the
costs and expenses incurred by the Company and the Representatives in connection
with the "road show," information meetings and presentations, bound volumes and
prospectus memorabilia and reasonable "tombstone" advertisement expenses, (vi)
experts, (vii) the fees and expenses of the transfer agent and registrar, (viii)
the fees payable to the Commission and the NASD, (ix) issue and transfer taxes,
if any and (x) the fees and expenses incurred in connection with the listing of
the Securities on the Nasdaq Small Cap Market and any other market or exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 11, the
Company shall reimburse and indemnify the Representatives for all of their
actual out-of-pocket expenses on an accountable basis, including the fees and
disbursements of Underwriters' Counsel, less any amounts already paid pursuant
to Section 5(c) hereof provided that Xxxxx, XxXxxxxxx and National shall notify
the Company of any single expense or any series of similar expenses which in the
aggregate exceed $5,000 (provided further that such notice requirement shall not
apply to Xxxxx, XxXxxxxxx'x and National's actual out-of-pocket legal expenses).
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, $30,000 of which has been paid to date. In the event the
Representatives elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representatives on each
Option Closing Date (by certified or bank cashier's check or, at the
Representatives's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of
-------------------------------------------
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each
-19-
Option Closing Date, if any, as if they had been made on and as of the Closing
Date or each Option Closing Date, as the case may be; the accuracy on and as of
the Closing Date or Option Closing Date, if any, of the statements of officers
of the Company made pursuant to the provisions hereof; and the performance by
the Company on and as of the Closing Date and each Option Closing Date, if any,
of its covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York City time, on the date prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representatives, and, at the Closing Date and each Option Closing Date, if any,
no stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or shall be pending or threatened by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has
elected to rely upon Rule 430A of the Regulations, the price of the Shares and
Warrants and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Representatives of such timely filing, or
a post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives's opinion, is material, or omits to state
a fact which, in the Representatives's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Representatives's reasonable opinion, is material, or
omits to state a fact which, in the Representatives's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) On or prior to the Closing Date, the Underwriters shall have
received from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Representatives may
request and Underwriters' Counsel shall have received from the Company such
papers and information as they request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Fenwick & West LLP ("Fenwick & West"), counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
-20-
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the
character of its operations requires such qualification or
licensing, and (C) to the best of such counsel's knowledge, has
all requisite corporate power and authority and has obtained any
and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters),
to own or lease its properties and conduct its business as
described in the Prospectus.
(ii) except as described in the Prospectus, and to the best
of such counsel's knowledge after reasonable investigation, the
Company does not own an interest in any corporation, limited
liability company, partnership, joint venture, trust or other
business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "Capitalization" and
"Description of Capital Stock," and to the knowledge of such
counsel, the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities,
except for this Agreement, the Warrant Agreement, the
Representatives' Warrant Agreement, and as described in the
Prospectus. The Securities and all other securities issued or
issuable by the Company conform in all material respects to the
statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly
issued and are fully paid and nonassessable; the holders thereof
are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of
the preemptive rights of any holders of any security of the
Company. The Securities to be sold by the Company hereunder,
under the Warrant Agreement, and under the Representatives'
Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in
accordance with their terms, will be validly issued, fully paid
and nonassessable and will conform in all material respects to the
description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities
are in due and proper form. The
-21-
Representatives' Warrants and the Warrants constitute valid,
binding and enforceable obligations of the Company to issue and
sell, upon exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law). Upon the issuance
and delivery pursuant to this Agreement of the Securities to be
sold by the Company, the Company will convey, against payment
therefor as provided herein, to the Underwriters and the
Representatives, respectively, good and marketable title to the
Securities free and clear of all liens and other encumbrances;
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop
order suspending the use of any preliminary prospectus, the
Registration Statement or Prospectus or any part of any thereof or
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
(v) each of any preliminary prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial
and statistical data included therein as to which no opinion need
be rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations. Such counsel shall
state that such counsel has participated in conferences with
officers and other representatives of the Company and the
Representatives and representatives of the independent public
accountants for the Company, at which conferences the contents of
any preliminary prospectus, the Registration Statement, the
prospectus, and any amendments or supplements thereto were
discussed, and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the preliminary
prospectus, the Registration Statement and Prospectus, and any
amendments or supplements thereto, on the basis of the foregoing,
no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or
amendment became effective or the Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of
such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the
-22-
statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data
included in the Preliminary Prospectus, the Registration Statement
or Prospectus, and any amendments or supplements thereto);
(vi) to the best of such counsel's knowledge after reasonable
investigation, (A) there are no agreements, contracts or other
documents required by the Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as exhibits
thereto; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or
by which it is bound are accurate in all material respects and
fairly represent the information required to be shown by Form SB-
2; (C) there is not pending or threatened against the Company any
action, arbitration, suit, proceeding, litigation, governmental or
other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized
in all material respects), (y) questions the validity of the
capital stock of the Company or this Agreement, the Warrant
Agreement, or the Representatives' Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; and (D) there is no action,
suit or proceeding pending or threatened against the Company
before any court or arbitrator or governmental body, agency or
official in which there is a reasonable possibility of an adverse
decision which may result in a material adverse change in the
financial condition, business, affairs, stockholders' equity,
operations, properties, business or results of operations of the
Company, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this
Agreement, the Warrant Agreement, or the Representatives' Warrant
Agreement, or which in any manner draws into question the validity
or enforceability of this Agreement, the Warrant Agreement or the
Representatives' Warrant Agreement;
(vii) the Company has the corporate power and authority to
enter into each of this Agreement, the Warrant Agreement, and the
Representatives' Warrant Agreement and to consummate the
transactions provided for therein; and each of this Agreement, the
Warrant Agreement, and the Representatives' Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each
of this Agreement, the Warrant
-23-
Agreement, and the Representatives' Warrant Agreement, assuming
due authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms (except as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting
enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law),
and none of the Company's execution, delivery or performance of
this Agreement, the Warrant Agreement, and the Representatives'
Warrant Agreement, the consummation by the Company of the
transactions contemplated herein or therein, or the conduct of the
Company's business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto conflicts
with or results in any breach or violation of any of the terms or
provisions of, or constitutes a default under, or result in the
creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity
of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
articles of incorporation or by-laws of the Company, as amended,
(B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument known to
such counsel to which the Company is a party or by which it is
bound, or (C) any federal, state or local statute, rule or
regulation applicable to the Company or any judgment, decree or
order known to such counsel of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or
properties;
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or
other body (other than such as may be required under Blue Sky
laws, as to which no opinion need be rendered or under federal
securities laws, as to which no opinion need be rendered pursuant
to this subsection (viii)) is required in connection with the
issuance of the Securities pursuant to the Prospectus and the
Registration Statement, the performance of this Agreement, the
Warrant Agreement, and the Representatives' Warrant Agreement, and
the transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge after reasonable
investigation, the properties and business of the Company conform
in all
-24-
material respects to the description thereof contained in the
Registration Statement and the Prospectus;
(x) to the best knowledge of such counsel, and except as
disclosed in the Registration Statement and the Prospectus, the
Company is not in breach of, or in default under, any term or
provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is bound or to which
the property or assets (tangible or intangible) of the Company is
subject; and the Company is not in violation of any term or
provision of its articles of incorporation or by-laws, as amended,
and to the best of such counsel's knowledge after reasonable
investigation, not in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation;
(xi) the statements in the Prospectus under "Dividend Policy,"
"Description of Capital Stock," and "Shares Eligible for Future
Sale" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all
material respects;
(xii) the Common Stock has been accepted for quotation on the
Nasdaq SmallCap Market;
(xiii) to the best of such counsel's knowledge and based upon
a review of the outstanding securities and the contracts furnished
to such counsel by the Company, no person, corporation, trust,
partnership, association or other entity has the right to include
and/or register any securities of the Company in the Registration
Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration
statement;
(xiv) assuming due execution by the parties thereto other than
the Company, each Lock-up Agreement is a legal, valid and binding
obligation of the party thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except
as rights to indemnity or contribution may be limited by
applicable law);
-25-
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel shall state
that knowledge shall not include the knowledge of a director or officer of the
Company who is affiliated with such firm in his or her capacity as an officer or
director of the Company. The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory to such
counsel.
At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Fenwick & West, counsel to the Company, dated
the Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by Fenwick & West in its opinion delivered on the Closing
Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective material adverse change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is adverse to the Company; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness which default has not been waived; (iv) the Company
shall not have issued any securities (other than the Securities) or declared or
paid any dividend or made any distribution in respect of its capital stock of
any class and there has not been any change in the capital stock, or any
material increase in the debt (long or short term) or liabilities or obligations
of the Company (contingent or otherwise) except for the issuance of the Option
Securities, the Representatives' Warrants, and shares of Common Stock issued
upon the exercise
-26-
of currently outstanding warrants or options, or options and warrants granted in
the ordinary course of business consistent with prior practice; (v) no material
amount of the assets of the Company shall have been pledged or mortgaged, except
as set forth in the Registration Statement and Prospectus; (vi) no action, suit
or proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or affecting any of its
respective properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed on
behalf of the Company by the principal executive officer of the Company, dated
the Closing Date or Option Closing Date, as the case may be, to the effect that
such executive has carefully examined the Registration Statement, the Prospectus
and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and
the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part
to be performed or satisfied at or prior to such Closing Date or
Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending
or, to the best of each of such person's knowledge after due
inquiry, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required by the Act to be included
therein, and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary Prospectus or
any supplement, as of their respective dates, thereto included any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading; and
-27-
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and including
the Closing Date or the Option Closing Date, as the case may be,
other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) the Company
has not paid or declared any dividends or other distributions on
its capital stock; (c) the Company has not entered into any
transactions not in the ordinary course of business; (d) there has
not been any change in the capital stock as described in the
Registration Statement and Prospectus or material increase in
long-term debt or any increase in the short-term borrowings (other
than any increase in the short-term borrowings in the ordinary
course of business) of the Company, (e) the Company has not
sustained any loss or damage to its property or assets, whether or
not insured, (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the
Company or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented Prospectus
which has not been set forth, and (g) there has occurred no event
required to be set forth in an amended or supplemented Prospectus
which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriters and Underwriters' Counsel, from Xxxxx Xxxxxxxx:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the
Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Regulations thereunder and that the Representatives may rely upon
the opinion of Xxxxx Xxxxxxxx with respect to the financial
statements and supporting schedules included in the Registration
Statement;
-28-
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim
financial statements of the Company (with an indication of the
date of the latest available unaudited interim financial
statements), a reading of the latest available minutes of the
stockholders and board of directors and the various committees of
the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to
believe that (A) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement,
if any, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations
or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements of the Company
included in the Registration Statement, or (B) at a specified date
not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital
stock or material increase in long-term debt of the Company, or
any material decrease in the stockholders' equity or net current
assets or net assets of the Company as compared with amounts shown
in the most recent balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease.
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions
requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other material matters incident to
the transaction contemplated hereby as the Representatives may
reasonably request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Xxxxx Xxxxxxxx a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified
-29-
date referred to shall be a date not more than five (5) days prior to the
Closing Date or the Option Closing Date, as the case may be, and, if the Company
has elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (iv) of
Subsection (i) of this Section 6 with respect to certain amounts, percentages
and financial information as specified by the Representatives and deemed to be a
part of the Registration Statement pursuant to Rule 430A(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (iv).
(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Representatives pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(m) On or before the Closing Date, the Company shall have executed and
delivered to the Representatives, (i) the Representatives' Warrant Agreement,
substantially in the form filed as Exhibit 4(b), to the Registration Statement,
in final form and substance satisfactory to the Representatives, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company.
(n) On or before the Closing Date, the Common Stock shall have been
duly approved for quotation on the Nasdaq SmallCap Market.
(o) On or before the Closing Date, there shall have been delivered to
the Representatives all of the Lock-up Agreements in final form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
-30-
of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any preliminary prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
The Nasdaq Stock Market, Inc. or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
preliminary prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company, within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any preliminary prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter or the Representatives expressly for use in such
preliminary prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
preliminary prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this Offering. The Company acknowledges that the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriters expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters or the Representatives
for inclusion in the Prospectus.
-31-
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 7,
except to the extent that it has been prejudiced in any material respect by such
failure). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the reasonable fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
-------- -------
unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is
-32-
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is a contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities (before
deducting expenses other than underwriting discounts and commissions) bear to
the total underwriting discounts received by the Underwriters hereunder, in each
case as set forth in the table on the Cover Page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company, any controlling person of either
the Underwriter or the Company, and shall
-33-
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
9. Effective Date.
--------------
(a) This Agreement shall become effective at 5:00 p.m., New York
City time, on the date hereof. For purposes of this Section 9, the Securities to
be purchased hereunder shall be deemed to have been so released upon the earlier
of dispatch by the Representatives of telegrams to securities dealers releasing
such shares for offering or the release by the Representatives for publication
of the first newspaper advertisement which is subsequently published relating to
the Securities.
10. Termination.
-----------
(a) Subject to subsection (b) of this Section 10, the
Representatives shall have the right to terminate this Agreement, if between the
date of this Agreement and the Closing Date or the Option Closing Date, as the
case may be, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representatives's reasonable opinion will in the
immediate future materially disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
on the New York Stock Exchange, the American Stock Exchange, or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the Commission or any other government authority having jurisdiction; or
(iv) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (v) if a banking moratorium has been declared by a state or federal
authority; or (vi) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representatives's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (viii) if there
shall have been such a material adverse change in the prospects or conditions of
the Company, or such material adverse change in the general market, political or
economic conditions, in the United States or elsewhere as in the
Representatives's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities.
(b) If this Agreement is terminated by the Representatives in
accordance with any of the provisions of Section 6, Section 10(a) or Section 11,
the Company shall promptly reimburse and indemnify the Underwriters pursuant to
Section 5(b) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
-34-
11. Substitution of Underwriters. If one or more of the Underwriters
----------------------------
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth. If, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date, the non-
defaulting Underwriters shall be obligated to purchase the full amount thereof
in the proportions that their respective underwriting obligations hereunder bear
to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities to be purchased on such date, this Agreement
shall terminate without liability on the part of any nondefaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
----------------------
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representatives's option, by notice from the Representatives to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any non-
defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
-------
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives, c/o Pryor, McClendon, Counts & Co., Inc., 3 Penn Plaza, 0000
xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000, with a copy, which
shall not constitute notice, to Camhy Xxxxxxxxx & Xxxxx LLP, 0000 Xxxxxxxx, 00xx
-00-
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx X. Xx Xxxx, Esq. Notices to
the Company shall be directed to the Company at Xxxxx X. Xxxxxxxxx, Isonics
Corporation, 0000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000, with a
copy, which shall not constitute notice, to Fenwick & West LLP, Xxx Xxxx Xxxx
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, Attention: C. Xxxxx Xxxxx, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
-------
shall be binding upon the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained.
No purchaser of Securities from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
------------
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Warrant
----------------------------
Agreement, and the Representatives' Warrant Agreement constitute the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representatives and the Company.
-36-
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
ISONICS CORPORATION
By:
------------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
PRYOR, McCLENDON, COUNTS & CO., INC.
By:
------------------------------------
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:
------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chairman
For themselves and as Representatives respectively of the Underwriters named in
Schedule A hereto.
-37-
SCHEDULE A
Number of Shares of Common Number of Warrants
Name of Underwriters Stock to be Purchased to be Purchased
-------------------- -------------------------- ------------------
Pryor, McClendon, Counts &
Co., Inc.
National Securities Corporation
TOTAL
SCH. A-1
