TUSCANY, INC.
1,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 1,600,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Paragon Capital Corporation , 1997
0 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
Tuscany, Inc., a Washington corporation (the "Company"),
proposes to issue and sell to Paragon Capital Corporation (the "Underwriter") an
aggregate of one million six hundred thousand (1,600,000) shares of common stock
of the Company, par value $.01 per share (the "Offered Shares"), which Offered
Shares are presently authorized but unissued shares of the common stock, par
value $.01 per share (individually a "Common Share" and collectively the "Common
Shares"), of the Company, at a price of Five Dollars ($5.00) per Offered Share,
and one million six hundred thousand (1,600,000) Common Share purchase warrants
(the "Offered Warrants"), at a price of Ten Cents ($.10) per Offered Warrant,
entitling the holder of each Offered Warrant to purchase, during the five (5)
year period commencing __________, 1997, one (1) Common Share, at an exercise
price of $5.00 per share (subject to adjustment in certain circumstances). The
Company shall have the right, upon the consent of the Underwriter, to call each
Offered Warrant for redemption upon not less than thirty (30) days' written
notice at any time after becoming exercisable at a redemption price of Ten Cents
($.10) per Offered Warrant provided that the closing bid quotation of the Common
Stock has been at least 150% (currently $7.50) of the then-effective exercise
price of the Warrants on all twenty (20) trading days ending on the third day
prior to the day on which the Company gives notice. In addition, the
Underwriter, in order to cover over-allotments in the sale of the Offered Shares
and/or Offered Warrants, may purchase an aggregate of not more than two hundred
forty thousand (240,000) Common Shares (the "Optional Shares") and/or two
hundred forty thousand (240,000) Common Share purchase warrants (the "Optional
Warrants") entitling the holder of each Optional Warrant to purchase one (1)
Common Share on the same terms as the Offered Warrants. The Offered Shares and
the Optional Shares are hereinafter sometimes collectively referred to as the
"Shares";
and the Offered Warrants and the Optional Warrants are hereinafter collectively
referred to as the "Warrants." The Warrants will be issued pursuant to a Warrant
Agreement (the "Warrant Agreement") to be dated as of the Closing Date (as
hereinafter defined) by and among the Company, the Underwriter and
__________________________________________, as warrant agent (the "Warrant
Agent").
The Company also proposes to issue and sell to the Underwriter
for its own account and the accounts of its designees, warrants (the
"Underwriter's Warrants") to purchase up to an aggregate of one hundred sixty
thousand (160,000) Common Shares (collectively, the "Underlying Shares") and/or
one hundred sixty thousand (160,000) warrants similar, but not identical to, the
Warrants (collectively, the "Underlying Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant Agreement filed as an exhibit to the Registration
Statement (as hereinafter defined). The Underlying Shares and the Common Shares
issuable upon exercise of the Warrants and the Underlying Warrants are
hereinafter sometimes referred to as the "Warrant Shares". The Shares, the
Warrants, the Underwriter's Warrants, the Underlying Warrants and the Warrant
Shares (collectively, the "Securities") are more fully described in the
Registration Statement and the Prospectus, as defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and Offered Warrants to the Underwriter, and the Underwriter
agrees to purchase the Offered Shares and Offered Warrants from the Company, at
a purchase price of $4.50 per Offered Share and $.09 per Offered Warrant. The
Underwriter plans to offer the Offered Shares and Offered Warrants to the public
at a public offering price of $5.00 per Offered Share and $.10 per Offered
Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered Warrants
will be made to the Company by wire transfer or certified or official bank check
or checks payable to its order in New York Clearing House funds, at the offices
of the Underwriter, 0 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, against delivery
of the Offered Shares and Offered Warrants to the Underwriter. Such payment and
delivery will be made at or about 10:00 A.M., New York City time, on the third
business day following the Effective Date as defined below (the fourth business
day following the Effective Date in the event that
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trading of the Offered Shares commences on the day following the Effective
Date), the date and time of such payment and delivery being herein called the
"Closing Date." The certificates representing the Offered Shares and Offered
Warrants to be delivered will be in such denominations and registered in such
names as the Underwriter may request not less than three full business days
prior to the Closing Date, and will be made available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, _____________________________________________
________________________________, not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to its designees. The Underwriter's
Warrants will be in the form of, and in accordance with, the provisions of the
Underwriter's Warrant attached as an exhibit to the Registration Statement. The
aggregate purchase price for the Underwriter's Warrants is One Hundred Seventy
Six Dollars ($176.00). The Underwriter's Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one (1) year from the
Effective Date, except to officers and partners of the Underwriter and members
of the selling group and/or their officers or partners. Payment for the
Underwriter's Warrants will be made to the Company by check or checks payable to
its order on the Closing Date against delivery of the certificates representing
the Underwriter's Warrants. The certificates representing the Underwriter's
Warrants will be in such denominations and such names as the Underwriter may
request prior to the Closing Date.
3. Option to Purchase Optional Shares and/or Optional
Warrants.
(a) For the purposes of covering any over-allotments in
connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares and/or Optional
Warrants from the Company. The purchase price to be paid for the Optional Shares
and Optional Warrants will be the same price per Optional Share and Optional
Warrant as the price per Offered Share or Offered Warrant, as the case may be,
set forth in Section 1 hereof. The option granted hereby may be exercised by the
Underwriter as to all or any part of the Optional Shares and/or the Optional
Warrants at any time within 45 days after the Effective Date. The Underwriter
will not be under any obligation to purchase any Optional Shares or Optional
Warrants prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the
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number of Optional Shares and Optional Warrants to be purchased, the date and
time for delivery of and payment for the Optional Shares and Optional Warrants
to be purchased and stating that the Optional Shares and Optional Warrants
referred to therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Offered Shares and Offered
Warrants. If such notice is given prior to the Closing Date, the date set forth
therein for such delivery and payment will not be earlier than either two full
business days thereafter or the Closing Date, whichever occurs later. If such
notice is given on or after the Closing Date, the date set forth therein for
such delivery and payment will not be earlier than five full business days
thereafter. In either event, the date so set forth will not be more than 15 full
business days after the date of such notice. The date and time set forth in such
notice is herein called the "Option Closing Date." Upon exercise of such option,
the Company will become obligated to convey to the Underwriter, and, subject to
the terms and conditions set forth in Section 3(d) hereof, the Underwriter will
become obligated to purchase, the number of Optional Shares and Optional
Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional Warrants
purchased will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the office of the Underwriter, against delivery of the Optional Shares and
Optional Warrants purchased to the Underwriter. The certificates representing
the Optional Shares and Optional Warrants to be delivered will be in such
denominations and registered in such names as the Underwriter requests not less
than two full business days prior to the Option Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
aforesaid office of the Company's transfer agent or correspondent not less than
one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay
for any of the Optional Shares or Optional Warrants is subject to the accuracy
and completeness (as of the date hereof and as of the Option Closing Date) of
and compliance in all material respects with the representations and warranties
of the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, to the
satisfaction by the Company of the conditions, as of the date hereof and as of
the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery
to the Underwriter of opinions, certificates and letters dated the Option
Closing Date substantially similar in scope to those specified in Section 5,
6(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares,"
"Offered Warrants" and
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"Closing Date" to be, respectively, to the Optional Shares, Optional Warrants
and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington, with
full power and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to qualify
could have a material adverse effect on the financial condition, results of
operations, business or properties of the Company. The Company has no
subsidiaries other than Expresso Real Estate Corp., a Washington corporation,
which is inactive.
(b) Each of this Agreement and the consulting agreement
described in Section 5(r) hereof (the "Consulting Agreement") has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, and each of the Warrant Agreement and the
Underwriter's Warrant Agreement, when executed and delivered by the Company on
the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
execution, delivery and performance of this Agreement, the Consulting Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement by the Company,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Articles of Incorporation or By-Laws,
each as amended, of the Company; (ii) result in a breach of or conflict with any
of the terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to any indenture, mortgage, note, contract,
commitment or other agreement or instrument to which the Company is a party or
by which the Company or any of its properties or assets are or may be bound or
affected; (iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over
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the Company or any of its properties or business; or (iv) have any effect on any
permit, certification, registration, approval, consent, order, license,
franchise or other authorization (collectively, "Permits") necessary for the
Company to own or lease and operate its properties and to conduct its business
or the ability of the Company to make use thereof, which, in the case of clauses
(ii), (iii) and (iv) of this Section 4(b), would have a material adverse effect
on the financial condition, results of operations, business or properties of the
Company (a "Material Adverse Effect").
(c) No Permit of any court or governmental agency or body,
other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, is required for the valid authorization, issuance, sale and delivery of
the Shares and Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement, the Consulting Agreement,
the Warrant Agreement or the Underwriter's Warrant Agreement.
(d) The conditions for use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied
with respect to the Company, the transactions contemplated herein and in the
Registration Statement. The Company has prepared in conformity in all material
respects with the requirements of the Act and the rules and regulations (the
"Regulations") of the Securities and Exchange Commission (the "Commission") and
filed with the Commission a registration statement (File No. 333-______) on Form
SB-2 and has filed one or more amendments thereto, covering the registration of
the Securities under the Act, including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was
endorsed with the legend required by Item 501(c)(5) of Regulation S-B of the
Regulations and if applicable, Rule 430A of the Regulations. Such registration
statement including any documents incorporated by reference therein and all
financial schedules and exhibits thereto, as amended at the time it becomes
effective, and the final prospectus included therein are herein, respectively,
called the "Registration Statement" and the "Prospectus," except that, (i) if
the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the Prospectus, the term "Prospectus" will also include the
prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement
is amended or such Prospectus is supplemented after the effective date of the
Registration Statement (the "Effective Date") and prior to the Option Closing
Date, the terms "Registration Statement" and "Prospectus" shall include the
Registration Statement as amended or supplemented.
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(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes effective,
the Prospectus (and any amendment or supplement thereto) when it is filed with
the Commission pursuant to Rule 424(b), and both documents as of the Closing
Date and the Option Closing Date referred to below, will contain all statements
which are required to be stated therein in accordance with the Act and the
Regulations and will in all material respects conform to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, on such dates, will contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. Based on the assumptions stated in
the Registration Statement and the Prospectus, the Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement or the Prospectus, on the Effective Date and
on the Closing Date, there will be no options to purchase, warrants or other
rights to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of the Company's capital
stock or any such warrants, convertible securities or obligations. Except as set
forth in the Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities registered
under the Act.
(h) The descriptions in the Registration Statement and
the Prospectus of contracts and other documents are accurate and present fairly
the information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
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(i) Deloitte & Touche, the accountants who have certified
certain of the financial statements filed and to be filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants within the meaning of the Act and Regulations. The financial
statements and schedules and the notes thereto filed as part of the Registration
Statement and included in the Prospectus present fairly the financial position
of the Company as of the dates thereof, and the results of operations and
changes in financial position of the Company for the periods indicated therein,
all in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved except as otherwise stated in
the Registration Statement and the Prospectus. The selected financial data set
forth in the Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with that
of the audited and unaudited financial statements included in the Registration
Statement and the Prospectus.
(j) The Company has filed with the appropriate federal,
state and local governmental agencies, and all appropriate foreign countries and
political subdivisions thereof, all tax returns, including franchise tax
returns, which are required to be filed or has duly obtained extensions of time
for the filing thereof and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same have become due; and the
provisions for income taxes payable, if any, shown on the financial statements
filed with or as part of the Registration Statement are sufficient for all
accrued and unpaid foreign and domestic taxes, whether or not disputed, and for
all periods to and including the dates of such financial statements. Except as
disclosed in writing to the Underwriter, the Company has not executed or filed
with any taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income taxes and is not a party to
any pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company, the adverse
determination of which would have a Material Adverse Effect.
(k) The outstanding Common Shares, outstanding options and
warrants to purchase Common Shares have been, or upon conversion will be, as the
case may be, duly authorized and validly issued. The outstanding Common Shares
are fully paid and nonassessable. The outstanding options and warrants to
purchase Common Shares constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws nor or hereafter in effect relating to creditors' rights
generally and general principles of equity and the discretion of the court
before which
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any proceeding therefor may be brought. None of the outstanding Common Shares,
or options or warrants to purchase Common Shares has been or will be, as the
case may be, issued in violation of the preemptive rights of any shareholder of
the Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares, and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. Except as set forth in
the Registration Statement and the Prospectus, on the Effective Date and the
Closing Date, there will be no outstanding preferred shares, Common Shares,
debentures, options or warrants for the purchase of, or other outstanding rights
to purchase, Common Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Shares and the Warrant
Shares have been duly authorized and, when the Shares and the Warrant Shares
have been issued and duly delivered against payment therefor as contemplated by
this Agreement or by the Warrant Agreement, as the case may be, the Shares and
the Warrant Shares will be validly issued, fully paid and nonassessable. The
holders of the Securities will not be subject to personal liability solely by
reason of being such holders and none of the Securities will be subject to
preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrant Agreement, as the case may be, the Warrants, the
Underwriter's Warrants and the Underlying Warrants will constitute valid and
binding obligations of the Company, enforceable as to the Company in accordance
with their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement and Prospectus.
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(o) The Company is not in violation of, or in default
under, (i) any term or provision of its Certificate of Incorporation,
Memorandum, Articles or By-Laws, as amended, as the case may be; (ii) any
material term or provision or any financial covenants of any indenture,
mortgage, contract, commitment or other agreement or instrument to which it is a
party or by which it or any of its property or business is or may be bound or
affected, except for such defaults for which it has received a waiver; or (iii)
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of the Company's properties or business, which, in the case of
clauses (ii) and (iii) of this Section 4(o), would have a Material Adverse
Effect. The Company owns, possesses or has obtained all governmental and other
(including those obtainable from third parties) Permits necessary to own or
lease, as the case may be, and to operate its properties, whether tangible or
intangible, and to conduct any of the business or operations of the Company as
presently conducted and all such Permits are outstanding and in good standing,
and there are no proceedings pending or, to the best of the Company's knowledge,
threatened (nor to the Company's knowledge is there any basis therefor) seeking
to cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending, or, to the best of the
Company's knowledge, threatened against the Company or involving the Company's
properties or business which, if determined adversely to the Company would,
individually or in the aggregate, result in any Material Adverse Effect or which
question the validity of the capital stock of the Company or this Agreement or
of any action taken or to be taken by the Company pursuant to, or in connection
with, this Agreement; nor, to the best of the Company's knowledge, is there any
basis for any such claim, action, suit, proceeding, arbitration, investigation
or inquiry. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, or the Company's properties or business, is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) The Company owns or possesses adequate and enforceable
rights to use all trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus
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(collectively, the "Intangibles"); to the best of the Company's knowledge, the
Company has not infringed or is infringing upon the rights of others with
respect to the Intangibles; and the Company has not received any notice that it
has or may have infringed or is infringing upon the asserted rights of others
with respect to the Intangibles which could, singly or in the aggregate,
materially adversely affect its business as presently conducted, financial
condition or results of operations of the Company and the Company knows of no
basis therefor; and, to the best of the Company's knowledge, no others have
infringed upon the Intangibles of the Company.
(s) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
consolidated financial statements, the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction, whether or not in the ordinary course of business, and has not
sustained any material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree; and since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any change which has
or could result in a Material Adverse Effect, otherwise than as set forth or
contemplated in the Prospectus.
(t) The Company does not own any real property. The
Company has good title to all personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company and
all rentals, royalties or other payments accruing thereunder which became due
prior to the date of this Agreement have been duly paid, and neither the Company
nor, to the best of the Company's knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder, in each case which would have a Material
Adverse Effect. The Company has not received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned
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or leased properties. The Company has insured its properties against loss or
damage by fire or other casualty and maintains, in amounts which it deems, in
good faith, to be adequate, such other insurance including, but not limited to,
liability insurance as is usually maintained by companies engaged in the same or
similar businesses located in the geographic areas in which the Company's
properties and/or operations are located.
(u) Each contract or other instrument (however
characterized or described) to which the Company is a party or by which its
properties and business is or may be bound or affected and to which reference is
made in the Prospectus, has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party, is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder, which,
in each case, would have a Material Adverse Effect.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any of their respective assets or businesses.
(v) The employment, consulting agreements between the
Company and its officers and employees, described in the Registration Statement,
are binding and enforceable obligations upon the respective parties thereto in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
or arrangements affecting creditors' rights generally and subject to principles
of equity.
(w) Except as set forth in the Prospectus, the Company has
no employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's employees or is imminent which could
result in a Material Adverse Effect.
(y) The Company has not, directly or indirectly, at any
time (i) made any contributions to any candidate for political office, or failed
to disclose fully any such contribution in violation of law or (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other
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than payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(z) The Shares, Warrants and Warrant Shares have been
approved for listing on the Nasdaq SmallCap Market ("NASDAQ").
Any certificate signed by an officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel shall be deemed to be a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares and Warrants by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
reasonably object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares and/or the Warrants for offering or sale in any jurisdiction, or of the
initiation of any proceedings for any of such purposes. The Company will use its
best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Regis-
-13-
tration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and Offered Warrants, in any Optional Shares and
Optional Warrants which may be issued and sold, and in the Warrant Shares
underlying such Warrants. If, at any time when a prospectus relating to such
Securities is required to be delivered under the Act, any event occurs as a
result of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper information as
may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
or for sale in such jurisdictions as the Underwriter may reasonably designate,
provided that no such qualification will be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to service of general
process or to taxation or qualification as a foreign corporation doing business
in such jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
-14-
(g) For a period of five years from the Effective Date,
the Company will deliver to the Underwriter and to Underwriter's Counsel on a
timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-KSB (or 10-K) and 10-QSB (or 10-Q)
and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) monthly statements setting forth such information regarding
the Company's results of operations and financial position (including balance
sheet, profit and loss statements and data regarding outstanding purchase
orders) as is regularly prepared by management of the Company; and (v) such
additional information concerning the business and financial condition of the
Company as the Underwriter may from time to time reasonably request and which
can be prepared or obtained by the Company without unreasonable effort or
expense. The Company will furnish to its shareholders annual reports containing
audited financial statements and such other periodic reports as it may determine
to be appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Shares or Warrants.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the Fifty Thousand Dollars ($50,000)
previously paid to it, and the Company will pay or cause to be paid the
following: all costs and expenses incident to the performance of the obligations
of the Company under this Agreement, including, but not limited to, the fees and
expenses of accountants and counsel for the Company; the preparation, printing,
mailing and filing of the Registration Statement (including financial statements
and exhibits), Preliminary Prospectuses and the Prospectus, and any amendments
or supplements thereto; the printing and mailing of the Selected Dealer
Agreement; the issuance and delivery of the Shares and Warrants to the
Underwriter; all taxes, if any, on the issuance of the Shares and Warrants; the
fees, expenses and other costs of qualifying the Shares and Warrants for sale
under the Blue Sky or securities laws of those states in which the Shares and
Warrants are to be offered or sold, the cost of printing and mailing the "Blue
Sky Survey" and fees and disbursements of counsel in connection therewith,
including those of such local counsel as may have been retained for such
purpose; the filing fees incident to securing any required review by the NASD;
the cost of furnishing to the Underwriter copies of the Registration
-15-
Statement, Preliminary Prospectuses and the Prospectus as herein provided; the
costs, up to $16,000, of placing "tombstone advertisements" in any publications
which may be selected by the Underwriter; and all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option Closing
Date, as the case may be, the Underwriter will deduct from the payment for the
Offered Shares and Offered Warrants or any Optional Shares and/or Optional
Warrants purchased three percent (3%) (less the sum of Fifty Thousand Dollars
($50,000) previously paid to the Underwriter) of the gross proceeds of the
offering, including the over-allotment option, as payment for the Underwriter's
non-accountable expense allowance relating to the transactions contemplated
hereby, which amount will include the fees and expenses of Underwriter's
Counsel.
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering for any reason, or the Underwriter decides not to proceed with
the offering because of a breach by the Company of any representation, warranty
or covenant contained in this Agreement or as a result of adverse changes in the
affairs of the Company, then the Underwriter may retain only an amount equal to
its accountable out-of-pocket expenses up to the sum of Seventy-Five Thousand
Dollars ($75,000) (including the Fifty Thousand Dollars ($50,000) previously
paid to it); provided, however, that if the Underwriter shall terminate this
Agreement for any other reason, than the Company need only reimburse the
Underwriter for its actual accountable out-of-pocket expenses up to a maximum of
Fifty Thousand Dollars ($50,000), inclusive of the Fifty Thousand Dollars
($50,000) previously paid to it. In no event, however, will the Underwriter, in
the event the offering is terminated, be entitled to retain or receive more than
an amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the
sale of the Shares and Warrants for the purposes set forth in the Prospectus.
Except as described in the Prospectus, the Company will not use any portion of
the proceeds derived from the sale of the Shares and Warrants to repay any
indebtedness, without the prior written consent of the Underwriter. The Company
will file with the Commission all required reports on Form S-R in accordance
with the provisions of Rule 463 promulgated under the Act and will provide a
copy of each such report to the Underwriter and its counsel.
(l) During the eighteen (18) months following the date
hereof, (i) with the exception of the holders of the 240,000 shares of Comon
Stock (the "Bridge Shares") purchased in the Bridge Financing (as defined in the
Prospectus), none of the
-16-
Company's officers, directors or securityholders will offer for sale or sell or
otherwise dispose of, directly or indirectly, any securities of the Company, in
any manner whatsoever, whether pursuant to Rule 144 of the Regulations or
otherwise, and (ii) no holder of registration rights relating to the securities
of the Company (except for the holders of the Bridge Shares) will exercise any
such registration rights, in either case, without the prior written consent of
the Underwriter. The restrictions provided in (i) of this Section 5(l) shall
apply to the holders of the Bridge Shares for a period of thirteen (13) months
from the date hereof.
(m) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the eighteen (18) months following
the date hereof without the Underwriter's prior written consent, provided, that
the Company may file a registration statement relating to the 240,000 Bridge
Shares nine (9) months after the Effective Date.
(n) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company will use its best efforts to maintain the
listing of the Shares and Warrants on NASDAQ for so long as the Shares and
Warrants are qualified for such listing.
(p) The Company will, concurrently with the Effective
Date, register the class of equity securities of which the Shares are a part
under Section 12(g) of the Exchange Act and the Company will maintain the
registration for a minimum of five (5) years after the Effective Date.
(q) Subject to the sale of the Offered Shares and Offered
Warrants, the Underwriter and its successors will have the right to designate a
nominee for election, at its or their option, either as a member of or a
non-voting advisor to the Board of Directors of the Company, and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
five (5) years following the Effective Date. Each of the Company's current
officers, directors and securityholders agrees to vote all of the Common Shares
owned by such person or
-17-
entity so as to elect and continue in office such nominee of the Underwriter.
Following the election of such nominee as a director or advisor, such person
shall receive no more or less compensation than is paid to other non-officer
directors of the Company for attendance at meetings of the Board of Directors of
the Company and shall be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings including, but not limited to, food,
lodging and transportation. The Company agrees to indemnify and hold such
director or advisor harmless, to the maximum extent permitted by law, against
any and all claims, actions, awards and judgments arising out of his service as
a director or advisor and, in the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
to include such director or advisor as an insured under such policy. The rights
and benefits of such indemnification and the benefits of such insurance shall,
to the extent possible, extend to the Underwriter insofar as it may be or may be
alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
(r) The Company agrees to employ the Underwriter or a
designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written Consulting Agreement between the Company and the Underwriter and/or such
designee, at an annual rate of Thirty Thousand Dollars ($30,000) (exclusive of
any accountable out-of-pocket expenses), payable in full, in advance, on the
Closing Date. In addition, the Consulting Agreement shall provide that the
Company will pay the Underwriter a finder's fee in the event that the
Underwriter originates a merger, acquisition, joint venture or other transaction
to which the Company is a party. The Company further agrees to deliver a duly
and validly executed copy of said Consulting Agreement, in form and substance
acceptable to the Underwriter, on the Closing Date.
(s) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of five
percent (5%) of the aggregate exercise price of the Warrants for each Warrant
exercised during the period commencing one year after the Effective Date;
provided, however, that the Underwriter will not be entitled to receive such
compensation in Warrant exercise transactions in which (i) the market price of
the Common Shares at the time of exercise is
-18-
lower than the exercise price of the Warrants; (ii) the Warrants are held in any
discretionary account; (iii) disclosure of compensation arrangements is not made
in the Registration Statement and in documents provided to holders of Warrants
at the time of exercise; (iv) the holder thereof has not confirmed in writing
that the Underwriter solicited the exercise of the Warrants; or (v) the
solicitation or exercise of the Warrants was in violation of Rule 10b-6
promulgated under the Exchange Act.
(t) The Company shall retain a transfer agent for the
Common Shares and Warrants, reasonably acceptable to the Underwriter, for a
period of five (5) years from the Effective Date. In addition, for a period of
five (5) years from the Effective Date, the Company, at its own expense, shall
cause such transfer agent to provide the Underwriter, if so requested in
writing, with copies of the Company's daily transfer sheets, and, when requested
by the Underwriter, a current list of the Company's securityholders, including a
list of the beneficial owners of securities held by a depository trust company
and other nominees.
(u) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and the Underwriter's Counsel,
within a reasonable period from the date hereof, two bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(v) The Company shall, as of the date hereof, have applied
for listing in Standard & Poor's Corporation Records Service (including annual
report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five (5) years from the Effective Date.
(w) For a period of five (5) years following the Effective
Date, the Company shall provide the Underwriter, on a not less than annual
basis, with internal forecasts setting forth projected results of operations for
each quarterly and annual period in the two (2) fiscal years following the
respective dates of such forecasts. Such forecasts shall be provided to the
Underwriter more frequently than annually if prepared more frequently by
management, and revised forecasts shall be prepared and provided to the
Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(x) For a period of five (5) years following the Effective
Date, or until such earlier time as the Common Shares and Warrants are listed on
the New York Stock Exchange or the American Stock Exchange, the Company shall
cause its legal counsel to provide the Underwriter with a list, to be updated at
-19-
least annually, of those states in which the Common Shares and Warrants may be
traded in non-issuer transactions under the Blue Sky laws of the 50 states.
(y) For a period of five (5) years from the Effective
Date, the Company shall continue to retain Deloitte & Touche LLP (or another
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants and shall promptly, upon the Company's
receipt thereof, submit to the Underwriter copies of such accountants'
management reports and similar correspondence between such accountants and the
Company.
(z) For a period of five (5) years from the Effective
Date, the Company, at its expense, shall cause its then independent certified
public accountants, as described in Section 5(aa) above, to review (but not
audit) the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's 10-QSB (or 10-Q) quarterly report and the mailing of
quarterly financial information to shareholders.
(aa) So long as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act as shall
be necessary to enable the sale of the Common Shares underlying the Warrants and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant as they request and as otherwise required by law and, to
furnish to the Underwriter and dealers as many copies of each such Prospectus as
the Underwriter or dealer may reasonably request. In addition, for so long as
any Warrant is outstanding, the Company will promptly notify the Underwriter of
any material change in the financial condition, business, results of operations
or properties of the Company.
(ab) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(ac) For a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities pursuant to
Regulation S promulgated under the Act without the prior written consent of the
Underwriter.
(ad) For a period of five (5) years from the Effective
Date, the Company will provide to the Underwriter ten day's written notice
prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) shares of Common Stock issuable upon exercise of
-20-
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options (and shares issuable upon
exercise of such options) available for future grant pursuant to any stock
option plan in effect on the Effective Date.
(ae) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid employees greater
than those increases provided for in their employment agreements with the
Company in effect as of the Effective Date and disclosed in the Registration
Statement, without the Underwriter's prior written consent, for a period of
three (3) years from the Effective Date.
(af) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid employees greater
than those increases provided for in their employment agreements with the
Company in effect as of the Effective Date and disclosed in the Registration
Statement, without the Underwriter's prior written consent, for a period of
three (3) years from the Effective Date.
(ag) For a period of three (3) years from the Effective
Date, the Company will retain a financial public relations firm reasonably
acceptable to the Underwriter.
(ah) For a period of five (5) years from the Effective
Date, the Company will promptly submit to the Underwriter copies of accountants'
management reports and similar correspondence between the Company's accountants
and the Company.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares and Offered Warrants from the Company. The obligation of the
Underwriter to purchase and pay for the Offered Shares and Offered Warrants
which it has agreed to purchase from the Company is subject (as of the date
hereof and the Closing Date) to the accuracy of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective
not later than 10:00 A.M., New York City time, on the day following the date of
this Agreement, or at such later time or on such later date as the Underwriter
may agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information
-21-
will have been complied with to the satisfaction of Underwriter's Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter signed opinions
of Xxxxxx Xxxxxxxxxx LLP and Cairncross & Hemplemann, P.S., counsel for the
Company (collectively, "Company Counsel"), dated as of the date hereof or the
Closing Date, as the case may be (and any other opinions of counsel referred to
in such opinion of Company Counsel or relied upon by Company Counsel in
rendering their opinion), reasonably satisfactory to Underwriter's Counsel.
(c) At the Closing Date, there will have been delivered to
the Underwriter a signed opinion of Underwriter's Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Underwriter, specifying
the same, and with respect to such related matters as the Underwriter may
require.
(d) At the Closing Date (i) the Registration Statement and
the Prospectus and any amendments or supplements thereto will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicates might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or adminis-
-22-
trative agency wherein an unfavorable decision, ruling or finding would
materially adversely affect the business, property, financial condition or
results of operations of the Company, other than as set forth in the
Registration Statement and the Prospectus. At the Closing Date, there will be
delivered to the Underwriter a certificate signed by the Chairman of the Board
or the President or a Vice President of the Company, dated the Closing Date,
evidencing compliance with the provisions of this Section 6(d) and stating that
the representations and warranties of the Company set forth in Section 4 hereof
were accurate and complete in all material respects when made on the date hereof
and are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to the best
of his knowledge, are contemplated or threatened. In addition, the Underwriter
will have received such other and further certificates of officers of the
Company as the Underwriter or Underwriter's Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from Deloitte &
Touche LLP dated the date such letter is to be received by the Underwriter and
addressed to it, confirming that it is a firm of independent public accountants
within the meaning of the Act and Regulations and stating that: (i) insofar as
reported on by them, in their opinion, the financial statements of the Company
included in the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable Regulations;
(ii) on the basis of procedures and inquiries (not constituting an examination
in accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim financial statements of the Company, if any,
appearing in the Registration Statement and the Prospectus and the latest
available unaudited interim financial statements of the Company, if more recent
than that appearing in the Registration Statement and Prospectus, inquiries of
officers of the Company responsible for financial and accounting matters as to
the transactions and events subsequent to the date of the latest audited
financial statements of the Company, and a reading of the minutes of meetings of
the shareholders, the Board of Directors of the Company and any committees of
the Board of Directors, as set forth in the minute books of the Company, nothing
has come to their attention which, in their judgment, would indicate that (A)
during the period from the date of the latest financial statements of the
Company appearing in the Registration Statement and Prospectus to a specified
date not more than three business days prior to the date of such letter, there
have been any decreases in net current
-23-
assets or net assets as compared with amounts shown in such financial statements
or decreases in net sales or increases in total or per share net loss compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other 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.
(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares and the Offered Warrants to be sold
on the Closing Date.
(g) The NASD shall have indicated that it has no objection
to the underwriting arrangements pertaining to the sale of the Shares and
Warrants by the Underwriter.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares or
Warrants, and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) All proceedings taken at or prior to the Closing Date
or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the
-24-
Shares or Warrants shall be reasonably satisfactory in form and substance to the
Underwriter and to Underwriter's Counsel.
(j) On or prior to the Closing Date, the Company will have
delivered to the Underwriter the undertakings of its officers, directors and
securityholders, as the case may be, to the effect of the matters set forth in
Sections 5(l) and (q) hereof.
If any of the conditions specified in this Section 6 have
not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares and
Warrants under the securities laws thereof (hereinafter "application"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
-25-
liabilities purchased the Shares and/or Warrants which are the subject thereof
from the Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares and/or
Warrants to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares and
Warrants under state securities or Blue Sky laws), or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement
of any action in respect of which indemnity may be sought against any
indemnifying party under this Section 7, the indemnified party will notify the
indemnifying party in writing of the commencement thereof, and the indemnifying
party will, subject to the provisions hereinafter stated, assume the defense of
such action (including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of expenses) insofar as such action relates to
an alleged liability in respect of which indemnity may be sought against the
indemnifying party. After notice from the indemnifying party of its election to
assume the defense of such claim or action, the indemnifying party shall no
longer be liable to the indemnified
-26-
party under this Section 7 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the reasonable
judgment of the indemnified party or parties, it is advisable for the
indemnified party or parties to be represented by separate counsel, the
indemnified party or parties shall have the right to employ a single counsel to
represent the indemnified parties who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified parties
thereof against the indemnifying party, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. Any party
against whom indemnification may be sought under this Section 7 shall not be
liable to indemnify any person that might otherwise be indemnified pursuant
hereto for any settlement of any action effected without such indemnifying
party's consent, which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof equal to the
percentage which the underwriting discount per Share and per Warrant set forth
on the cover page of the Prospectus represents of the initial public offering
price per Share and per Warrant set forth on the cover page of the Prospectus
and the Company is responsible for the remaining portion; provided, however,
that if applicable law does not permit such allocation, then, if applicable law
permits, other relevant equitable considerations such as the relative fault of
the Company and the Underwriter in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses shall also be considered.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission or
-27-
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares and the Warrants.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 10:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered
-28-
Shares and Offered Warrants for public offering" for the purposes of this
Section 10 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Offered Shares and Offered Warrants, or the time when the Underwriter releases
for delivery to members of a selling group copies of the Prospectus and an
offering letter or an offering telegram relating to the Offered Shares and
Offered Warrants, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and Optional Warrants, as the case may
be, if, prior to such time, any of the following shall have occurred: (i) the
Company withdraws the Registration Statement from the Commission or the Company
does not or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
cannot be complied with; (iii) trading in securities generally on the New York
Stock Exchange or the American Stock Exchange will have been suspended; (iv)
limited or minimum prices will have been established on either such Exchange;
(v) a banking moratorium will have been declared either by federal or New York
State authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Shares and Offered Warrants or the Optional
Shares and Optional Warrants, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares and Offered
Warrants or the Optional Shares and Offered Warrants, as the case may be.
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(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(g), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
the inside front cover with respect to stabilizing the market price of Shares
and Warrants, the information in the second paragraph of the "Underwriting"
section with respect to concessions and reallowances, and the information in the
penultimate paragraph of the "Underwriting" section with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Paragon Capital Corporation, 0
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xx. Xxxxxx X. Xxxxxx,
Chairman, with a copy to Xxxxxxx, Senterfitt & Xxxxxx, P.A., Xxx Xxxxxxxxx 0xx
Xxxxxx, Xxxxx, Xxxxxxx 00000-0000, Attention: Xxxx X. Xxxxxxx, Esq.; if to the
Company, addressed to it at Tuscany, Inc., Two Union Square, 000 Xxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000, Attention: Mr. Xxxxx Xxxxxxx, with a copy
to Xxxxxx Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq., 000 Xxxxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have
-30-
now or hereafter to the venue of any such suit, action or proceeding, and (3)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from the Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
TUSCANY, INC.
By:_________________________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
PARAGON CAPITAL CORPORATION
By: ________________________
Name:
Title:
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