EXHIBIT 1.1
Internet Financial Services Inc.
2,000,000 Shares of Common Stock
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
----------------------
Whale Securities Co., L.P. New York, New York
000 Xxxxx Xxxxxx ___________, 0000
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Internet Financial Services Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") Two Million (2,000,000) shares (the "Offered Shares") of the
common stock, par value $.001 per share, which Offered Shares are presently
authorized but unissued shares of the common stock par value $.001 per share
(individually, a "Common Share" and collectively the "Common Shares"), of the
Company. In addition, the Underwriter, in order to cover over-allotments in the
sale of the Offered Shares, may purchase up to an aggregate of Three Hundred
Thousand (300,000) Common Shares (the "Optional Shares"; the Offered Shares and
the Optional Shares are hereinafter sometimes collectively referred to as the
"Shares"). The Shares are described in the Registration Statement and the
Prospectus, as defined below. The Company also proposes to issue and sell to the
Underwriter for its own account and the accounts of its designees, warrants to
purchase up to an aggregate of Two Hundred Thousand (200,000) Common Shares at
an exercise price of $11.55 per share (the "Underwriter's Warrants"), which sale
will be consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $6.35 per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $7.00 per
Offered Share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, at the offices of the
Underwriter, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, against delivery of the
Offered Shares to the Underwriter. Such payment and delivery will be made at
10:00 A.M., New York City time, on the third business day following the
Effective Date (as hereinafter defined) (the fourth business day following the
Effective Date in the event that trading of the Offered Shares commences on the
day following the Effective Date), the date and time of such payment and
delivery being herein called the "Closing Date." The certificates representing
the Offered Shares to be delivered will be in such denominations and registered
in such names as the Underwriter may request not less than two full business
days prior to the Closing Date, and will be made available to the Underwriter
for inspection, checking and packaging at the office of the Company's transfer
agent or correspondent in New York City, American Stock Transfer & Trust
Company, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 not less than one full
business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is One Hundred Dollars ($100.00). 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 the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company by
check or checks payable to its order on the Closing Date against delivery of the
certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as the Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over- allotments in
connection with the distribution and sale of the Offered Shares as contemplated
by the Prospectus, the Underwriter is hereby granted an option to purchase all
or any part of the Optional Shares from the Company. The purchase price to be
paid for the Optional Shares will be the same price per Optional Share
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as the price per Offered Share set forth in Section 1 hereof. The option granted
hereby may be exercised by the Underwriter as to all or any part of the Optional
Shares at any time within 45 days after the Effective Date. The Underwriter will
not be under any obligation to purchase any Optional Shares prior to the
exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option, through the Underwriter's delivery of the
aforementioned notice, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be made
to the Company by wire transfer or certified or official bank check or checks
payable to its order in New York Clearing House funds, at the office of the
Underwriter, against delivery of the Optional Shares purchased to the
Underwriter. The certificates representing the Optional Shares to be delivered
will be in such denominations and registered in such names as the Underwriter
requests not less than two full business days prior to the Option Closing Date,
and will be made available to the Underwriter for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Underwriter to purchase and pay
for any of the Optional Shares is subject to the accuracy and completeness (as
of the date hereof and as of the Option Closing Date) of and compliance in all
material respects with the representations and warranties of the Company herein,
to the
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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" and "Closing Date" to be, respectively, to the
Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, to own or lease, as the case may be,
and operate its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement and to execute, deliver and
perform this Agreement and the Underwriter's Warrant Agreement and to consummate
the transactions contemplated hereby and thereby. The Company has no
subsidiaries other than X.X. Xxxxxx, Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of New York
("Xxxxxx"), and Computer Strategies, Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas ("CSI") (each
individually a "Subsidiary" and together the "Subsidiaries"). Unless the context
otherwise requires, all references to the "Company" in this Agreement shall
include the Subsidiaries. Each of the Subsidiaries has full power and authority,
corporate and other, necessary to own or lease, as the case may be, and operate
its properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company or any Subsidiary.
The Company owns all of the issued and outstanding shares of
capital stock of the Subsidiaries, free and clear of any security interests,
liens, encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
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options or warrants for the purchase of, or other rights to purchase or acquire,
or outstanding securities convertible into or exchangeable for, any capital
stock or other securities of any Subsidiary. Other than the Subsidiaries, the
Company has no equity interests in any entity.
(b) This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of the Company, and
each of the Underwriter's Warrant Agreement and the Consulting Agreement
described in Section 5(r) hereof (the "Consulting 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 Underwriter's Warrant Agreement and the Consulting 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 and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Certificate of Incorporation or By-Laws, each as
amended, of the Company or any Subsidiary; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company, any Subsidiary
or any of their respective properties or assets is or may be bound or affected;
(iii) violate any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective
properties or businesses; or (iv) have any effect on any permit, certification,
registration, approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties and to conduct their respective
businesses or the ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency or body,
other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the
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Shares to the Underwriter, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement, the Consulting Agreement or the
Underwriter's Warrant Agreement.
(d) The conditions for use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied
with respect to the Company, the transactions contemplated herein and in the
Registration Statement. The Company has prepared in conformity with the
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. 333-71783) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares
under the Act, including the related preliminary prospectus or preliminary
prospectuses (each thereof being herein called a "Preliminary Prospectus") and a
proposed final prospectus. Each Preliminary Prospectus was endorsed with the
legend required by Item 501(a)(5) of Regulation S-B of the Regulations and, if
applicable, Rule 430A of the Regulations. Such registration statement including
any documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the "Registration
Statement" and the "Prospectus," except that, (i) if the prospectus filed by the
Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus,
the term "Prospectus" will also include the prospectus filed pursuant to Rule
424(b), and (ii) if the Registration Statement is amended or such Prospectus is
supplemented after the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge after due investigation, 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 after due
investigation, 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
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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.
(i) Ernst & Young LLP, the accountants who have certified
certain of the consolidated 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 consolidated financial statements and schedules and the notes thereto filed
as part of the Registration Statement and included in the Prospectus are
complete, correct and present fairly the financial position of the Company as of
the dates thereof, and the results of operations and changes in financial
position of the Company for the periods indicated therein, all in conformity
with generally
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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) Each of the Company and the Subsidiaries 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 have
duly obtained extensions of time for the filing thereof and have paid all taxes
shown on such returns and all assessments received by them to the extent that
the same have become due; and the provisions for income taxes payable, if any,
shown on the consolidated 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 consolidated financial statements. Except as disclosed in
writing to the Underwriter, neither the Company nor any Subsidiary has executed
or filed with any taxing authority, foreign or domestic, any agreement extending
the period for assessment or collection of any income taxes and is not a party
to any pending action or proceeding by any foreign or domestic governmental
agency for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company or any Subsidiary.
(k) The outstanding Common Shares and outstanding options
and warrants to purchase Common Shares have been duly authorized and validly
issued. The outstanding Common Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. The Company has duly reserved a sufficient number of Common Shares from
its authorized but unissued Common Shares for issuance upon exercise of the
outstanding options and warrants. None of the outstanding Common Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any stockholder 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
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outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase or
acquire, Common Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
will not be subject to preemptive rights of any stockholder of the Company.
(n) The issuance and sale of the Common Shares issuable
upon exercise of the Underwriter's Warrants have been duly authorized and, when
such Common Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Common Shares will be
validly issued, fully paid and nonassessable. Holders of Common Shares issuable
upon the exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Common Shares issuable upon exercise thereof will be subject to
preemptive rights of any stockholder of the Company. The Company has reserved a
sufficient number of Common Shares from its authorized but unissued Common
Shares for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(o) Neither the Company nor any Subsidiary is in violation
of, or in default under, (i) any term or provision of its Certificate of
Incorporation or By-Laws, each as amended; (ii) any material term or provision
or any financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or
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decree of any governmental agency or court, domestic or foreign, or self
regulatory organization, including the National Association of Securities
Dealers, Inc. (the "NASD"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"), having jurisdiction over the Company, any Subsidiary or
any of the Company's or any Subsidiary's properties or businesses. Each of the
Company and the Subsidiaries 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 their properties, whether
tangible or intangible, and to conduct their respective business and operations
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 after due investigation, threatened, or any basis therefor, seeking to
cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending, or, to the best of the
Company's knowledge after due investigation, threatened against the Company or
any Subsidiary or involving the Company's or any Subsidiary's properties or
business which, if determined adversely to the Company or any Subsidiary, would,
individually or in the aggregate, result in any material adverse change in the
financial position, stockholders' equity, results of operations, properties,
business, management or affairs or business prospects of the Company or any
Subsidiary or which question the validity of the capital stock of the Company or
a Subsidiary 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 after due investigation, 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 or any Subsidiary and enjoining the
Company or any Subsidiary from taking, or requiring the Company or any
Subsidiary to take, any action, or to which the Company or any Subsidiary, or
the Company's or any Subsidiary's properties or business is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) Each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights,
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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 (collectively the "Intangibles"); to the best of the Company's
knowledge, neither the Company nor any Subsidiary has infringed nor is
infringing upon the rights of others with respect to the Intangibles; and
neither the Company nor any Subsidiary has received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of the Company or any Subsidiary, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company or any Subsidiary.
(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, neither the Company nor any Subsidiary has
incurred any material liability or obligation, direct or contingent, or entered
into any material transaction, whether or not incurred in the ordinary course of
business, 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 material adverse change in or affecting the general affairs, management,
financial condition, stockholders' equity, results of operations or prospects of
the Company or any Subsidiary, otherwise than as set forth or contemplated in
the Prospectus.
(t) Neither the Company nor the Subsidiaries owns any real
property. Each of the Company and the Subsidiaries has good title to all
personal property (tangible and intangible) owned by it, free and clear of all
security interests, charges, mortgages, liens, encumbrances and defects, except
such as are described in the Registration Statement and Prospectus or such as do
not materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and the Subsidiaries lease, hold or are
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do
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not interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor any Subsidiary, nor, to the best of the
Company's knowledge after due investigation, any other party is in default
thereunder and, to the best of the Company's knowledge after due investigation,
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default thereunder. Neither the Company nor any
Subsidiaries has received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties. Each of the Company and the Subsidiaries has adequately insured
their properties against loss or damage by fire or other casualty and maintain,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in their geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company or a Subsidiary is a party or
by which their properties or businesses is or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or the Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge after
due investigation, any other party, is in default thereunder and, to the best of
the Company's knowledge after due investigation, no event has occurred which,
with the lapse of time or the giving of notice, or both, would constitute a
default thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court or self regulatory
organization, including, without limitation, the NASD, NYSE and AMEX, having
jurisdiction over the Company or the Subsidiaries or any of their respective
assets or businesses, including, without limitation, those promulgated by the
Commission, and comparable state and local regulatory authorities.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants and between the Subsidiaries and their respective officers,
employees and consultants, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in
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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, neither the
Company nor the Subisidiaries has 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 after due
investigation, no labor problem exists with any of the Company's or any
Subsidiary's employees or is imminent which could adversely affect the Company
or any Subsidiary.
(y) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(z) The Shares have been approved for listing on the Nasdaq
SmallCap Market and the Boston Stock Exchange or Pacific Stock Exchange.
(aa) The software and hardware operated by each of the
Company and the Subsidiaries are capable of providing or are being adapted to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates and
date-dependent data as of the date hereof, except as would not have a material
adverse effect on the Company or any Subsidiary.
(ab) The Company has provided to Xxxxxx Xxxxxxxxxx LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated August 1, 1998 and
supplemented diligence requests dated December 1, 1998 and January 11, 1999.
-13-
Any certificate signed by an officer of the Company or by
an officer of a Subsidiary and delivered to the Underwriter or to Underwriter's
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares by the
Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
a
-14-
signed copy of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, a copy of all exhibits filed therewith and a signed copy of
all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may
be required and otherwise cooperate in qualifying the Shares for offering and
sale under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
securityholders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective Date, the
Company will deliver to the Underwriter and to Underwriter's Counsel on a timely
basis (i) a copy of each report or document, including, without limitation,
reports on Forms 8-K, 10-K (or 10-KSB), 10-Q (or 10-QSB) and exhibits thereto,
filed or
-15-
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
securityholders; (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 stockholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the $50,000 previously paid to it, and
the Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement, the issuance
and delivery of the Shares to the Underwriter; all taxes, if any, on the
issuance of the Shares; the fees, expenses and other costs of qualifying the
Shares for sale under the Blue Sky or securities laws of those states in which
the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the filing fees incident to securing
any required review by the NASD and either the Boston Stock Exchange or Pacific
Stock Exchange; the cost of printing and mailing the "Blue Sky Survey"; the cost
of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone
-16-
advertisements" in any publications which may be selected by the Underwriter;
and all other costs and expenses incident to the performance of the Company's
obligations hereunder which are not otherwise specifically provided for in this
Section 5(i).
In addition, at the Closing Date or the Option Closing
Date, as the case may be, the Underwriter will deduct from the payment for the
Offered Shares or any Optional Shares three percent (3%) of the gross proceeds
of the offering (less the sum of $50,000 previously paid to the Underwriter), as
payment for the Underwriter's nonaccountable expense allowance relating to the
transactions contemplated hereby, which amount will include the fees and
expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering for any reason or because the Underwriter decides not to
proceed with the offering as a result of a breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable expenses up to the
sum of $75,000, inclusive of the $50,000 previously paid to the Underwriter by
the Company. In all cases other than those set forth in the preceding sentence,
if the Company or the Underwriter decide not to proceed with the offering, the
Company will only be obligated to reimburse the Underwriter for its accountable
expenses up to $50,000, and inclusive of $50,000 previously paid to the
Underwriter by the Company. In no event, however, will the Underwriter, in the
event the offering is terminated, be entitled to retain or receive more than an
amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the
sale of the Shares for the purposes set forth in the Prospectus. Except as set
forth in the Prospectus, no portion of the net proceeds from the sale of the
Shares will be used to repay any indebtedness.
(l) During the period of twelve (12) months from the
Effective Date hereof, neither the Company nor any of its officers, directors or
securityholders will offer for sale or sell or otherwise dispose of, directly or
indirectly, any
-17-
securities of the Company, in any manner whatsoever, whether pursuant to Rule
144 of the Regulations or otherwise (except that, notwithstanding the foregoing,
a group of securityholders beneficially owning up to five percent (5%) of the
outstanding Common Shares in the aggregate may be excluded from the prohibitions
of this Section 5(l) provided no securityholder owning .25% or more of the
Common Shares is included in such group), and no holder of registration rights
relating to securities of the Company will exercise any such registration
rights, in either case, without the prior written consent of the Underwriter.
During the 12 month period commencing one year from the date hereof, no officer,
director or securityholder who beneficially owns or holds 5% or more of the
outstanding Common Shares (calculated in accordance with Rule 13d-3(d)(i) under
the Exchange Act) may sell any Common Shares in excess of the amount that they
would be allowed to sell if they were deemed "affiliates" of the Company and
their shares were deemed "restricted," as those terms are defined in Rule 144
promulgated under the Securities Act, without the prior written consent of the
Underwriter.
(m) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the twelve (12) months from the
Effective Date, without the Underwriter's prior written consent.
(n) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company will use its best efforts to maintain the
listing of the Shares on the Nasdaq SmallCap Market and will, if so qualified,
list the Shares, and maintain such listing for so long as qualified, on the
Nasdaq National Market System.
(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(b) or 12(g) of the
-18-
Exchange Act and the Company will maintain such registration for a minimum of
five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors will have the right to designate a nominee for
election, at its or their option, either as a member of or a non-voting advisor
to the Board of Directors of the Company (which board, during such period, shall
be comprised of a minimum of five (5) persons and a majority of which, during
such period, shall be persons not otherwise affiliated with the Company, its
management or its founders), and the Company will use its best efforts to cause
such nominee to be elected and continued in office as a director of the Company
or as such advisor until the expiration of five (5) years from the Effective
Date. Each of the Company's current officers, directors and stockholders agree
to vote all of the Common Shares owned by such person or entity so as to elect
and continue in office such nominee of the Underwriter. Following the election
of such nominee as a director or advisor, such person shall receive no more or
less compensation than is paid to other non-officer directors of the Company for
attendance at meetings of the Board of Directors of the Company and shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings including, but not limited to, food, lodging and transportation.
The Company agrees to indemnify and hold such director or advisor harmless, to
the maximum extent permitted by law, against any and all claims, actions, awards
and judgments arising out of his service as a director or advisor and, 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
-19-
between the Company and the Underwriter and/or such designee (the "Consulting
Agreement"), 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) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to the Underwriter, for a period of five
(5) years from the Effective Date. In addition, for a period of five (5) years
from the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's securityholders, including a list
of the beneficial owners of securities held by a depository trust company and
other nominees.
(t) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(u) 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.
(v) For a period of five (5) years from the Effective Date,
the Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the Underwriter
more frequently than annually if prepared more frequently by management, and
revised forecasts shall be prepared and provided to the Underwriter when
required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
-20-
(w) For a period of five (5) years from the Effective Date,
or until such earlier time as the Common Shares are listed on the New York Stock
Exchange or the American Stock Exchange, the Company shall cause its legal
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares may be traded in non- issuer
transactions under the Blue Sky laws of the 50 states.
(x) For a period of three (3) years from the Effective
Date, the Company shall continue to retain Ernst & Young LLP (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants.
(y) 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(x) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.
(z) 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.
(aa) 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 prior written consent of the Underwriter, for a period of three (3)
years from the Effective Date.
(ab) For a period of three (3) years from the Effective
Date, the Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.
(ac) For a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities (i) pursuant to
Regulation S promulgated under the Act or (ii) at a discount to market or in a
discounted transaction, without the prior written consent of the Underwriter,
other than the issuance of Common Shares upon exercise of options and warrants
outstanding on the Closing Date and described in the Prospectus.
-21-
(ad) For a period of three (3) 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) Common Shares issuable upon exercise of currently
outstanding options and warrants or conversion of currently outstanding
convertible securities and (ii) options available for future grant pursuant to
any stock option plan in effect on the Effective Date and the issuance of shares
of Common Shares upon the exercise of such options.
(ae) Prior to the Effective Date and for a period of three
(3) years thereafter, the Company will retain a financial public relations firm
reasonably acceptable to the Underwriter.
(af) For a period of five (5) years from the Effective
Date, the Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
stockholder's meeting at least once per annum.
(ag) Prior to the Effective Date, the Company shall have
obtained Director's and Officer's insurance naming the Underwriter as an
additional insured party, in an amount equal to twenty-five percent (25%) of the
gross proceeds of the offering, and the Company will maintain such insurance for
a period of at least three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares from the Company. The obligation of the Underwriter to purchase
and pay for the Offered Shares which it has agreed to purchase from the Company
is subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy of the statements of the Company or its
officers made pursuant hereto, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement will have become effective
not later than 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
-22-
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 will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter a signed opinion
of Xxxxxxx & Xxxxxx LLP, counsel for the Company ("Company Counsel"), dated as
of the date hereof or the Closing Date, as the case may be (and any other
opinions of counsel referred to in such opinion of Company Counsel or relied
upon by Company Counsel in rendering their opinion), reasonably satisfactory to
Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority, corporate and other, and with all Permits
necessary to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. To the best of Company Counsel's knowledge, the Company
has no subsidiaries, other than X.X. Xxxxxx, Inc., a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
("Xxxxxx"), and Computer Strategies Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas ("CSI") (each
individually a "Subsidiary", and together the "Subsidiaries"). Unless the
context otherwise requires, all references to the "Company" shall include the
Subsidiaries. Each of the Subsidiaries has full power and authority, corporate
and other, with all Permits necessary to own or lease, as the case may be, and
operate its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement. Each of the Company and the
Subsidiaries 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 or any
of the Subsidiaries.
To the best of Company Counsel's knowledge, the Company owns
all of the issued and outstanding shares of capital stock of the Subsidiaries,
free and clear of any security interests, liens, encumbrances, claims and
charges of any nature whatsoever, except as set forth in the Registration
Statement and all of such shares have been duly authorized and validly issued
-23-
and are fully paid and nonassessable. There are no options or warrants for the
purchase of, or other rights to purchase or acquire, or outstanding securities
convertible into or exchangeable for, any capital stock or other securities of
any Subisidary. To the best of Company Counsel's knowledge, other than the
Subsidiaries, the Company has no equity interests in any entity.
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement, the
Consulting Agreement and the Underwriter's Warrant Agreement and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Consulting 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 and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action,
and this Agreement has been duly executed and delivered by the Company. This
Agreement is (assuming for the purposes of this opinion that it is valid and
binding upon the other party thereto) and, when executed and delivered by the
Company on the Closing Date, each of the Consulting Agreement and the
Underwriter's Warrant Agreement will be, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions set forth in Section 7 hereof
and the contribution provisions set forth in Section 8 hereof may be limited by
the federal securities laws or public policy underlying such laws.
(iii) The execution, delivery and performance of this
Agreement, the Consulting 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 and the Underwriter's Warrant Agreement do
not, and will not, with or without the giving of notice or the lapse of time, or
both, (A) result in a violation of the Certificate of Incorporation or By-Laws,
each as amended, of the Company or any Subsidiary, (B) result in a breach of or
conflict with any terms or provisions of, or constitute a default under, or
result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any
-24-
indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company, any Subsidiary or any of the Company's or any Subsidiary's properties
or assets are or may be bound or affected; (C) violate any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, or self regulatory organization, including, without
limitation, the NASD, NYSE and AMEX, having jurisdiction over the Company, any
Subsidiary or any of the Company's or any Subsidiary's properties or business;
or (D) have any effect on any Permit necessary for the Company or any Subsidiary
to own or lease, as the case may be, and operate their respective properties or
conduct their businesses or the ability of the Company or any Subsidiary to make
use thereof.
(iv) To the best of Company Counsel's knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
for the valid authorization, issuance, sale and delivery of the Shares or the
Underwriter's Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement, the Consulting Agreement or
the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as
of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or
-25-
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, or self regulatory organization, including, without
limitation, the NASD, NYSE and AMEX, having jurisdiction over the Company, any
Subsidiary or any of their respective assets or businesses, including, without
limitation, those promulgated by the Commission and comparable state and local
regulatory authorities.
(viii) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of the preemptive rights of
any stockholder 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. To
the best of Company Counsel's knowledge, except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand",
"piggyback" or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
are not subject to preemptive rights of any stockholder of the Company. The
certificates representing the Shares are in proper legal form.
-26-
(x) The issuance and sale of the Common Shares issuable
upon exercise of the Underwriter's Warrants have been duly authorized and, when
such Common Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Common Shares will be
validly issued, fully paid and nonassessable. Holders of Common Shares issuable
upon exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Common Shares issuable upon exercise thereof will be subject to
preemptive rights of any stockholder of the Company. The Company has reserved a
sufficient number of Common Shares from its authorized, but unissued Common
Shares for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Offered Shares to the
Underwriter against payment therefor as provided in this Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to the Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the
over-allotment option to purchase any of the Optional Shares and makes payment
therefor in accordance with the terms of this Agreement, upon delivery of the
Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or the Subsidiary, or involving the Company's or any
Subsidiary's properties or businesses, other than as described in the
Prospectus, such description being accurate, and other than litigation incident
to the kind of business conducted by the Company which, individually and in the
aggregate, is not material.
(xiv) Each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks,
-27-
copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of
Company Counsel's knowledge, neither the Company nor any Subsidiary has
infringed nor is infringing with the rights of others with respect to the
Intangibles; and, to the best of Company Counsel's knowledge, neither the
Company nor any Subsidiary has received any notice that it has or may have
infringed, is infringing upon or is conflicting with the asserted rights of
others with respect to the Intangibles which might, singly or in the aggregate,
materially adversely affect its business, results of operations or financial
condition and such counsel is not aware of any licenses with respect to the
Intangibles which are required to be obtained by the Company or any Subsidiary
other than those licenses which the Company and the Subsidiaries have obtained.
The opinions described in this Section 6(b)(xiv) may be given by Company Counsel
in reliance on the opinion of an attorney, reasonably acceptable to
Underwriter's Counsel, practicing in the patent area.
Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each counsel giving an opinion must give the opinion set
forth in this paragraph as to such subject matter of its opinion.
In rendering its opinion pursuant to this Section 6(b),
Company Counsel may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that Company Counsel
shall state that they have no reason to believe, and do not believe, that they
are not justified in relying upon such opinions or such certificates of
-28-
government officials and officers of the Company as to matters of fact, as the
case may be.
The opinion letter delivered pursuant to this Section
6(b) shall state that any opinion given therein qualified by the phrase "to the
best of our knowledge" is being given by Company Counsel after due investigation
of the matters therein discussed.
(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 indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative
-29-
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 Ernst &
Young, 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 stockholders, 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
-30-
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 assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or 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 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 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,
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
-31-
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) The Company meets the current and any existing and
proposed criteria for inclusion of the Shares on Nasdaq SmallCap Market.
(j) All proceedings taken at or prior to the Closing Date
or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered
to the Underwriter the written undertakings of its officers, directors and
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6 have
not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
-32-
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 under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or
-33-
supplemented) or (ii) in any application (including any application for
registration of the Shares 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 satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution
-34-
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 set
forth on the cover page of the Prospectus represents of the initial public
offering price per Share set forth on the cover page of the Prospectus and the
Company is responsible for the remaining portion; provided, however, that if
applicable law does not permit such allocation, then, if applicable law permits,
other relevant equitable considerations such as the relative fault of the
Company and the Underwriter in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses shall also be considered. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission relates
to information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Underwriter agree that it would be unjust and inequitable if the
respective obligations of the Company and the Underwriter for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8. No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For purposes of this Section
8, each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee and agent of the Underwriter will have the same
rights to contribution as the Underwriter, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who has signed the Registration
Statement and each director of the Company will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8. Anything in this
-35-
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.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock
-36-
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 or the Optional Shares, will be
established by either of such Exchanges, by the Commission, by any other federal
or state agency, by action of the Congress or by Executive Order; (vii) trading
in any securities of the Company shall have been suspended or halted by any
national securities exchange, the NASD or the Commission; (viii) there has been
a materially adverse change in the condition (financial or otherwise), prospects
or obligations of the Company; (ix) the Company will have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; (x) any action has been taken by the government of the United States
or any department or agency thereof which, in the judgment of the Underwriter,
has had a material adverse effect upon the market or potential market for
securities in general; or (xi) the market for securities in general or
political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering
-37-
price, as such information appears in any Preliminary Prospectus and in the
Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P.,
Attention: Xxxxxxx X. Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, with
a copy to Xxxxxx Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq., 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; if to the Company, addressed to it
at Internet Financial Services Inc., 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxxxx Xxxxx, with a copy to Xxxxxxx & Xxxxxx LLP, Attention: Xxxxxx
X. Xxxxxxxxx, Esq., 000 Xxxx 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 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 from the
Underwriter, as such purchaser.
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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,
INTERNET FINANCIAL SERVICES INC.
By_______________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By _______________________________
Name:
Title:
-39-
