EXHIBIT 1.1
PRECIS SMART CARD SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 2000
Xxxxxx Xxxxx Securities, Inc.
0000 Xxxx Xxxxxx Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Gentlemen:
Precis Smart Card Systems, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to the Underwriting Agreement (the "Agreement") for whom Xxxxxx
Xxxxx Securities, Inc. is acting as a representative (the "Managing Underwriter"
or "you"), for sale in a proposed public offering (the "Offering") pursuant to
the terms of this Underwriting Agreement on a "firm commitment" basis, 1,000,000
shares of Common Stock (the "Shares") at $6.00 per Share. The Shares are also
referred to as the "Securities". The date upon which the Securities and Exchange
Commission ("Commission") shall declare the Registration Statement of the
Company effective shall be the "Effective Date". In addition, the Company
proposes to grant to the Underwriters the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 150,000 additional Shares (the
"Option Securities").
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-86643) on Form SB-2 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the
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effective date of such registration statement and prior to the Option Closing
Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranty or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by the Underwriters for inclusion in the
Registration Statement and the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respect with, or were
exempt from, applicable Federal and state securities laws; the holders thereof
have no rights of rescission against the Company with respect thereto, and are
not subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
The Common Stock Underwriter Warrants and the shares of Common Stock
issuable upon exercise of the Common Stock Underwriter Warrants (as defined in
the Underwriter's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Underwriter's Warrant
Agreement.
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(f) This Agreement, the Financial Advisory Agreement, the Merger and
Acquisition Agreement (the "M/A Agreement") and the Underwriter's Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company, and assuming due execution of this Agreement by the other party hereto,
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by bankruptcy, insolvency or other laws affecting the rights of creditors
generally. The Company has full power and authority to authorize, issue and sell
the Securities to be sold by it hereunder on the terms and conditions set forth
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the
Securities or the securities to be issued pursuant to the Underwriter's Warrant
Agreement, except such as may be required under the Act or state securities
laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any material lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary or any of the terms or provisions of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any subsidiary is a party or by which the
Company or any subsidiary may be bound or to which any of the property or assets
of the Company or any subsidiary is subject, nor will such action result in any
material violation of the provisions of the Articles of Incorporation or ByLaws
of the Company or any subsidiary, as amended, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Murrell, Hall, XxXxxxxx & Co., PLLP, who has given its report on
certain financial statements filed and to be filed with the Commission as part
of the Registration Statement, and which are included in the Prospectus, is with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial condition, results of operations and cash flows of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Said financial statements and
related notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. The Company's internal accounting controls and procedures are
sufficient to cause the Company and each subsidiary to prepare financial
statements which comply in all material respects with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved. During the preceding five (5) year period, nothing has been brought to
the attention of the Company's management that would result in any material
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
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(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service xxxx registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) 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 of quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the Underwriters hereunder will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
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(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, which shall include, but not be limited to,
all costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or beneficial owner of five percent (5%) or more of the
securities of the Company or any subsidiary has any direct or indirect
affiliation or association with any member of the National Association of
Securities Dealers, Inc. ("NASD"), except as disclosed to the Managing
Underwriter in writing, and no beneficial owner of the Company's unregistered
securities has any direct or indirect affiliation or association with any NASD
member except as disclosed to the Managing Underwriter in writing. The Company
will advise the Managing Underwriter and the NASD if any five percent (5%) or
greater shareholder of the Company or any subsidiary is or becomes an affiliate
or associated person of an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
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(aa) Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan", an "employee welfare benefit plan", or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
any of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
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(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and based
upon the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,000,000 Shares at $5.40 per Share (the public offering price less ten percent
(10%)) at the place and time hereinafter specified in accordance with the number
of Shares set forth opposite the names of the Underwriters in Schedule A
attached hereto (the "Securities") plus any additional Securities which such
Underwriters may become obligated to purchase pursuant to the provisions of
Section 9 hereof. The Securities shall consist of 1,000,000 Shares to be
purchased from the Company and the price at which the Underwriters shall sell
the Securities to the public shall be $6.00 per Share.
Delivery of the Securities against payment therefor shall take place at
the offices of Xxxxxx Xxxxx Securities, Inc., 0000 Xxxx Xxxxxx Xxxx, Xxxx Xxxxx,
Xxxxxxx 00000 (or at such other place as may be designated by the Managing
Underwriter) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Managing Underwriter shall designate, but
not later than ten (10) business days (holidays excepted) following the first
date that any of the Securities are released to you, such time and date of
payment and delivery for the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and based upon the representations, warranties and agreements herein contained,
the Company hereby grants an option to the Underwriters (or at the option of the
Managing Underwriter, to the Managing Underwriter, individually) to purchase all
or any part of an aggregate of an additional 150,000 Shares at the same price
per Share as the Underwriters shall pay for the Securities being sold pursuant
to the provisions of subsection (a) of this Section 2 (such additional
Securities being referred to herein as the "Option Securities"). This option may
be exercised within forty-five (45) days after the Effective Date of the
Registration Statement upon notice by the Underwriters to the Company advising
as to the amount of Option Securities as to which the option is being exercised,
the names and denominations in which the certificates for such Option Securities
are to be registered and the time and date when such certificates are to be
delivered. Such time and date shall be determined by the Underwriters (or the
Managing Underwriter, individually) but shall not be later than ten (10) full
business days after the exercise of said option, nor in any event prior to the
Closing Date, and such time and date is referred to herein as the "Option
Closing Date". Delivery of the Option Securities against payment therefor shall
take place at the offices of the Managing Underwriter. The Option granted
hereunder may be exercised only to cover overallotments in the sale by the
Underwriters of the Securities referred to in subsection (a) above. In the event
the Company declares or pays a dividend or distribution on its Common Stock,
whether in the form of cash, shares of Common Stock or any other consideration,
prior to the Option Closing Date, such dividend or distribution shall also be
paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you or your representative for inspection at least
two (2) full business days prior to the Closing Date at the offices of the
Managing Underwriter, and such certificates shall be registered in such names
and denominations as you may request. Time shall be of the essence and delivery
at the time and place specified in this Agreement is a further condition to the
obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the account of the several Underwriters against payment of the purchase
price by the several Underwriters by wire transfer in New York Clearing House
funds to the account of the Company.
In addition, in the event the Underwriters (or the Managing
Underwriter, individually) exercises the option to purchase from the Company all
or any portion of the Option Securities pursuant to the provisions of subsection
(b)
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above, payment for such Securities shall be made by wire transfer at the time
and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Managing Underwriter for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Managing Underwriter
may request.
It is understood that the Managing Underwriter, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the Managing
Underwriter at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Managing Underwriter shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder. It is also understood that the Managing Underwriter
individually, rather than all of the Underwriters, may (but shall not be
obligated to) purchase the Option Securities referred to in subsection (b) of
this Section 2, but only to cover overallotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Managing Underwriter.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriters or
Selected Dealers, of any event of which the Company has knowledge and which in
the opinion of counsel for the Company or counsel for the Underwriters should be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in
8
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Act and the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, and the provisions of the Securities Exchange Act of 1934 (the "1934
Act"), and the rules and regulations thereunder in connection with the offering
and issuance of the Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Managing Underwriter may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Securities. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and either (i)
the out-of-pocket expenses of the Managing Underwriter, not to exceed the
$50,000 previously paid if the Managing Underwriter elects to terminate the
offering for any reason; or (ii) the out-of-pocket expenses of the Managing
Underwriter if the Company elects to terminate the offering for any reason. For
the purposes of this sub-section, the Managing Underwriter shall be deemed to
have assumed such expenses when they are billed or incurred, regardless of
whether such expenses have been paid. The Managing Underwriter shall not be
responsible for any expenses of the Company or others, or for any charges or
claims relative to the proposed public offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Definitive
Prospectus, or as thereafter amended or supplemented, as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Managing Underwriter during the period ending five (5) years from the
Effective Date, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all non-confidential documents, including annual reports,
periodic reports and financial statements, furnished to or filed with the
Commission under the Act and the 1934 Act; (iv) copies of each press release,
news item and article with respect to the Company's affairs released by the
Company; and (v) such other information as you may from time to time reasonably
request.
9
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
deliver to the Managing Underwriter as soon as it is practicable, but in no
event later than the first day of the sixteenth full calendar month following
the Effective Date, an earnings statement (which need not be audited) covering a
period of at least twelve consecutive months beginning with the Effective Date
of the Registration Statement, which shall satisfy the requirements of Section
11(a) of the Act or Rule 158 promulgated thereunder.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to and will have obtained approval for
the listing of the Shares on The Nasdaq SmallCap Market System, and will use its
best efforts to maintain such listing for at least seven (7) years from the date
of this Agreement.
(i) For a period of seven (7) years following the Effective Date, the
Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of the Company's fiscal years
and, within nine (9) months after the end of each of the Company's fiscal years
will provide the Company's stockholders with the audited financial statements of
the Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by the Act or the 1934.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Underwriter's
Warrant Agreement filed as an exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
warrants, options and Preferred Stock of the Company) as of the Effective Date
shall agree in writing, in a form satisfactory to the Managing Underwriter, not
to sell, transfer or otherwise dispose of any of such securities (or underlying
securities) of the Company for a period of twenty-four (24) months from the
Effective Date or any longer period required by the NASD, Nasdaq or any State,
without the written consent of the Managing Underwriter.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on each of the lives of Xx. Xxxx Xxxx and Xxxxx X. Xxxxxx, in an
amount of not less than $1,000,000 each, and will use its best efforts to
maintain such insurance for a period of at least five (5) years from the
Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and
10
such other manuals as the Managing Underwriter may designate, such listings to
contain the information required by such manuals and the Uniform Securities Act.
The Company hereby agrees to use its best efforts to maintain such listing for a
period of not less than five (5) years. The Company shall take such action as
may be reasonably requested by the Managing Underwriter to obtain a secondary
market trading exemption in such states as may be reasonably requested by the
Underwriters.
(q) During the one (1) year period commencing on the Closing Date, the
Company will not, without the prior written consent of the Managing Underwriter,
grant options or warrants to purchase the Company's Common Stock at a price less
than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Managing
Underwriter as a non-exclusive financial advisor to the Company for a period of
twelve (12) months commencing on the first day of the month following the
Company's receipt of the proceeds of this offering, at an aggregate fee of
$108,000, all of which shall be payable to the Managing Underwriter on the
Closing Date. The financial advisory agreement will provide that the Managing
Underwriter shall, at the Company's request, provide advice and consulting
services to the Company concerning potential merger and acquisition proposals
and the obtaining of short or long-term financing for the Company, whether by
public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain UMB Bank, N.A. as the transfer agent for
the securities of the Company, or such other transfer agent as you may agree to
in writing. In addition, the Company shall direct such transfer agent to furnish
the Managing Underwriter with daily transfer sheets as to each of the Company's
securities as prepared by the Company's transfer agent and copies of lists of
stockholders as reasonably requested by the Managing Underwriter, for a five (5)
year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, and any other
depository of the Company's securities, to furnish special security position
reports and special DTC Tracking Reports to the Managing Underwriter on a daily
and weekly basis at the expense of the Company, for a five (5) year period from
the Effective Date. The DTC Tracking Reports will be furnished for the initial
two (2) month period from the Effective Date, after which time the Company's
obligation to furnish such tracking reports will be reviewed by the Company and
the Managing Underwriter.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Managing Underwriter shall designate and the Company may reasonably
agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with
11
the Company or associated with any of the Company's affiliates. The Managing
Underwriter shall have the opportunity to invite an observer to attend Board of
Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Managing Underwriter in a form satisfactory
to the Managing Underwriter, providing:
(1) that the Managing Underwriter will be paid a finder's fee,
of from five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
by the Managing Underwriter (including mergers, acquisitions, joint
ventures, and any other business for the Company introduced by the
Managing Underwriter) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Managing Underwriter introduced
the other party to the Company during a period ending five (5) years
from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Managing Underwriter
will be paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Managing Underwriter at a total cost not to exceed $15,000.
(aa) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the Managing
Underwriter a written opinion detailing those states in which the Shares of the
Company may be traded in non-issuer transactions under the Blue Sky laws of the
fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market
Trading Opinion shall be delivered to the Managing Underwriter on the Effective
Date, and the Company shall continue to update such opinion and deliver same to
the Managing Underwriter on a timely basis, but in any event at the beginning of
each fiscal quarter, for a five (5) year period, if required.
(ab) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Managing Underwriter or counsel to the Managing Underwriter.
4. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligation of the
several Underwriters to purchase and pay for the Securities which the several
Underwriters have agreed to purchase hereunder from the Company is subject, as
of the date hereof and as of the Closing Date and the Option Closing Date, to
the execution of this Agreement by the Managing Underwriter, to the continuing
accuracy of, and compliance with, the representations and warranties of the
Company herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall be threatened or to the knowledge of the Company contemplated by the
authorities of any such jurisdiction or shall have been issued and in effect;
(iv) any request for additional information on the part of the Commission or any
such authorities shall have been complied with to the satisfaction of the
Commission and any such authorities, and to the satisfaction of counsel to the
Underwriters; and (v) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Underwriters and the Underwriters did not
object thereto.
12
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any material subsidiary except as set forth
in or contemplated by the Registration Statement, (ii) there shall not have been
any material adverse change in the general affairs, business, properties,
condition (financial or otherwise), management, or results of operations of the
Company or any subsidiary, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement or Prospectus; (iii) neither the
Company nor any subsidiary shall have sustained any material interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall 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
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there shall not be pending
or, to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company or
any subsidiary, or any material action, suit, proceeding, inquiry, arbitration,
or investigation, which is likely to result in any material adverse change in
the condition (financial or other), business prospects, net worth, or properties
of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At the Closing Date, the Managing Underwriter shall have received
the opinion, together with copies of such opinion for each of the other several
Underwriters, dated as of the Closing Date, from Xxxx Swan & Xxxxxxxxxx, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriters, which in the aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capital of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company and other securities have not been
issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any preemptive rights or, to
such counsel's knowledge, other rights to subscribe for or to purchase
securities of the Company, nor, to such counsel's knowledge, are there
any restrictions upon the voting or transfer of any of the securities
of the Company, except as disclosed in the Prospectus; the Common
Stock, the Shares and the securities contained in the Underwriter's
Warrant Agreement conform to the respective descriptions thereof
contained in the Prospectus; the Common Stock, the Shares and the
securities contained in the Underwriter's Warrant Agreement, have
13
been duly authorized and, when issued, delivered and paid for, will be
duly authorized, validly issued, fully paid, non-assessable, free of
pre-emptive rights and no personal liability will attach to the
ownership thereof; all prior sales by the Company of the Company's
securities complied in all material respects with, or were exempt from,
applicable federal and state securities laws; no shareholders of the
Company have any rescission rights against the Company with respect to
the Company's securities; a sufficient number of shares of Common Stock
has been reserved for issuance upon exercise of the Underwriter
Warrants, and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement, the
Financial Advisory Agreement, and the M/A Agreement have been duly and
validly authorized, executed and delivered by the Company and, assuming
the due authorization, execution and delivery of this Agreement by the
Managing Underwriter, are the valid and legally binding obligations of
the Company, enforceable in accordance with their terms, except (a) as
such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to
time in effect which effect creditors' rights generally; and (b) no
opinion is expressed as to the enforceability of the indemnity
provisions or the contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company and the Shares are in valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or threatened any
material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the
officers of directors of the Company or any subsidiary, nor any
material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Financial Advisory Agreement, and
the M/A Agreement, and the incurrence of the obligations herein and
therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a violation of, or constitute
a default under (a) the Articles of Incorporation or By-Laws of the
Company and each subsidiary; (b) to the best of such counsel's
knowledge, any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the
Company or any subsidiary is a party or by which it or any of its
material properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality or court,
domestic or foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Underwriter's Warrants or the Securities underlying the
Underwriter's Warrants, other than registrations or
14
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriters or counsel for the Underwriters shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Underwriters and they are justified in
relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You and the several Underwriters shall have received on the Closing
Date, a certificate dated as of the Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company and such other officers
of the Company as the Underwriters may reasonably request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in
effect and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to
their knowledge, threatened against the Company or any subsidiary or
any officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement
of any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects, and the
Company has complied with all of its agreements herein contained;
15
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and other tax return or the payment of
any federal, state or other taxes; they know of no proposed
redetermination or re-assessment of taxes, adverse to the Company or
any subsidiary, and the Company and each subsidiary has paid or
provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement,
the Financial Advisory Agreement, and the M/A Agreement, the
consummation of the transactions therein contemplated, and the
fulfillment of the terms thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, the Company's
Articles of Incorporation or By-Laws, any indenture, mortgage, lease,
deed of trust, bank loan or credit agreement or any other material
agreement or undertaking of the Company or any subsidiary including, by
way of specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any
material right and/or obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein or contemplated thereby, neither the
Company nor any subsidiary has, prior to the Closing Date, either (i)
issued any securities or incurred any material liability or obligation,
direct or contingent, for borrowed money, or (ii) entered into any
material transaction other than in the ordinary course of business. The
Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in
the Company, and all information contained therein is true and
accurate; and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
any of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer
16
in securities, or as an affiliated person, director
or employee of any investment company, bank, savings
and loan association or insurance company, or
engaging in or continuing any conduct or practice in
connection with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from Murrell, Hall, XxXxxxxx &
Co., PLLP, independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on the
Closing Date, in form and substance satisfactory to the Underwriters, stating
that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules included in
the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their attention
as a result of the foregoing inquiries and procedures that causes them
to believe that:
(a) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the
17
Underwriters may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the most
recent financial statements in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus
discloses have occurred or will occur;
(b) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to such specified date there was any material
decrease in revenues or in the total or per share amounts of
income or loss before extraordinary items or net income or
loss, or any other material change in such other items
appearing in the Company's financial statements as to which
the Underwriters may request advice, in each case as compared
with the fiscal period ended as of the date of the most recent
financial statements in the Prospectus, except in each case
for increases, changes or decreases which the Prospectus
discloses have occurred or will occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented
in conformity with generally accepted accounting principles
and practices on a basis substantially consistent with the
audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letters and found them to be in agreement; and
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls. Such letters shall also set
forth such other information as may be requested by counsel for the
Underwriters.
Any changes, increases or decreases in the items set forth in such letters
which, in the judgment of the several Underwriters, are materially adverse with
respect to the financial position or results of operations of the Company shall
be deemed to constitute a failure of the Company to comply with the conditions
of the obligations to the several Underwriters hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or at its option, the Managing
Underwriter, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Xxxx Swan & Xxxxxxxxxx,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
18
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option Closing Date, in
form and substance satisfactory to counsel to the Underwriters,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Murrell, Hall, XxXxxxxx & Co., PLLP, independent auditors to the
Company, dated the Option Closing Date and addressed to the several
Underwriters confirming the information in their letter referred to in
Section 4(g) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and
the Underwriters and counsel to the Underwriters shall have been
furnished with all such documents, certificates, and opinions as you
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Shares and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Managing Underwriter of any NASD affiliations of any of its officers, directors,
or stockholders of the Company's securities or their affiliates in accordance
with Section 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriters, a written Secondary Market Trading Opinion
detailing those states in which the Shares may be traded in non-issuer
transactions under the Blue Sky laws of the fifty (50) states after the
Effective Date, in accordance with Section 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriters, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-section.
(l) Prior to the Effective Date, the Managing Underwriter shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the several Underwriters under this Agreement may be canceled at, or at any
time prior to, the Closing Date and/or the Option Closing Date by the Managing
Underwriter notifying the Company of such cancellation in writing or by
facsimile at or prior to the applicable Closing Date or Option Closing Date. Any
such cancellation shall be without liability of the several Underwriters to the
Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Managing Underwriter
may agree in writing; and
19
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled after
the Closing Date and prior to the Option Closing Date, then only the obligation
of the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless each
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriters specifically for use in
the Registration Statement or any amendment or supplement thereof or any Blue
Sky Application or any Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the Company
shall have no liability under this Section if such untrue statement or omission
made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus
is not delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of the persons who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, signer of the Registration Statement, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statements or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by you or by any Underwriter
through you specifically for use in such Registration Statement or Prospectus.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to the
person or persons alleging the liability upon which indemnification is being
sought through no fault of the Underwriter. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, promptly notify in writing the indemnifying party of the commencement
thereof; but the omission so to
20
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party other than indemnification under this Section.
In case any such action is brought against any indemnified party, and it
promptly notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Managing Underwriter, it is advisable for the Managing Underwriter or such
Underwriters or controlling persons to be represented by separate counsel (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Underwriters or such controlling person). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnifying party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnifying and
indemnified parties.
7. CONTRIBUTION.
(a) If the indemnification provided for in this Agreement is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand, and by
the Underwriters on the other hand, from the Offering, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above, but also the relative fault of the Company on the one
hand, and of the Underwriters on the other hand, in connection with any
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations;
provided, that any contribution hereunder by the Underwriters shall not exceed
the amount of consideration received by the Underwriters hereunder. The relative
benefits received by the Company on the one hand, and by the Underwriters on the
other hand, shall be deemed to be in the same proportion as the total proceeds
from the Offering (net of sales commissions, and the non-accountable expense
allowance, but before deducting expenses) received by the Company, bear to the
commissions and the non-accountable expense allowance received by the
Underwriters. The relative fault of the Company on the one hand, and of the
Underwriters on the other hand, will be determined with reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Company, and its relative intent, knowledge, access or information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in this paragraph.
(b) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit, or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party ("Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission to so notify
the Contributing Party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a Contributing Party or its representative of the commencement thereof within
the aforesaid fifteen (15) days, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any party
seeking contribution
21
on account of any settlement of any claim, action or proceeding which was
effected by such party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the prior written consent of such Contributing Party. The contribution
provisions contained in this Section are intended to supersede, to the extent
permitted by law, any right to contribution under the Act, the Exchange Act or
otherwise available.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Company in
their capacity as Blue Sky counsel to the Company in connection with the filing
of applications to register the Securities under the state securities or blue
sky laws; the cost of printing and furnishing to the several Underwriters copies
of the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers Agreement, the Agreement Among Underwriters,
Underwriter's Questionnaire, Underwriter's Power of Attorney, and the Blue Sky
Memorandum; the cost of printing the certificates evidencing the securities
comprising the Securities; the cost of preparing and delivering to the Managing
Underwriter and its counsel bound volumes containing copies of all documents and
appropriate correspondence filed with or received from the Commission and the
NASD and all closing documents; and the fees and disbursements of the transfer
agent for the Company's securities. The Company shall pay any and all taxes
(including any original issue, transfer, franchise, capital stock or other tax
imposed by any jurisdiction) on sales to the Underwriters hereunder. The Company
will also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus. The Company
shall also engage the Company's counsel to provide the Managing Underwriter with
a written Secondary Market Trading Opinion in accordance with Section 3(ab) and
4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Managing Underwriter a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the Managing
Underwriter at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Managing Underwriter or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Managing Underwriter and the other Underwriters against any
losses, claims, damages or liabilities, joint or several, which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees, to which the Managing Underwriter or
such other Underwriter may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the claim of any person (other than an employee of the party claiming
indemnity) or entity that he or it is entitled to a finder's fee in connection
with the proposed offering by reason of such person's or entity's influence or
prior contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any of the Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
22
(b) If any Underwriter or Underwriters so default and the agreed number
of Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the time for delivery
of the Securities shall be extended to the next business day to allow the
several Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another Underwriter or Underwriters satisfactory
to the Company. If no such Underwriter or Underwriters shall have been
substituted as aforesaid, within such twenty-four period, the time of delivery
of the Securities may, at the option of the Company, be again extended to the
next following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
Underwriter or Underwriters to purchase the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted Underwriters to take up
the Securities of the defaulting Underwriter or Underwriters as provided in this
Section, (i) the Company or the Representative shall have the right to postpone
the time of delivery for a period of not more than seven (7) business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another Underwriter
or Underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another Underwriter or Underwriters for such Securities as aforesaid,
then this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the Effective Date of the
Registration Statement as you in your discretion shall first commence the public
offering of any of the Securities. The time of the public offering shall mean
the time after the effectiveness of the Registration Statement when the
Securities are first generally offered by you to the Selected Dealers and/or the
public. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, 15,
16 and 17 shall remain in effect notwithstanding such termination.
11. TERMINATION. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason
23
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange or the American Stock Exchange having
been suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by Federal or New York
or Florida state authorities; (v) an outbreak of major international hostilities
or other national or international calamity having occurred; (vi) the passage by
the Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is likely to have a material
adverse impact on the business, financial condition or financial statements of
the Company or the market for the Securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received by
the Company of the threat of any such proceeding or action, which could
materially adversely affect the Company; (x) except as contemplated by the
Prospectus, the Company is merged or consolidated into or acquired by another
company or group or there exists a binding legal commitment for the foregoing or
any other material change of ownership or control occurs; or (xi) the Company
shall not have complied in all material respects with any term, condition or
provisions on its part to be performed, complied with or fulfilled (including
but not limited to those set forth in this Agreement) within the respective
times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. UNDERWRITER'S WARRANT AGREEMENT. At the Closing Date, the Company
will issue to the Managing Underwriter and/or persons related to the Managing
Underwriter, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Underwriter's Warrant Agreement annexed as
an exhibit to the Registration Statement, Underwriter Warrants to purchase up to
an aggregate of 100,000 Shares, in such denominations as the Managing
Underwriter shall designate. In the event of conflict in the terms of this
Agreement and the Underwriter's Warrant Agreement, the language of the form of
Underwriter's Warrant Agreement shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. NOTICE. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telefaxed,
and confirmed:
If to the Underwriters: Xxxxxx X. Xxxx, President
Xxxxxx Xxxxx Securities, Inc.
0000 Xxxx Xxxxxx Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
Copy to: Xxxxx X. Xxxxxx, P.A.
0000 Xxxxxx Xxxx
Xxxxx 000, Xxxx Xxxxx
Xxxx Xxxxx, Xxxxxxx 00000
24
If to the Company: Xxxxx X. Xxxxxx
Chief Executive Officer
Precis Smart Card Systems, Inc.
00000 Xxxxx Xxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Copy to: Xxxxxxx X. Xxxx, Esq.
Xxxx Swan & Xxxxxxxxxx
2800 Oklahoma Tower
000 Xxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000-0000
15. PARTIES IN INTEREST. This Agreement herein set forth is made solely
for the benefit of the several Underwriters, the Company and, to the extent
expressed, the holders of the Underwriter Warrants, any person controlling the
Company or the Underwriters, and directors of the Company, nominees for director
(if any) named in the Prospectus, each person who has signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
the Securities, as such purchaser, from the several Underwriters. All of the
obligations of the Underwriters hereunder shall be several and not joint.
16. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
18. ENTIRE AGREEMENT. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral, of the parties hereto.
19. MANAGING UNDERWRITER AS UNDERWRITER. In the event the Managing
Underwriter acts as the sole Underwriter in connection with the underwriting of
the securities being offered pursuant to the Registration Statement, all
references to the Managing Underwriter in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Managing Underwriter shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Managing Underwriter
shall instead be received by the Underwriter; and (iii) the provisions of
section nine (9) of this Agreement shall not apply.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
PRECIS SMART CARD SYSTEMS, INC.
25
BY:
----------------------------
Xxxxx X. Xxxxxx
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
XXXXXX XXXXX SECURITIES, INC.
BY:
----------------------------
Xxxxxx X. Xxxx, President
For itself and as Managing
Underwriter for several Underwriters
26
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
UNDERWRITER SHARES
Xxxxxx Xxxxx Securities, Inc. . . . . . . . . . .
Xxxxxxx Xxxxxxx & Associates. . . . . . . . . . .
---------
1,000,000
27
