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HOMEOWNERS FINANCIAL CORP.
1,270,000 Shares of Common Stock
and 1,270,000 Redeemable
Class A Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
________________, 1996
Toluca Pacific Securities Corporation
0000 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000
Dear Sirs:
Homeowners Financial Corp., a Delaware corporation (the "Company"),
hereby confirms its agreement with Toluca Pacific Securities Corporation (the
"Underwriter") as follows:
1. Description of Units.
The Company agrees to retain the Underwriter as the exclusive
agent of the Company to publicly offer and sell, pursuant to the terms of this
Underwriting Agreement, an aggregate of 1,270,000 shares of common stock, $.01
par value per share ("Common Stock"), and 1,270,000 redeemable class A common
stock purchase warrants ("Class A Warrants" or the "Warrants"). Each Class A
Warrant shall entitle the holder to purchase one share of Common Stock at $____,
subject to adjustment. The Common Stock and Class A Warrants shall be offered on
a "best efforts, all of none" basis with respect to the first 550,000 shares of
Common Stock, and a "best efforts" basis with respect to the remaining 720,000
shares of Common Stock and 1,270,000 Class A Warrants. The offering of Common
Stock and Class A Warrants contemplated hereby may sometimes be referred to as
the "Offering."
(a) The Warrants.
The Class A Warrants are exercisable for a five year
period commencing on the effective date of the Registration Statement, as
defined in Paragraph 2(a) (the "Effective Date") until their expiration five
years after the Effective Date, subject to prior redemption by the Company. The
Class A Warrants will be exercisable at $4.50 per share and expire on
__________, 2001. The shares of Common Stock issuable upon the exercise of the
Warrants are hereinafter referred to as the "Warrant Shares."
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During the exercise period of the Warrants, the
Warrants will be redeemable at a price of $.15 per Warrant, upon prior written
notice of not less than 30 days after 15 consecutive trading days ending on the
tenth day prior to the date on which the Company gives notice of redemption on
which the Common Stock maintains a per share closing high bid price (or closing
sales price if principally traded on an exchange) at least equal to $7.50 per
share, and subject to the right of the holder to exercise his purchase rights
thereunder until redemption.
(c) Underwriter's Warrants.
At the closing of the sale referred to in Section 4,
the Company will sell to the Underwriter, for a total purchase price of $10.00,
(i) warrants ("Underwriter's Share Warrants") to purchase 1 Share for every 10
Shares actually sold at a price equal to $ per Share purchased, and (ii)
warrants ("Underwriter's Warrant Warrants") to purchase 1 Warrant for every 10
Warrants actually sold at a price equal to $ per Warrant purchased. The
Underwriter's Share Warrants and the Underwriter's Warrant Warrants shall be
non-exercisable and non-transferable other than to (i) officers of the
Underwriter, and (ii) members of the selling group and their officers or
partners, for a period of 12 months following the Effective Date. Thereafter,
they are exercisable and transferable for a period of four years. If the
Underwriter's Share Warrants and the Underwriter's Warrant Warrants are not
exercised during their term, they shall, by their terms, automatically expire.
The Underwriter's Share Warrants and Underwriter's Warrant Warrants, and the
Warrants and Common Stock issuable thereunder, shall be registered for sale to
the public and shall be included in the Registration Statement filed in
connection with the Offering.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File No.
33-94882), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Common Stock and Warrants under the
Securities Act of 1933 (the "Act"). The Company will file further amendments to
said registration statement in the form to be delivered to you and will not,
before the registration statement becomes effective, file any other amendment
thereto to which you shall have objected in writing after having been furnished
with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, exhibits and all other documents filed as a part thereof or
incorporated therein), is hereinafter called the
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"Registration Statement" and the prospectus, in the form filed with the
Commission pursuant to Rule 424(b) of the General Rules and Regulations of the
Commission under the Act (the "Regulations") or, if no such filing is made, the
definitive prospectus used in the Offering, is hereinafter called the
"Prospectus." The term "Preliminary Prospectus" shall mean any Prospectus
included in the Registration Statement prior to the time the same is declared
effective by the Commission. The Company has delivered to you copies of each
Preliminary Prospectus as filed with the Commission and has consented to the use
of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, subject to the provisions set forth below.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto including the Closing Date
(hereinafter defined) and for such longer periods as a Prospectus is required to
be delivered in connection with the sale of the Common Stock and Warrants by the
Underwriter, the Registration Statement and Prospectus, and any amendment
thereof or supplement thereto, will contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations,
and will in all material respects conform to the requirements of the Act and the
Regulations and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished to the Company by
you, for use in connection with the preparation of the Registration Statement or
Prospectus, or in any amendment thereof or supplement thereto. It is understood
that (i) the statements set forth under the heading "Underwriting" in the
Prospectus with respect to the amounts of the selling concession and
reallowance; and (ii) the identity of counsel to the Underwriter under the
heading "Legal Matters" constitute the only information furnished in writing by
or on behalf of the Underwriter for use in connection with the preparation of
the Registration Statement and Prospectus.
(d) The Company and each of its subsidiaries, if any,
are, and at the Closing Date will be, corporations duly organized,
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validly existing and in good standing under the laws of their respective
jurisdictions of incorporation. The Company and each of its subsidiaries are
duly qualified or licensed and in good standing as foreign corporations in each
jurisdiction in which their ownership or leasing of any properties or the
character of their operations requires such qualification or licensing, except
those jurisdictions in which the failure to so qualify would not have a material
adverse effect on the Company. The Company and each of its subsidiaries have all
requisite corporate powers and authority, and the Company, its subsidiaries, and
its employees have all material and necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own or lease their properties and conduct their business
as is described in the Prospectus and the Company and its subsidiaries are doing
business and have been doing business during the period described in the
Registration Statement in compliance with all such material authorizations,
approvals, orders, licenses, certificates and permits and all material federal,
state and local laws, rules and regulations concerning the business in which the
Company and its subsidiaries are engaged. The disclosures in the Registration
Statement concerning the effects of federal, state and local regulation on the
Company's business and that of its subsidiaries, as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company and its subsidiaries have all necessary corporate
power and authority to enter into this Agreement and carry out the provisions
and conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained or will have been obtained
prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and
executed by the Company. The Common Stock and the Warrants, the shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares"), the
Underwriter's Share Warrants and the Underwriter's Warrant Warrants to be issued
and sold by the Company pursuant to this Agreement, the Common Stock and
Warrants issuable upon exercise of the Underwriter's Share Warrants and the
Underwriter's Warrant Warrants and payment therefor, and the Warrant Shares,
have been duly authorized (and, in the case of the Common Stock and the Warrant
Shares, have been duly reserved for issuance) and, when issued and paid for in
accordance with this Agreement (and, in the case of the Warrant Shares, upon
exercise of the Warrants and payment to the Company of the exercise price
therefor), the Common Stock and Warrant Shares will be validly issued, fully
paid and non-assessable; the Common Stock, Warrants, Warrant Shares,
Underwriter's Share Warrants, Underwriter's Warrant Warrants and Underwriter's
Warrants Shares are not and will not be subject to the preemptive rights of any
stockholder of the Company and conform, and at all times up to and including
their issuance will conform, in all material respects to all statements with
regard thereto contained in the Registration Statement and
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Prospectus; and all corporate action required to be taken for the authorization,
issuance and sale of the Common Stock, Warrants, Warrant Shares and
Underwriter's Share Warrants and the Underwriter's Warrant Warrants has been
taken, and this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of securities
called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or Bylaws of the Company or of any evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties is bound, or
under any applicable law, rule, regulation, judgment, order or decree of any
government, professional advisory body, administrative agency or court, domestic
or foreign, having jurisdiction over the Company or its properties, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
properties or assets of the Company; and no consent, approval, authorization or
order of any court or governmental or other regulatory agency or body is
required for the consummation by the Company of the transactions on its part
herein contemplated, except as may be required under the Act, the Securities
Exchange Act of 1934 (the "Exchange Act") or under state securities or blue sky
laws.
(g) Subsequent to the date hereof, and prior to the Closing
Date, the Company will not issue or acquire any equity securities, except that
the Company may make short-term investments as contemplated in the "Use of
Proceeds" section of the Prospectus and except that the Company may issue Common
Stock in satisfaction of outstanding options and warrants, as described in the
Registration Statement. Except as described in the Registration Statement, the
Company does not have, and at the Closing Date will not have, outstanding any
options to purchase or rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell
shares of its Preferred Stock or Common Stock, or any such options, warrants,
convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
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(i) Except as set forth in the Registration Statement, the
Company is not, and at the Closing Date will not be, in violation or breach of,
or in default of, the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note, loan or credit
agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company may be bound or to which any of the property or
assets of the Company is subject, which default or defaults, singularly or in
the aggregate, would have a material adverse effect on the Company. The Company
has not and will not have taken any action in material violation of the
provisions of the Articles of Incorporation or the Bylaws of the Company or any
statute or any order, rule or regulation of any court or regulatory authority or
governmental body having jurisdiction over or application to the Company, its
business or properties.
(j) The Company has, and at the Closing Date will have, good
and marketable title to all properties and assets described in the Prospectus as
owned by it, free and clear of all liens, charges, encumbrances, claims,
security interests, restrictions and defects of any material nature whatsoever,
except such as are described or referred to in the Prospectus and liens for
taxes not yet due and payable. All of the material leases and subleases under
which the Company is the lessor or sublessor of properties or assets or under
which the Company holds properties or assets as lessee as described in the
Prospectus are, and will on the Closing Date will be in full force and effect,
and except as described in the Prospectus, the Company is not and will not be in
default in respect to any of the terms or provisions of any of such leases or
subleases (which would have a material adverse effect on the business, business
prospects or operations of the Company taken as a whole), and no claim has been
asserted by anyone adverse to rights of the Company as lessor, sublessor, lessee
or sublessee under any of the leases or subleases mentioned above, or affecting
or questioning the right of the Company to continue 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 owns or leases all
such properties as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted set forth in
the Prospectus.
(k) The authorized, issued and outstanding capital stock of
the Company as of June 30, 1996 and as of the date of the Prospectus is as set
forth in the Prospectus under "Capitalization;" the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; 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
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shares of capital stock of the Company have been granted or entered into by the
Company; and the Common Stock, the Warrants and all such options and warrants
conform, in all material respects, to all statements relating thereto contained
in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does
not own or control any capital stock or securities of, or have any proprietary
interest in, or otherwise participate in, any other corporation, partnership,
joint venture, firm, association or business organization; provided, however,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the Common Stock and Warrants sold by the Company
in certificates of deposits, savings deposits, short-term obligations of the
United States Government, money market instruments or other short-term
investments.
(m) Xxxxxxx Xxxxxxx & Company has reported on the financial
statements of the Company for the years ended September 30, 1995 and the nine
months ended June 30, 1996, all of which are filed with the Commission as a part
of the Registration Statement, and are independent accountants as required by
the Act and the Regulations.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; or (ii) entered into any transaction other than
in the ordinary course of business; or (iii) declared or paid any dividend or
made any other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending
or to the knowledge of the Company threatened against, or involving the
properties or business of the Company which might materially and adversely
affect the value, assets or the operation of the properties or the business of
the Company, except as referred to in the Prospectus. Further, except as
referred to in the Prospectus, there are no actions, suits or proceedings
related to environmental matters or related to discrimination on the basis of
age, sex, religion or race, nor is the Company charged with or, to its
knowledge, under investigation with respect to any violation of any statutes or
regulations of any regulatory authority having jurisdiction over its business or
operations, and no labor disturbances by the employees of the Company exist or,
to the knowledge of the Company, have been threatened.
(p) The Company has, and at the Closing Date will have, filed
all necessary federal, state and foreign income and franchise tax returns or has
requested extensions thereof (except in any case
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where the failure to so file would not have a material adverse effect on the
Company), and has paid all taxes which it believes in good faith were required
to be paid by it, except for any such tax that currently is being contested in
good faith or as described in the Prospectus.
(q) The Company has not at any time (i) made any contribution
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, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets, or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date all transfer or other taxes, if any
(other than income tax), which are required to be paid, and are due and payable,
in connection with the sale and transfer of the Common Stock and Warrants by the
Company to the Underwriter, will have been fully paid or provided for by the
Company as the case may be, and all laws imposing such taxes will have been
fully complied with.
(t) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company intends to apply the proceeds from the sale of
the Common Stock and Warrants sold by it for the purposes and in the manner set
forth in the Registration Statement and Prospectus under the heading "Use of
Proceeds."
(v) The Company owns or possesses the requisite licenses or
rights to use all material trademarks, service marks, service names, trade names
and patents necessary to conduct its business. Except as set forth in the
Prospectus, there is no claim or action by any person pertaining to or
proceeding pending, or to the knowledge of the Company, threatened, which
challenges the exclusive right of the Company with respect to any material
trademarks, service marks, service names, trade names and patents used in the
conduct of the Company's business.
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(w) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified authorizations;
(2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(y) The Company has not taken and at the Closing Date will not
have taken, 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 the Common Stock or the
Warrants to facilitate the sale or resale of such securities.
(aa) There are no claims for services in the nature of a
finder's origination fee with respect to the sale of the Common Stock and
Warrants hereunder, except as set forth in the Prospectus.
(bb) No right of first refusal exists with respect to any sale
of securities by the Company, except as contained in this agreement.
(cc) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to you was, when made, or as of the Closing
Date will be, materially inaccurate, untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to the Underwriter, without charge, two
fully signed copies of the Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, without
charge, as many copies as the Underwriter has requested of each Preliminary
Prospectus heretofore filed with the Commission in accordance with and pursuant
to the Commission's Rule 430 under the
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Act, and will deliver to the Underwriter and to any Selected Dealer (as
hereinafter defined), without charge, on the Effective Date of the Registration
Statement, and thereafter from time to time during such reasonable period as the
Underwriter may request if, in the opinion of counsel for the Underwriter, the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or a dealer, as many copies of the Prospectus (and, in the event of
any amendment of or supplement to the Prospectus, of such amended or
supplemented Prospectus) as the Underwriter may request for the purposes
contemplated by the Act. The Company will take all necessary actions to furnish
to whomever the Underwriter directs, when and as requested by the Underwriter,
all necessary documents, exhibits, information, applications, instruments and
papers as may be reasonably required or, in the opinion of counsel to the
Underwriter are desirable in order to permit or facilitate the sale of the
Common Stock and Warrants.
(c) The Company has authorized the Underwriter to use, and
make available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by the Underwriter in
connection with the distribution of the Common Stock and Warrants (the "Selected
Dealers") to be purchased by the Underwriter and all dealers to whom any of such
Common Stock and Warrants may be sold by the Underwriter or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented, in
connection with the sale of the Common Stock and Warrants in accordance with the
applicable provisions of the Act, the applicable Regulations and applicable
state law, until completion of the distribution of the Common Stock and Warrants
and for such longer period as the Underwriter may request if the Prospectus is
required under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Common Stock and Warrants by the
Underwriter or the Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceedings for that purpose; (iii) of the suspension of the
qualification of the Common Stock and Warrants and the Underwriter's Share
Warrants and the Underwriter's Warrant Warrants, or underlying securities, for
offering or sale in any jurisdiction or of the initiating, or the threatening,
of any proceeding for that purpose; and (iv) of the receipt of any comments from
the Commission. If the Commission shall enter a stop order at any time, the
Company will make every reasonable effort to obtain the lifting of such order at
the earliest possible moment.
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(e) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements imposed
upon it by the Act and the Exchange Act, as now and hereafter amended and by the
Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Common Stock and Warrants in
accordance with the provisions hereof and the Prospectus. If at any time when a
prospectus relating to the Common Stock and Warrants is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company and counsel for the Underwriter, the
Prospectus as then amended or supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act and will
furnish to the Underwriter copies thereof.
(f) The Company will endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Common Stock and Warrants for offering and sale under
the securities laws or blue sky laws of such jurisdictions as the Underwriter
may reasonably designate. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, file and make such statements or reports
at such times as are or may reasonably be required by the laws of such
jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings statement of the Company, which will be in reasonable
detail but which need not be audited, covering a period of at least twelve
months beginning after the Effective Date of the Registration Statement, which
earnings statements shall satisfy the requirements of Section 11(a) of the Act
and the Regulations as then in effect. The Company may discharge this obligation
in accordance with Rule 158 of the Regulations.
(h) During the five year period commencing on the Effective
Date of the Registration Statement, the Company will furnish to its stockholders
an annual report (including financial statements audited by its independent
public accountants), in reasonable detail, and, at its expense, furnish the
Underwriter if so requested (i) within 105 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its then
consolidated subsidiaries and a separate balance sheet of each
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subsidiary of the Company the accounts of which are not included in such
consolidated balance sheet as of the end of such fiscal year, and consolidated
statements of operations, stockholder's equity and cash flows of the Company and
its consolidated subsidiaries and separate statements of operations,
stockholder's equity and cash flows of each of the subsidiaries of the Company
the accounts of which are not included in such consolidated statements, for the
fiscal year then ended, all in reasonable detail and all certified by
independent accountants (within the meaning of the Act and the Regulations),
(ii) within 50 days after the end of each of the first three fiscal quarters of
each fiscal year, similar balance sheets as of the end of such fiscal quarter
and similar statements of operations, stockholder's equity and cash flows for
the fiscal quarter then ended, all in reasonable detail, and subject to year end
adjustment, all certified by the Company's principal financial officer or the
Company's principal accounting officer as having been prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
(iii) as soon as available, each report furnished to or filed with the
Commission or any securities exchange and each report and financial statement
furnished to the Company's shareholders generally and (iv) as soon as available,
such other material as the Underwriter may from time to time reasonably request
regarding the financial condition and operations of the Company and its
subsidiaries.
(i) For a period of three years from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to consult with the Company concerning the Company's
financial statements for each of the first three quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q (or 10Q-SB) quarterly report and the mailing of quarterly financial
information to stockholders. The purpose of such consultation is to obtain the
assistance and input of such accountants so that each of such financial
statements will comply in all material respects with the applicable accounting
requirements of the Exchange Act and the regulations promulgated thereunder and
will be fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the then
most recently audited financial statements of the Company. It is not the
intended purpose of this provision that such accountant's audit or review such
financial statements within the meaning of the AICPA's Statement on Auditing
Standards or that such accountants issue any report to the Company or the
Underwriter.
(j) Prior to the Closing Date, the Company will not issue,
directly or indirectly, without the Underwriter's prior written consent and that
of counsel for the Underwriter, which consent shall not be unreasonably
withheld, any press release or other public announcement or hold any press
conference with respect to the Company or its activities with respect to this
Offering, other than promotion of its products in the ordinary course of
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business; provided, however, that if a press release is required as a matter of
law or prudent corporate disclosure posture, the Company may make said press
release without consent.
(k) It will deliver to the Underwriter prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date of the Registration Statement and will not
file any such amendment or supplement to which the Underwriter shall reasonably
object after being furnished such copy.
(l) During the period of 120 days commencing on the date
hereof, the Company will not at any time take, directly or indirectly, any
action designed to, or which will constitute or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock and Warrants to facilitate the sale or resale of any of the Common
Stock and Warrants.
(m) The Company will not, without the Underwriter's prior
written consent, issue or sell, or contract to sell or otherwise dispose of any
of its securities, except sales of the Common Stock and Warrants (and the Common
Stock underlying the Warrants) pursuant to this Agreement and except for stock
options under the Company's stock option plan and outstanding warrants, or as
otherwise described in the Prospectus for a period of 120 days after the
commencement of the Offering.
(n) The Company will apply the net proceeds from the Offering
received by it in a manner consistent with the application described in "Use of
Proceeds" in the Prospectus.
(o) Counsel for the Company, the Company's accountants, and
the officers and directors of the Company will, respectively, furnish the
opinions, the letters and the certificates referred to in subsections of
Paragraph 9 hereof, and, in the event that the Company shall file any amendment
to the Registration Statement relating to the offering of the Common Stock and
Warrants or any amendment or supplement to the Prospectus relating to the
offering of the Common Stock and Warrants subsequent to the Effective Date of
the Registration Statement, whether pursuant to subsection (j) herein or
otherwise, such counsel, such accountants, such officers and directors will, at
the time of such filing or at such subsequent time as the Underwriter shall
specify, so long as securities being registered by such amendment or supplement
are being underwritten by the Underwriter, respectively, furnish to the
Underwriter such opinions, letters and certificates, each dated the date of its
delivery, of the same nature as the opinions, the letters and the certificates
referred to in said Paragraph 9, respectively, as the Underwriter may reasonably
request, or, if any such opinion or letter or certificate cannot be furnished by
reason of the fact that such counsel or such accountants or any such
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officer or director believes that the same would be inaccurate, such counsel or
such accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(p) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(q) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued Shares which are issuable
upon exercise of the Warrants and issuable upon exercise of the Underwriter's
Share Warrants and Underwriter's Warrant Warrants (including the underlying
securities) outstanding from time to time.
(r) Following the Effective Date and from time to time
thereafter, so long as the Warrants are outstanding, the Company will timely
prepare and file at its sole cost and expense one or more post-effective
amendments to the Registration Statement or a new registration statement as
required by law as will permit Warrant holders to be furnished with a current
prospectus in the event Warrants are exercised, and to use its best efforts and
due diligence to have same be declared effective. Such post-effective amendments
or new registration statements shall also register the Underwriter's Share
Warrants and Underwriter's Warrant Warrants and all the securities underlying
such Underwriter's Share Warrants and Underwriter's Warrant Warrants as provided
in the Underwriter's Share Warrants and Underwriters Warrant Warrant's. The
Company will deliver a draft of each such post-effective amendment or new
registration statement to the Underwriter at least ten days prior to the filing
of such post-effective amendment or registration statement.
(s) Following the Effective Date and from time to time
thereafter so long as any of the Warrants remain outstanding, the Company will
timely deliver and supply to its warrant agent sufficient copies of the
Company's current Prospectus, as will enable such warrant agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(t) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent certified
public accountants acceptable to the Underwriter in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto. Notwithstanding the foregoing, Xxxxxxx Xxxxxxx & Company, or any
accounting firm of national recognition shall be acceptable to the Underwriter.
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(u) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a warrant agent for the Warrants, who shall be
reasonably acceptable to the Underwriter.
(v) INTENTIONALLY LEFT BLANK.
(w) Commencing on the Effective Date, the Company shall have
entered into a mergers and acquisitions agreement (the "Mergers and Acquisitions
Agreement") with the Underwriter in form reasonably satisfactory to the
Underwriter.
(x) The Common Stock and Warrants shall be listed on the
NASDAQ system not later than the Closing Date. After the Closing Date, the
Company will effect and use its best efforts to maintain such NASDAQ listing
(unless the Company is acquired or is listed on either the New York Stock
Exchange or American Stock Exchange) for at least five years from the date of
this Agreement.
(y) The Company has applied for listing in Standard and Poors
Corporation Reports and shall use its best efforts to have the Company included
in such publications for at least five years after the Effective Date.
(z) The Company agrees not to file a registration statement on
Form S-8 or any similar form currently in effect or which may be hereafter
adopted pursuant to the Act, during the twenty-four months following the
Effective Date without prior written consent of the Underwriter.
(aa) The Company agrees not to effect any sales of Common
Stock at prices below the Exercise Price of the Class A Warrants, during the
twenty-four months following the Effective Date without prior written approval
of the Underwriter, which consent shall not be unreasonably withheld.
4. Appointment of Agent to Sell the Units.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warrants and agreements herein contained,
the Company hereby appoints the Underwriter as its exclusive agent for a period
of 120 business days from the Effective Date, subject to an extension by mutual
agreement of the Company and the Underwriter for an additional period not to
exceed 90 business days, to sell the Common Stock and Class A Warrants, and the
Underwriter, on the basis of the representations and warranties of the Company
herein, accepts such appointment on a "best efforts, all or none" basis with
respect to the first 550,000 shares of Common Stock, and a "best efforts" basis
with respect to the remaining 720,000 shares of Common Stock and 1,270,000 Class
A Warrants. The price at which the Underwriter shall sell the Common Stock and
Warrants to the public, as agent for the Company, shall be $__ per share of
Common Stock and $__
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per Class A Warrant, and the Company shall pay a commission of $ in respect of
such shares of Common Stock and Class A Warrants sold on behalf of the Company
by the Underwriter.
(b) Provided that 550,000 of the shares of Common Stock are
sold and paid for, the Company agrees to pay the Underwriter a non-accountable
expense allowance equal to 3% of the gross proceeds of the offering, subject to
Paragraph 8 herein.
(c) It is a condition of this Agreement that the Underwriter
shall use its best efforts to sell the shares of Common Stock and Class A
Warrants on behalf of the Company, that the Underwriter will instruct investors
to make all remittances payable to the Escrow Agent (hereinafter defined) and
that any and all funds received from such sale, without any deduction therefrom
whatsoever, including, but not limited to, any underwriting commission or any
dealer concession or otherwise, shall be forthwith deposited in a non-interest
bearing escrow account with Atlantic Bank of New York, as Escrow Agent, pursuant
to the terms of an Escrow Agreement entered into by and among the Company, the
Underwriter and the Escrow Agent, no later than 12 noon of the next business day
after receipt. In the event at least 550,000 shares of Common Stock are not sold
within 120 business days from the Effective Date, or following the expiration of
an additional 90 business days if so agreed in writing by the Company and the
Underwriter (with an additional ten business days to permit clearance of the
funds in escrow), all funds will be promptly refunded to the subscribers in
full, without deduction therefrom or interest thereon. During the period of
escrow, subscribers will not have the right to demand a refund of their
subscriptions. Certificates will be issued to purchasers only if proceeds from
the sale of at least 550,000 shares of Common Stock are released from escrow to
the Company or as directed by the Company. Until such time as the funds have
been released, such purchasers, if any, will be deemed subscribers and not
shareholders. The funds in escrow will be held for the benefit of those
subscribers until released to the Company and will not be subject to creditors
of the Company or for the expenses of this offering.
(d) In the event of the sale of at least 550,000 shares of
Common Stock such concessions from the public offering price may be allowed to
selected dealers and members of the National Association of Securities Dealers,
Inc. ("NASD") as you determine, within the limits set forth in the Prospectus.
5. Delivery and Payment.
(a) Delivery of the shares of Common Stock and Class A
Warrants against payment therefor shall take place at the offices of Toluca
Pacific Securities Corporation, (or at such other place as may be designated by
you) at 10:00 A.M., New York time, on such date after the Registration Statement
has become effective as the
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Underwriter shall designate, such time and date of payment for and delivery of
the shares of Common Stock and Class A Warrants being herein called the "Closing
Date".
(b) The Company will make the certificates for the shares of
Common Stock and Class A Warrants to be sold hereunder available to the
Underwriter for inspection at least two full business days prior to the Closing
Date at the offices of the Company's transfer agent. The certificates shall be
in such names and denominations as you may request, at least two full business
days prior to the Closing Date.
6. Offering the Common Stock and Class A Warrants On Behalf
of the Company.
It is understood that you propose to offer the Common Stock
and Class A Warrants to the public, solely as agent for the Company, upon the
terms and conditions set forth in the Registration Statement. The Underwriter
shall commence making such offer as agent for the Company on the Effective Date
or as soon thereafter as you deem advisable.
7. Selected Dealers.
The Underwriter may offer and sell the Common Stock and Class
A Warrants for the Company's account through Selected Dealers registered with
the NASD, as selected by the Underwriter in accordance with a form of Selected
Dealer Agreement, pursuant to which the Underwriter may allow a concession (out
of the underwriting commission in the event of the sale of al least 550,000
shares of Common Stock within the limits to be set forth in the Prospectus, but
all such sales by Selected Dealers shall be made by the Company, acting through
the Underwriter as agent, and not for the account of the Underwriter.
8. Payment of Expenses.
(a) Whether or not the sale of the Common Stock and Class A
Warrants is consummated, the Company will pay and bear all costs, fees, taxes
and expenses incident to the performance of this Agreement by the Company,
including but not limited to: (i) the issuance, offer, sale and delivery of the
Common Stock and Warrants, including all expenses and fees incident to the
preparation, printing, filing and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement (including all exhibits
thereto), each Preliminary Prospectus, the Prospectus, and amendments and
post-effective amendments thereof and supplements thereto, and this Agreement
and related documents, Preliminary and Final Blue Sky Memoranda, including the
cost of preparing and printing all copies thereof to be printed by a financial
printer selected by the Underwriter in quantities deemed necessary by the
Underwriter; (ii) the preparing and printing of
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one "Tombstone" advertisement in the Wall Street Journal (iii) the printing,
engraving, issuance and delivery of the Common Stock, Warrants, Warrant Shares,
Underwriter's Share Warrants and Underwriter's Warrant Warrants and the
securities underlying the Underwriter's Share Warrant and Underwriter's Warrant
Warrants, including any transfer or other taxes payable thereon in connection
with the original issuance thereof; (iv) the qualification of the Common Stock
and Warrants under the state or foreign securities or "Blue Sky" laws selected
by the Underwriter and the Company, and disbursements and reasonable fees of
counsel for the Underwriter in connection therewith plus the filing fees for
such states; (v) fees and disbursements of counsel and accountants for the
Company; (vi) the filing fees payable to the Commission and the National
Association of Securities Dealers, Inc. ("NASD"); (vii) any other expenses
incurred on behalf of the Company; (viii) any listing of the Common Stock and
Warrants on the NASDAQ; and (ix) the cost of preparing and delivering to the
Underwriter and its counsel three (3) bound volumes containing copies of all
documents and appropriate correspondence filed with or received from the
Commission and the NASD, and all closing documents.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 8(a) above, if 550,000 shares of Common Stock
are sold as provided by this Agreement, the Company shall reimburse the
Underwriter at closing for expenses incurred by the Underwriter in connection
with the Offering (for which the Underwriter need not make any accounting of),
in the amount of 3% of the price to the public of each share of Common Stock and
Class A Warrant sold in the Offering. This 3% non-accountable expense allowance
shall cover the fees of the Underwriter's legal counsel, but shall not include
any expenses for which the Company is responsible under Paragraph 8(a) above,
including the reasonable fees and disbursements of the Underwriter's legal
counsel with respect to Blue Sky matters. As of the date hereof, $30,000 has
been advanced by the Company to the Underwriter with respect to such
non-accountable expense allowance.
(c) If the transactions contemplated hereby are not
consummated for any reason whatsoever, or in the event that the Company does not
or cannot, for any reason whatsoever, expeditiously proceed with the Offering,
or if any of the representations, warranties or covenants contained in this
Agreement are not materially correct or cannot be complied with by the Company,
or business prospects or obligations of the Company are adversely affected and
the Company does not commence or continue with the Underwriting at any time or
terminates the proposed transaction prior to the closing of this Agreement, the
Company shall reimburse the Underwriter on an accountable basis for all
out-of-pocket expenses actually incurred in connection with the Underwriting,
this Agreement and all of the transactions hereby contemplated, including,
without limitation, the Underwriter's
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legal fees and expenses, up to an aggregate total of $30,000 less such sums
which have already been paid.
9. Conditions of Underwriter's Obligations.
The Obligations of the Underwriter to consummate the
transactions contemplated by this Agreement shall be subject to the continuing
accuracy of the representations and warranties of the Company contained herein
as of the date hereof and as of the Closing Date, the accuracy of the statements
of the Company and its officers and directors made pursuant to the provisions
hereof, and to the performance by the Company of its covenants and agreements
hereunder and under each certificate, opinion and document contemplated
hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
the Underwriter and, on or prior to the Closing Date, no stop order suspending
the effectiveness of the Registration Statement or the qualification or
registration of the Common Stock and Warrants under the securities laws of any
jurisdiction shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending or to the Underwriter's knowledge or
the knowledge of the Company, shall be contemplated by the Commission or any
such authorities of any jurisdiction and any request on the part of the
Commission or any such authorities for additional information shall have been
complied with to the reasonable satisfaction of the Commission or such
authorities and counsel to the Underwriter and after the date hereof no
amendment or supplement shall have been filed to the Registration Statement or
Prospectus without the Underwriter's prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement of
a fact which is material, or omit to state a fact which is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted against
the Company or any of its officers or directors and between such dates there
shall be no proceeding instituted or, to the Company's knowledge, threatened
against the Company or any of its officers or directors before or by any
federal, state or county commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would have a material adverse effect
on the Company or its business, business
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prospects or properties, or have a material adverse effect on the financial
condition or results of operations of the Company.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to the Underwriter shall be true and correct at the
Closing Date as if made at the Closing Date, and all covenants and agreements
contained herein and in each such certificate and document to be performed on
the part of the Company, and all conditions contained herein and in each such
certificate and document to be fulfilled or complied with by the Company at or
prior to the Closing Date shall be fulfilled or complied with.
(e) At the Closing Date, the Underwriter shall have received
the opinion of Xxxx X. Xxxx, P.C., counsel to the Company, dated such Closing
Date, addressed to the Underwriter and in form and substance satisfactory to
counsel to the Underwriter, and such counsel may rely upon certificates given to
them from such persons that they deem appropriate, to the effect that:
(i) The Company and each of its subsidiaries are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation, with full corporate
power and authority, and all necessary and material licenses, permits,
certifications, registrations, approvals, consents and franchises of and from
all government and regulatory officials and bodies to own or lease and operate
their properties and to conduct their business as described in the Registration
Statement. Such licenses, permits, certifications, registrations, approvals,
consents and franchises are in full force and effect and the Company is in
compliance therewith in all material respects. The Company and each of its
subsidiaries are duly qualified to do business as foreign corporations and are
in good standing in all jurisdictions wherein such qualification is necessary
and failure so to qualify could have a material adverse effect on the financial
condition, results of operations, business or properties of the Company and its
subsidiaries;
(ii) The Company has full corporate power and
authority to execute, deliver and perform the Underwriting Agreement, the
Mergers and Acquisitions Agreement, the Warrant Agreement and the Underwriter's
Share Warrants and the Underwriter's Warrant Warrants and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Underwriting Agreement, the Mergers and Acquisitions Agreement, the Warrant
Agreement and the Underwriter's Share Warrants and the Underwriter's Warrant
Warrants by the Company, the consummation by the Company of the transactions
therein contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Mergers and Acquisitions Agreement, the Warrant
Agreement and the Underwriter's Share Warrants and the
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Underwriter's Warrant Warrants have been duly authorized by all necessary
corporate action, and each of the Underwriting Agreement, the Mergers and
Acquisitions Agreement, the Warrant Agreement and the Underwriter's Share
Warrant and the Underwriter's Warrant Warrants has been duly executed and
delivered by the Company. Each of the Underwriting Agreement, the Mergers and
Acquisitions Agreement, the Warrant Agreement and the Underwriter's Share
Warrants and the Underwriter's Warrant Warrants is a valid and legally binding
obligation of the Company, enforceable in accordance with their respective
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable remedies
and except that enforceability of the indemnification provisions and the
contribution provisions set forth in the Underwriting Agreement may be limited
by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Mergers and Acquisitions Agreement, the Warrant
Agreement and the Underwriter's Share Warrants and the Underwriter's Warrant
Warrants by the Company, the consummation by the Company of the transactions
therein contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Mergers and Acquisitions Agreement, the Warrant
Agreement and the Underwriter's Share Warrants and the Underwriter's Warrant
Warrants do not, and will not, with or without the giving of notice or the lapse
of time, or both, (A) result in a violation of the certificate of incorporation
or by-laws of the Company or any of its subsidiaries, (B) to the best of such
counsel's knowledge, result in a breach of, or conflict with, any terms or
provisions of or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any indenture, mortgage, note,
contract, commitment or other material agreement or instrument to which the
Company or its subsidiaries is a party or by which the Company or its
subsidiaries or any of its properties or assets are or may be bound or affected;
(C) to the best of such counsel's knowledge violate any existing applicable law,
rule or regulation or judgment, order or decree known to such counsel of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or its subsidiaries or any of its properties or business; or (D) to the
best of such counsel's knowledge, have any material adverse effect on any
material permit, certification, registration, approval, consent, license or
franchise necessary for the Company or its subsidiaries to own or lease and
operate its properties and to conduct its business or the ability of the Company
or its subsidiaries to make use thereof;
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(iv) To the best of such counsel's knowledge, no
authorization, approval, consent, order, registration, license or permit of any
court or governmental agency or body (other than under the Act, the Regulations
and applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Common Stock, the Warrants,
the Warrant Shares, or the Underwriter's Share Warrants and the Underwriter's
Warrant Warrants, and the consummation by the Company of the transactions
contemplated by the Underwriting Agreement, the Mergers and Acquisitions
Agreement, the Warrant Agreement or the Underwriter's Share Warrants and the
Underwriter's Warrant Warrants;
(v) The Registration Statement was declared effective
under the Act on ______________, 1996; to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act;
(vi) The Registration Statement and the Prospectus,
as of the Effective Date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which such counsel
expresses no opinion), comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company;
(vii) The description in the Registration Statement
and the Prospectus of statutes, regulations, contracts and other documents have
been reviewed by such counsel, and, based upon such review, are accurate in all
material respects and present fairly the information required to be disclosed,
and there are no material statutes or regulations, or, to the best of such
counsel's knowledge, material contracts or documents, of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not so described or filed as
required.
None of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule or
regulation or judgment, order or decree known to such counsel of any United
States governmental agency or court having jurisdiction over the Company or its
subsidiaries or any of its assets or businesses;
(viii) The outstanding Common Stock, Options and
Warrants have been duly authorized and validly issued. The outstanding Common
stock is fully paid and nonassessable. None of the outstanding Common Stock has
been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Common Stock is subject to
personal
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liability solely by reason of being such a holder. The offers and sales of the
outstanding Common Stock were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Stock conforms to the
description thereof contained in the Registration Statement and Prospectus. To
the best of such counsel's knowledge, except as set forth in the Prospectus, no
holder of any of the Company's securities has any rights, "demand," "piggyback"
or otherwise, to have such securities registered under the Act;
(ix) The issuance and sale of the Common Stock, the
Warrants, the Warrant Shares and the Underwriter's Share Warrants and the
Underwriter's Warrant Warrants have been duly authorized and when issued and
paid for, will be validly issued, fully paid and nonassessable, and the holders
thereof will not be subject to personal liability solely by reason of being such
holders. The Common Stock is not subject to preemptive rights of any stockholder
of the Company. The certificates representing the securities are in proper legal
form;
(x) The issuance and sale of the Warrants, the
Warrant Shares and the Underwriter's Share Warrants and the Underwriter's
Warrant Warrants have been duly authorized and, when paid for, issued and
delivered pursuant to the terms of the Warrant Agreement, the Underwriting
Agreement or the Underwriter's Share Warrants and Underwriter's Warrant
Warrants, as the case may be, the Warrants, the Warrant Shares and the
Underwriter's Share Warrants and the Underwriter's Warrant Warrants will
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms, to issue and sell the Warrants, the Warrant Shares
and/or Underwriter's Share Warrants and Underwriter's Warrant Warrants. All
corporate action required to be taken for the authorization, issuance and sale
of the securities has been duly, validly and sufficiently taken. The Warrants,
the Warrant Shares and the Underwriter's Share Warrants and Underwriter's
Warrant Warrants conform to the descriptions thereof contained in the
Registration Statement and Prospectus;
(xi) The Underwriter will acquire good title to the
Common Stock and Warrants, free and clear of all liens, encumbrances, equities,
security interests and claims, provided that the Underwriter is a bona fide
purchaser as defined in Section 8-302 of the Uniform Commercial Code;
(xii) INTENTIONALLY LEFT BLANK.
(xiii) To the best of such counsel's knowledge, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or its
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subsidiaries, or involving their properties or business, other than as described
in the Prospectus, such description being accurate, and other than litigation
incident to the kind of business conducted by the Company which, individually
and in the aggregate, is not material, and, except as otherwise disclosed in the
Prospectus and the Registration Statement, the Company and its subsidiaries are
not in violation of any applicable federal and state laws, statutes and
regulations concerning its business;
(xiv) The Company has federal registrations of the
trademarks/servicemarks as set forth in the Registration Statement. To the best
of such counsel's knowledge, the Company and its subsidiaries have not infringed
and are not infringing with the rights of others with respect to such
intangibles; and, to the best of such counsel's knowledge, except as otherwise
disclosed in the Prospectus, the Company and its subsidiaries have not received
any notice of conflict with the asserted rights of others with respect to
intangibles which might, singly or in the aggregate, materially adversely affect
their business, results of operations or financial condition;
(xv) Such counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
otherwise set forth in the opinion), in the course of such reviews and
discussions and such other investigation as they deemed necessary, no facts came
to their attention which lead them to believe that (A) the Registration
Statement (except as to the financial statements and other financial data
contained therein, as to which such counsel expresses no opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which such counsel expresses no opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading;
(f) INTENTIONALLY LEFT BLANK.
(g) On or prior to the Closing Date, counsel for the
Underwriter shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review the
matters referred to in subparagraph (e) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
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(h) Prior to the Closing Date:
(i) There shall have been no material adverse change
in the condition or prospects or the business activities, financial or
otherwise, of the Company, other than as contemplated in the Registration
Statement, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside
the ordinary course of business, entered into by the Company from the latest
date as of which the financial condition of the Company is set forth in the
Registration Statement and Prospectus which is material to the Company, which is
either (x) required to be disclosed in the Prospectus or Registration Statement
and is not so disclosed, or (y) likely to have material adverse effect on the
Company's business or financial condition;
(iii) The Company shall not be in default under any
material provision of any instrument relating to any outstanding indebtedness;
(iv) No material amount of the assets of the Company
shall have been pledged, mortgaged or otherwise encumbered, except as set forth
in the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in
equity, shall have been pending or to its knowledge threatened against the
Company or affecting any of its properties or businesses before or by any court
or federal or state commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, operations, prospects or financial condition or income of the
Company, taken as a whole, except as set forth in the Registration Statement and
Prospectus; and
(vi) No stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of
the Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to the Underwriter was, when
originally made and is at the time such certificate is dated, true and correct.
(i) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, the Underwriter shall have received a
certificate of the Company signed by the Chief Executive Officer of the Company
and the principal financial officer of the Company, dated as of the Closing
Date, to the effect that the conditions set forth in subparagraph (g) above have
been satisfied
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and that, as of the Closing Date, the representations and warranties of the
Company set forth in Paragraph 2 herein and the statements in the Registration
Statement and Prospectus were and are true and correct. Any certificate signed
by any officer of the Company and delivered to the Underwriter or counsel for
the Underwriter shall be deemed a representation and warranty by the Company to
the Underwriter as to the statements made therein.
(j) At the time this Agreement is executed, and at the Closing
Date, the Underwriter shall have received letters, addressed to the Underwriter
and in form and substance satisfactory in all respects (including the
nonmaterial nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriter and counsel for the Underwriter, from Xxxxxxx,
Xxxxxxx & Company and KPMG Peat Marwick, dated as of the date of this Agreement
and as of the Closing Date:
(i) Confirming that they are independent public
accountants with respect to the Company and Developers Mortgage Corporation
("DMC"), respectively, within the meaning of the Act and applicable regulations
thereunder;
(ii) Stating that in their opinion the audited
consolidated financial statements of the Company and DMC, respectively, included
in the Registration Statement and Prospectus for the year ended September 30,
1995 and the nine months ended June 30, 1996, and the year ended September 30,
1994 and the seven months ended April 28, 1995, respectively, comply as to form
in all material respects with the applicable accounting requirements of the Act
and the Regulations thereunder with respect to registration statements on Form
SB-2;
(iii) Stating that, with respect to the period from
June 30, 1996 (Company) and April 28, 1995 (DMC) to a specified date (the
"Specified Date") not earlier than five days prior to the date of such letter,
they have read such interim unaudited consolidated financial data of the Company
and DMC, respectively, for the period from June 30, 1996 and April 28, 1995,
respectively, through the Specified Date as are available on the date of such
letter, read the minutes of the stockholders and board of directors of the
Company and DMC, respectively, for the period from June 30, 1996 and April 28,
1995, respectively, through the Specified Date (or, to the extent that they are
advised by the Company and DMC, respectively, that final minutes of any such
meeting are not available on the date of such letter, a draft thereof furnished
by the Company and DMC, respectively), and made inquiries of officers of the
Company and DMC, respectively, responsible for financial and accounting matters
as to whether (I) at the specified date there was any change in the capital
stock or long-term liabilities of the Company and DMC, respectively, or any
decrease in the net current assets or net assets of the Company and DMC,
respectively, as compared with the amounts shown on the June 30, 1996 and April
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1995 balance sheets filed with and as part of the Prospectus, or (II) for the
period from June 30, 1996 (Company) and April 28, 1995 (DMC) to the Specified
Date, there were any increases, as compared with the corresponding period in the
preceding year, in the total or per share amounts of net loss (or, as the case
may be, any decrease in net income), and further stating that while such
procedures and inquiries do not constitute an examination made in accordance
with generally accepted auditing standards, nothing came to their attention
which caused them to believe that there was any such change other than as
disclosed or contemplated by the Prospectus or, if any such change has occurred,
fully explaining the nature of such change and its effect on the financial
position of the Company and DMC, respectively.
(iv) Stating that they have carried out certain
specified procedures (specifically set forth in such letter or letters) as
specified by the Underwriter not constituting an audit, with respect to certain
tables, statistics and other financial data in the Prospectus specified by the
Underwriter and compared them with, either the audited financial statements
filed with and as a part of the Prospectus and covered by their report included
therein, or other financial data, specified by the Underwriter, not included in
the Prospectus but from which information in the Prospectus is derived, and
which have been obtained directly from the general accounting records of the
Company and DMC, respectively, or indirectly from such accounting records by
analysis or computation, and having compared such tables, statistics and other
financial data with such audited financial statements or the accounting records
of the Company and DMC, respectively, stating that they have found such tables,
statistics and other financial data to agree therewith; and
(v) Stating such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(k) All proceedings taken in connection with the
authorization, issuance or sale of the Common Stock, Warrants, Warrant Shares,
the Underwriter's Share Warrants and Underwriter's Warrant Warrants and the
Underwriter's Warrant Shares as herein contemplated shall be satisfactory in
form and substance to the Underwriter and to counsel to the Underwriter, and the
Underwriter shall have received from such counsel an opinion, dated as the
Closing Date with respect to such of these proceedings as the Underwriter may
reasonably require.
(l) The Company shall have furnished to the Underwriter such
certificates, additional to those specifically mentioned herein, as the
Underwriter may have reasonably requested in a timely manner as to the accuracy
and completeness, at the Closing Date, of any statement in the Registration
Statement or the Prospectus, as to the accuracy, at the Closing Date, of the
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representations and warranties of the Company herein and in each certificate and
document contemplated under this Agreement to be delivered to the Underwriter,
as to the performance by the Company of its obligations hereunder and under each
such certificate and document or as to the fulfillment of the conditions
concurrent and precedent to the Underwriter's obligations hereunder.
(m) The obligation of the Underwriter to purchase Common Stock
and Warrants hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Closing Date.
(n) On the Closing Date there shall have been duly tendered to
the Underwriter for the Underwriter's account the appropriate number of shares
of Common Stock and Warrants.
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under any other statute or at common law or otherwise
or under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriter's Warrant Shares upon exercise of the Underwriter's
Share Warrants and Underwriter's Warrant Warrants; or in any application or
other document or written communication (in this Paragraph 10 collectively
called "application") executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Common Stock, Warrants, Warrant Shares, Underwriter's Share Warrants and
Underwriter's Warrant Warrants and Underwriter's Warrant Shares (including the
Shares issuable upon exercise of the Warrants underlying the Underwriter's
Warrant Warrants) under the securities laws thereof or filed with the Commission
or any securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
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circumstances under which they were made), unless such statement or omission was
made in reliance upon or in conformity with information furnished to the Company
as provided in Section 2(c) hereof with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in application, as the case may be. Notwithstanding the foregoing, the Company
shall have no liability under this Paragraph 10(a) if any such untrue statement
or omission made in a Preliminary Prospectus, is cured in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in, or any
omission or alleged omission to state a material fact required to be stated in,
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, information furnished to the Company by the Underwriter as provided in
Section 2(c) hereof expressly for use in the preparation of such Preliminary
Prospectus, the Registration Statement or Prospectus. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise have.
Notwithstanding the foregoing, the Underwriter shall have no liability under
this Paragraph 10(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against the Underwriter or
controlling person in respect of which indemnity may be sought against the
Company pursuant to the foregoing, the Underwriter shall promptly notify the
Company in writing of the institution of such action and the Company shall
assume the defense of the action, including the employment and fees of counsel
(reasonably satisfactory to the Underwriter) and payment of expenses. The
Underwriter or controlling person shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of the Underwriter or such controlling person unless the
employment of such counsel
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shall have been authorized in writing by the Company in connection with the
defense of such action. If the Company shall have employed counsel to have
charge of the defense or shall previously have assumed the defense of any such
action or claim, the Company shall not thereafter be liable to any Underwriter
or controlling person in investigating, preparing or defending any such action
or claim. Each indemnified party shall promptly notify the Underwriter of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors or controlling persons in connection with the issue and
sale of the Common Stock, Warrants, Warrants Shares, Underwriter's Share
Warrants and Underwriter's Warrant Warrants or Underwriter's Warrant Shares or
in connection with the Registration Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein by the total purchase price of
all Common Stock and Warrants sold in the public offering and the Company is
responsible for the remaining portion; provided, that in any such case, no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company, and the Underwriter. As used in this Paragraph
10, the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any officer, director or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
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(e) 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 made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability 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 his 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 on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Paragraph 10 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
11. Representations, Warranties, Agreements to Survive
Delivery.
The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company set forth in this Agreement, shall
remain operative and in full force and effect regardless of (i) any
investigation made by the Underwriter or on its behalf or by or on behalf of any
person who controls the Underwriter, or by the Company or any controlling person
of the Company or any director or any officer of the Company, (ii) acceptance of
any of the Common Stock and Warrants and payment therefor, or (iii) any
termination of this Agreement, and shall survive the delivery of the Common
Stock and Warrants and any successor of the Underwriter or the Company, or of
any person who controls the Underwriter or the Company or any other indemnified
party, as the case may be, shall be entitled to the benefit of such respective
indemnity and contribution agreements. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 11
shall be in addition to any liability which the Underwriter and the Company may
otherwise have.
12. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 A.M., New
York time, on the first full business day following the day on which the
Underwriter and the Company receive notification that the Registration Statement
became effective.
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(b) This Agreement may be terminated by the Underwriter by
notifying the Company at any time on or before the Closing Date, if in the
Underwriter's judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Common Stock and
Warrants agreed to be purchased hereunder by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason 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 herein), (iv) a
banking moratorium having been declared by federal or New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) 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, (vii) 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, (viii) the passage by
the Congress of the United States or by any state legislative body of similar
impact, or 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 reasonably believed likely by
the Underwriter to have a material impact on the business, financial condition
or financial statements of the Company, (ix) any adverse change in the financial
or securities markets beyond normal market fluctuations having occurred since
the date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates 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.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Paragraph
12, the Company shall be notified promptly by the Underwriter by telephone or
facsimile, confirmed by letter.
(d) If this Agreement shall not become effective by reason of
an election of the Underwriter pursuant to this Paragraph 12 or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any undertaking, or to satisfy
any condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriter, in addition to the obligations
assumed by the Company pursuant to Paragraph 8 herein,
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will be to reimburse the Underwriter for the following: (i) Blue Sky counsel
fees and expenses to the extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky
filing fees; and (iii) such reasonable out-of-pocket expenses of the Underwriter
(including the fees and disbursements of their counsel), to the extent set forth
in Paragraph 8(c), in connection with this Agreement and the proposed offering
of the Units, but in no event to exceed the sum of $30,000 less such amounts
already paid.
Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Paragraph 8 and 10 hereof shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
13. Notices.
All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Underwriter,
shall be mailed, delivered or telegraphed and confirmed to Toluca Pacific
Securities Corporation, 0000 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx, Xxxxxx Xxxx,
Xxxxxxxxxx 00000, Attention: Xxxx Xxxxxxx with a copy thereof to Xxxxxx X.
Xxxxxx, Esq., Gusrae, Xxxxxx & Xxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
and, if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed to the Company at 0000 Xxxx Xxx Xxxxxx Xxxx, Xxxxx 000, Xxxx, Xxxxxxxx
00000, Attention: Xxxxxxxxx Xxxxxxx, III, with a copy thereof to Xxxx X. Xxxx,
P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Xxxx, Esq.
14. Parties.
This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Paragraph 10 hereof, and their respective
successors, legal representatives and assigns, and no other person, shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
15. Construction.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and the Underwriter relating to the sale of any of the Common Stock and
Warrants.
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16. Jurisdiction and Venue.
The Company agrees that the courts of the State of New York
shall have jurisdiction over any litigation arising from this Agreement, and
venue shall be proper in the Eastern District of New York.
17. Counterparts.
This Agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
HOMEOWNERS FINANCIAL CORP.
By:______________________________
Xxxxxxxxx X. Xxxxxxx, III
President
Accepted as of the date first above written:
TOLUCA PACIFIC SECURITIES CORPORATION
By:______________________________
Xxxx Xxxxxxx, President
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