Exhibit 1.1
MED-EMERG INTERNATIONAL, INC.
1,250,000 Shares of Common Stock
and
1,250,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
___________, 1997
Network 1 Financial Securities, Inc.
One Financial Galleria
0 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxxxx 00000
Gentlemen:
Med-Emerg International, Inc., a corporation organized under the laws of
the Province of Ontario, Canada (the "Company"), hereby confirms its agreement
with Network 1 Financial Securities, Inc. (the "Underwriter") as set forth
below.
The Company proposes to issue and sell to the Underwriter an aggregate of
(i) 1,250,000 shares (the "Firm Shares") of the Company's common stock, no par
value (the "Common Stock"), and (ii) 1,250,000 redeemable warrants to purchase
Common Stock (the "Firm Warrants"). In addition, for the sole purpose of
covering over-allotments from the sale of the Firm Shares and the Firm Warrants,
(A) the Company proposes to grant to the Underwriter an option to purchase (i)
an additional 46,875 shares of Common Stock (the "Company Option Shares") and
(ii) an additional 150,000 redeemable warrants to purchase Common Stock (the
"Option Warrants", and together with the Company Option Shares, the "Company
Option Securities") and (B) each of the Selling Shareholders named on Schedule 1
annexed hereto ("Schedule 1") proposes to grant to the Underwriter an option to
purchase the number of shares of Common Stock set opposite his or its name on
Schedule 1 (the "Selling Shareholders Option Shares," and together with the
Company Option Shares, the "Option Shares"), all as provided in section 2(c) of
this agreement (the "Agreement"). The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." Any and all redeemable warrants
to purchase Common Stock to be purchased pursuant to such option are referred to
herein as the "Option Warrants," and the Firm Warrants
and any Option Warrants are collectively referred to herein as the "Warrants."
Any shares of Common Stock issuable upon the exercise of any Warrants are
referred to herein as "Warrant Shares." The Firm Shares and the Firm Warrants
are collectively referred to herein as the "Firm Securities;" the Option Shares
and the Option Warrants are collectively referred to herein as the "Option
Securities;" and the Firm Securities, the Option Securities and the Warrant
Shares are collectively referred to herein as the "Securities."
Pursuant to an agreement to be entered into among the Company, the
Underwriter and Continental Stock Transfer and Trust Company (the "Warrant
Agreement"), each Warrant will be exercisable during the period commencing on
the first anniversary of the effective date of the Registration Statement (as
hereinafter defined) (the "Effective Date") and expiring on the fifth
anniversary thereof, subject to redemption by the Company (as described below),
at an initial exercise price (subject to adjustment as set forth in the Warrant
Agreement) of $5.00 per share. The Warrants will be redeemable at a price of
$.10 per Warrant, commencing on the second anniversary of the Effective Date (or
earlier with the consent of the Underwriter) and prior to their expiration, upon
not less than 30 days prior written notice to the holders of the Warrants,
provided the average closing bid quotations of Common Stock as reported on the
Nasdaq Stock Market if traded thereon, or if not traded thereon, the average
closing sale price if listed on a national or regional securities exchange (or
other reporting system that provides last sales prices), shall have been at
least $8.00 per share, subject to adjustment, for 20 consecutive trading days
ending three days prior to the date on which the Company gives notice of
redemption, subject to the right of the holder to exercise such Warrants prior
to redemption.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) A registration statement on Form F-1(File No. 333- _____), with
respect to the Securities and the Underwriter's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "), and one
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriter. After the
execution of this Agreement, the Company will file with the Commission either
(i) if the registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriter prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriter prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes
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of registering certain additional Securities, which registration statement shall
become effective upon filing with the Commission (the "Rule 462(b) Registration
Statement). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with that registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or, if no prospectus is so filed pursuant to Rule
424(b), the prospectus included in the Registration Statement. The Company has
caused to be delivered to the Underwriter copies of each Preliminary Prospectus
and has consented to the use of those copies for the purposes permitted by the
Act. If the Company has elected to rely on Rule 462(b) and the Rule 462(b)
Registration Statement has not been declared effective, then (i) the Company has
filed a Rule 462(b) Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of
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this paragraph (b) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
therein.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Province of Ontario,
Canada, and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of its property or the conduct of its business requires such
qualification or authorization.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) Except for the subsidiaries listed in Exhibit 21.1 to the
Registration Statement (the "Subsidiaries"), the Company does not own, directly
or indirectly, an interest in any corporation, partnership, limited liability
company, joint venture, trust or other business entity. Each Subsidiary is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction where the ownership or leasing of its property or the conduct of
its business requires such qualification or licensing. Each Subsidiary has full
corporate power and authority, and all necessary material authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory authorities, to own or lease its properties and conduct
its business as now being conducted and as proposed to be conducted as described
in the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus)
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares and the Warrant Shares have been duly
authorized, and the Warrant Shares have been duly reserved for issuance, by all
necessary corporate action on the part of the Company and, when the Shares are
issued and delivered to and paid for by the Underwriter pursuant to this
Agreement and the Warrant Shares are issued and delivered to and paid for by the
holders of Warrants upon exercise of the Warrants in accordance with the terms
thereof, the Shares and the Warrant Shares will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). No holder of outstanding securities of the
Company is entitled as such to any preemptive or other right to subscribe for
any of the Securities, and no person is entitled
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to have securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. Except
as previously disclosed in writing to the Underwriter, no compensation was paid
to or on behalf of any member of the National Association of Securities Dealers,
Inc. ("NASD"), or any affiliate or employee thereof, in connection with any such
issuance.
(i) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its subsidiaries as of the dates indicated and the
results of operations of the Company and its subsidiaries for the periods
specified. Such consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
except to the extent that certain footnote disclosures regarding unaudited
interim periods may have been omitted in accordance with the applicable rules of
the Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"). The consolidated financial data set forth under the caption "Summary
Consolidated Financial Information" in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) fairly present, on the
basis stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(j) KMPG [and Xxxxxxxx Xxxxx & Associates], who have audited certain
financial statements of the Company and delivered their report with respect to
the consolidated financial statements included in the Registration Statement and
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder.
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company and the Subsidiaries, whether or not arising in the ordinary course of
business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company or the Subsidiaries and no commitments
made by the Company or the Subsidiaries that, individually or in the aggregate,
are material with respect to the Company and the Subsidiaries, (iii) there has
not been any change in the capital stock or indebtedness of the
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Company and the Subsidiaries, and (iv) there has been no dividend or
distribution of any kind declared, paid or made by the Company in respect of any
class of its capital stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement (as hereinafter defined). The execution and
delivery of this Agreement and the Underwriter's Warrant Agreement have been
duly authorized by all necessary corporate action on the part of the Company and
this Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement
have each been duly executed and delivered by the Company and each is a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except as rights to indemnity and
contribution under this Agreement may be limited by applicable law. The
issuance, offering and sale by the Company to the Underwriter of the Securities
pursuant to this Agreement or the Underwriter's Securities pursuant to the
Underwriter's Warrant Agreement, the compliance by the Company with the
provisions of this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement, and the consummation of the other transactions contemplated
by this Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement
do not (i) require the consent, approval, authorization, registration or
qualification of or with any court or governmental or regulatory authority,
except such as have been obtained or may be required under state securities or
blue sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of, or constitute a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of its property is bound or subject, or the
certificate of incorporation or by-laws of the Company or any Subsidiary, or any
statute or any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the Company
or any Subsidiary.
(m) No legal or governmental proceedings are pending to which the
Company or any Subsidiary is a party or to which the property of the Company or
any Subsidiary is subject, and no such proceedings have been threatened against
the Company or any Subsidiary or with respect to any of its property, except
such as are described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). No contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein (and, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) or filed as required.
(n) Neither the Company nor any Subsidiary is in (i) violation of
its certificate of incorporation or by-laws, (ii) violation in any material
respect of any law, statute, regulation,
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ordinance, rule, order, judgment or decree of any court or any governmental or
regulatory authority applicable to it, or (iii) default in any material respect
in the performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other material agreement or instrument to
which it is a party or by which it or any of its property may be bound or
subject, and no event has occurred which with notice or lapse of time or both
would constitute such a default.
(o) The Company and the Subsidiaries currently own or possess
adequate rights to use all intellectual property, including all trademarks,
service marks, trade names, copyrights, inventions, know-how, trade secrets,
proprietary technologies, processes and substances, or applications or licenses
therefor, that are described in the Prospectus (and if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and any other rights or
interests in items of intellectual property as are necessary for the conduct of
the business now conducted or proposed to be conducted by them as described in
the Prospectus (or, such Preliminary Prospectus), and, except as disclosed in
the Prospectus (and such Preliminary Prospectus), the Company is not aware of
the granting of any patent rights to, or the filing of applications therefor by,
others, nor is the Company aware of, nor has the Company received notice of,
infringement of or conflict with asserted rights of others with respect to any
of the foregoing. All such intellectual property rights and interests are (i)
valid and enforceable and (ii) to the best knowledge of the Company, not being
infringed by any third parties.
(p) The Company and each Subsidiary possesses adequate licenses,
orders, authorizations, approvals, certificates or permits issued by the
appropriate federal, state or foreign regulatory agencies or bodies necessary to
conduct its business as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and, except as disclosed in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), there
are no pending or, to the best knowledge of the Company, threatened, proceedings
relating to the revocation or modification of any such license, order,
authorization, approval, certificate or permit.
(q) The Company and each Subsidiary has good and marketable title to
all of the properties and assets reflected in the Company's consolidated
financial statements or as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind, except those reflected in such consolidated financial
statements or as described in the Registration Statement and the Prospectus (and
such Preliminary Prospectus). Except as disclosed in the Prospectus, the Company
and each Subsidiary occupies its leased properties under valid and enforceable
leases conforming to the description thereof set forth in the Registration
Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business
in a manner in which it would be an "investment company" as defined in Section
3(a) of the Investment Company Act of 1940 (the "Investment Company Act").
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(s) Except as listed on Schedule 2 hereto, the Company has obtained
and delivered to the Underwriter the agreements (the "Lock-up Agreements") with
the officers, directors and other security holders owning or having rights to
acquire shares of Common Stock or preferred stock to the effect that, among
other things, each such person (i) will not, commencing on the Effective Date
and continuing for the period thereafter set forth opposite their names on
Schedule 2, directly or indirectly, sell, offer or contract to sell or grant any
option to purchase, transfer, assign or pledge, or otherwise encumber, or
dispose of any shares of Common Stock or preferred stock or any securities
convertible into or exercisable for Common Stock or preferred stock now or
hereafter owned by such person without the prior written consent of the
Underwriter, and (ii) will comply with any additional restriction or condition
on the disposition of such Common Stock or preferred stock which may be required
to qualify the offering of the Securities in any state in accordance with the
blue sky or securities laws of such state.
(t) No labor dispute with the employees of the Company or any
Subsidiary exists, is threatened or, to the best of the Company's knowledge, is
imminent that could result in a material adverse change in the condition
(financial or otherwise), business, prospects, net worth or results of
operations of the Company and the Subsidiaries, except as described in or
contemplated by the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(u) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any Subsidiary has
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company and the Subsidiaries, except as described in or contemplated by the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(v) The Underwriter's Warrants (as hereinafter defined) will conform
to the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Underwriter in accordance with
the Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The shares of Common
Stock issuable upon exercise of the Underwriter's Warrants and the Warrants
issuable upon exercise thereof (the "Underwriter's Warrant Shares") have been
duly authorized and reserved for issuance upon exercise of the Underwriter's
Warrants and the Warrants issuable upon exercise thereof by all necessary
corporate action on the part of the Company and, when issued and delivered and
paid for upon such exercise in accordance with the terms of the Underwriter's
Warrant Agreement, the Underwriter's Warrants, and the Warrants issuable upon
exercise thereof, respectively, will be validly issued, fully paid,
nonassessable and free of preemptive rights and
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will conform to the description thereof in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for services as
a finder for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Underwriter.
(x) The Company and each Subsidiary has filed all federal, state,
local and foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same are
material and have become due.
(y) Neither the Company nor any director, officer, agent, employee
or other person associated with or acting on behalf of the Company has, directly
or indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
2. Purchase, Sale and Delivery of the Securities and the Underwriter's
Warrants.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Shares at a purchase
price of $3.51 per share and the Firm Warrants at a purchase price of $9.09 per
Warrant.
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(b) Certificates in definitive form for the Firm Securities that the
Underwriter has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriter requests
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriter, against
payment by or on behalf of the Underwriter of the purchase prices therefor by
certified or official bank check or checks drawn upon or by a New York Clearing
House bank and payable in next-day funds to the order of the Company. Such
delivery of and payment for the Firm Securities shall be made at the offices of
Counsel for the Underwriter, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx at 9:30 A.M.,
New York time on ___________, 1997, or at such other place, time or date as the
Underwriter and the Company may agree upon, such time and date of delivery
against payment being herein referred to as the "Firm Closing Date. The Company
will make such certificates for the Firm Securities available for checking and
packaging by the Underwriter, at such offices as may be designated by the
Underwriter, at least 24 hours prior to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
any or all of the Company Option Securities and the Selling Shareholders hereby
grant the Underwriter an option to purchase the Selling Shareholder Option
Shares, which options are exercisable by the Underwriter on behalf of and for
the account of the Underwriter. The purchase price to be paid for any of the
Option Securities shall be the same price per share or Warrant as the price per
share or Warrant for the Firm Securities set forth above in paragraph (a) of
this section 2. The option granted hereby may be exercised as to all or any part
of the Option Securities from time to time within 45 calendar days after the
Firm Closing Date. The Underwriter shall not be under any obligation to purchase
any of the Option Securities prior to the exercise of such option. The
Underwriter may from time to time exercise the option granted hereby by giving
notice in writing or by telephone (confirmed in writing) to the Company and the
Selling Shareholders (in the case of the Selling Shareholder Option Shares)
setting forth the aggregate number of Option Securities as to which the
Underwriter is then exercising the option and the date and time for delivery of
and payment for such Option Securities. Any such date of delivery shall be
determined by the Underwriter but shall not be earlier than two business days or
later than three business days after such exercise of the option and, in any
event, shall not be earlier than the Firm Closing Date. The time and date set
forth in such notice, or such other time on such other date as the Underwriter
and the Company may agree upon, is herein called the "Option Closing Date" with
respect to such Option Securities. Upon exercise of the option as provided
herein, the Company and/or the Selling Shareholders shall become obligated to
sell to the Underwriter, and, subject to the terms and conditions herein set
forth, the Underwriter shall become obligated to purchase from the Company and
the Selling Shareholders, the Option Securities as to which the Underwriter is
then exercising its option. If the option is exercised as to all or any portion
of the Option Securities, certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (b) of this section 2, except that reference therein to the Firm
Securities and the
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Firm Closing Date shall be deemed, for purposes of this paragraph (c), to refer
to such Option Securities and Option Closing Date, respectively.
(d) On the Firm Closing Date, the Company will further issue and
sell to the Underwriter or, at the direction of the Underwriter, to bona fide
officers of the Underwriter, for an aggregate purchase price of $10, warrants to
purchase Common Stock and redeemable warrants to purchase Common Stock (the
"Underwriter's Warrants") entitling the holders thereof to purchase an aggregate
of 125,000 shares of Common Stock and 125,000 redeemable warrants to purchase
Common Stock for a period of four years, such period to commence on the first
anniversary of the Effective Date. The Underwriter's Warrants shall be
exercisable at a price equal to 120% of the initial public offering price of the
Common Stock and Warrants, respectively, and shall contain terms and provisions
more fully described herein below and as set forth more particularly in the
warrant agreement relating to the Underwriter's Warrants to be executed by the
Company on the Effective Date (the "Underwriter's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Underwriter's Warrants. As provided in the Underwriter's Warrant Agreement,
the Underwriter may designate that the Underwriter's Warrants be issued in
varying amounts directly to bona fide officers of the Underwriter. As further
provided, no sale, transfer, assignment, pledge or hypothecation of the
Underwriter's Warrants shall be made for a period of 12 months from the
Effective Date, except (i) by operation of law or reorganization of the Company,
or (ii) to the Underwriter and bona fide partners, officers of the Underwriter
and selling group members. The shares of Common Stock issuable upon exercise of
the Underwriter's Warrants and the Warrants issuable upon exercise thereof are
referred to herein as the "Underwriter's Warrant Shares"; and the Underwriter's
Warrants, the Warrants issuable upon exercise thereof, and the Underwriter's
Warrant Shares are collectively referred to herein as the "Underwriter's
Securities."
3. Offering by the Underwriter. The Underwriter proposes to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to
11
permit the continuance of sales of or dealings in the Securities in accordance
with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission any prospectus or
amendment referred to in the first sentence of section (a) (i) hereof, any
amendment or supplement to such prospectus or any amendment to the Registration
Statement as to which the Underwriter shall not previously have been advised and
furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Underwriter shall not have given its consent.
The Company will prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, promptly upon request by the
Underwriter or counsel to the Underwriter, any amendments to the Registration
Statement or amendments or supplements to the Prospectus that may be necessary
or advisable in connection with the distribution of the Securities by the
Underwriter, and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Underwriter, promptly after receiving
notice thereof, of the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any amendment
or supplement thereto has been filed and will provide evidence satisfactory to
the Underwriter of each such filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of any Securities for offering or sale in any
jurisdiction, (iii) the institution, threat or contemplation of any proceeding
for any such purpose or (iv) any request made by the Commission for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to obtain
the withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriter, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriter may designate and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriter thereof and, subject to section 4(a) hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
12
(e) So long as any Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant and to furnish to the Underwriter and any dealer as many
copies of each such Prospectus as the Underwriter or dealer may reasonably
request. The Company shall not call for redemption of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption. In addition, for so long as any Warrant is outstanding,
the Company will promptly notify the Underwriter of any material change in the
business, financial condition or prospects of the Company. 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.
(f) The Company will, without charge, provide to the Underwriter and
to counsel for the Underwriter (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriter may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriter may reasonably request and (iii) so long as a prospectus relating to
the Securities is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Underwriter may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriter an earnings statement
of the Company that satisfies the provisions of section 11 (a) of the Act and
Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and the Underwriter's Warrants (including
the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus. The Company
will timely file, and will provide or cause to be provided to the Underwriter
and counsel to the Underwriter a copy of the report on Form SR required to be
filed by the Company pursuant to Rule 463 under the Act.
(j) The Company will not, without the prior written consent of the
Underwriter, directly or indirectly offer, agree to sell, sell, grant any option
to purchase or otherwise dispose (or announce any offer, agreement to sell,
sales grant of any option to purchase or other disposition) of any shares of
Common Stock, preferred stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or preferred stock for a
period
13
of 24 months after the Effective Date, except (i) the Shares and Warrants issued
pursuant to this Agreement, (ii) the Warrant Shares issuable upon exercise of
the Warrants, (iii) the Warrants, (iv) the Underwriter's Warrant Shares and
Warrants issuable upon the exercise of the Underwriter's Warrants, and (v)
shares of Common Stock issuable upon the exercise of options granted and to be
granted under the Company's Stock Option Plan as in effect as of the date
hereof. The Company also will not for a period of 36 months following the
Effective Date, without the prior written consent of the Underwriter, (i) issue
or sell any of its securities pursuant to Regulation S promulgated under the Act
or (ii) file a registration on Form S-8 for the sale of securities by a person
other than an employee of the Company or a Subsidiary.
(k) Prior to the Closing Date or the Option Closing Date (if any),
the Company will not, directly or indirectly, without prior written consent of
the Underwriter, issue any press release or other public announcement or hold
any press conference with respect to the Company or its activities with respect
to the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included in The
Nasdaq Small Cap Market and the Boston Stock Exchange on the Effective Date and
to maintain such listings thereafter. The Company will file with The Nasdaq
Small Cap Market and the Boston Stock Exchange all documents and notices that
are required by companies with securities that are traded on The Nasdaq Small
Cap Market and the Boston Stock Exchange.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion.
(o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Underwriter, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
14
(p) The Company has appointed Continental Stock Transfer & Trust
Company as transfer agent for the Common Stock and warrant agent for the
Warrants, subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without first
obtaining the written consent of the Underwriter. For a period of three years
after the Effective Date, the Company shall cause the transfer agent and warrant
agent to deliver promptly to the Underwriter a duplicate copy of the daily
transfer sheets relating to trading of the Securities. The Company shall also
provide to the Underwriter, promptly upon their request, up to four times in any
calendar year, copies of DTC or equivalent transfer sheets.
(q) During the period of 180 days after the date of this Agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock or the
Warrants to facilitate the sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale of
any shares of Common Stock pursuant to Rule 144 under the Act if any such sale
would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company
will provide the Underwriter and its designees with three bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Underwriter.
(t) The Company shall consult with the Underwriter prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.
(u) The Company and the Underwriter will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent this Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriter will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(v) The Company will, for a period of no less than three years
commencing immediately after the Effective Date, engage a designee by the
Underwriter as advisor (the "Advisor") to the Company's Board of Directors, who
shall attend meetings of the Board, receive all notices and other correspondence
and communications sent by the Company to its Board of Directors and receive
compensation equal to that of other non officer directors; provided, that in
lieu of the Underwriter's right to designate an Advisor, the Underwriter shall
have the right
15
during such three-year period, in its sole discretion, to designate one person
for election as a director of the Company and the Company will utilize its best
efforts to obtain the election of such person who shall be entitled to receive
the same compensation, expense reimbursements and other benefits as set forth
above. In addition, such Advisor shall be entitled to receive reimbursement for
all costs incurred in attending such meetings including, but not limited to,
food, lodging and transportation. The Company, during said three-year period,
shall schedule no less than four formal meetings (at least one of which shall be
"in person" and the others may be held telephonically) of its Board of Directors
in each such year at which meetings such Advisor shall be permitted to attend
(in person, for each meeting held "in person") as set forth herein; said
meetings shall be held quarterly each year and advance notice of such meetings
identical to the notice given to directors shall be given to the Advisor. The
Company and its principal stockholders shall, during such three year period,
give the Underwriter timely prior written notice of any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Company shall
indemnify and hold the Underwriter and such Advisor or director harmless against
any and all claims, actions, damages, costs and expenses, and judgments arising
solely out of the attendance and participation of such Advisor or director at
any such meeting described herein, and, if the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
it shall, if possible, include such Advisor or director as an insured under such
policy.
(w) The Company shall first submit to the Underwriter certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(x) The Company shall engage the Underwriter's counsel to provide
the Underwriter, at the closing of any sale of Securities hereunder and
quarterly thereafter, with an opinion, setting forth those states in which the
Common Stock and Warrants may be traded in non-issuer transactions under the
blue sky or securities laws of the 50 states. The Company shall pay such counsel
a one-time fee of $12,500 for such opinions at the closing of the sale of the
Firm Securities.
(y) The Company will prepare and file a registration statement with
the Commission pursuant to section 12 of the 1934 Act, and will use its best
efforts to have such registration statement declared effective by the Commission
on an accelerated basis on the day after the Effective Date. For this purpose
the Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(z) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited consolidated financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such consolidated financial statements shall be those required by Rule
14a-3 under the 1934 Act and shall be included in an annual report pursuant to
the requirements of such Rule.
16
(aa) Prior to the Effective Date, the Company shall obtain key-man
life insurance in the minimum amount of $1,000,000 on Xxxx Xxxxxxxx on such
terms and conditions as are reasonably satisfactory to the Underwriter, assuming
such coverage is available on commercially reasonable terms.
(bb) The Company shall retain the Underwriter as a financial advisor
at an annual fee of $60,000 for a 24-month period commencing on the Closing
Date. The entire fee of $120,000 shall be payable on the Closing Date.
(cc) The Company will engage a financial public relations firm
reasonably satisfactory to the Underwriter on or before the Firm Closing Date,
and continuously engage such firm, or a substitute firm reasonably acceptable to
the Underwriter, for a period of twelve (12) months following the Firm Closing
Date.
(dd) The Company will take all necessary and appropriate actions to
be included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date.
(ee) On or prior to the Effective Date, the Company will give
written instructions to the transfer agent for the Common Stock directing said
transfer agent to place stop-order restrictions against, and appropriate legends
advising of the Lock-up Agreements on, the certificates representing the
securities of the Company owned by the persons who have entered into the Lock-up
Agreements.
4A. Representations, Warranties and Agreements of the Selling
Shareholders. Each of the Selling Shareholders (to the extent applicable)
severally represents and warrants to, and agrees with, the Underwriter as
follows:
(a) On the Effective Date, and at all times subsequent thereto up to
and on each Option Closing Date (i) all information with respect to such Selling
Shareholder contained in the Registration Statement does not and will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading, and (ii) all
information with respect to such Selling Shareholder contained in the
Prospectus, as amended or supplemented, does not and will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that, as to such Selling
Shareholder, the representations and warranties contained in this subsection (a)
only apply to statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company or the Underwriter, by or
on behalf of such Selling Shareholder, specifically for inclusion in
Registration Statement or the Prospectus.
(b) Such Selling Shareholder has duly authorized, executed and
delivered on ___________, 1997 the Irrevocable Power of Attorney, Custody
Agreement and Lock-Up Agreement (the "Custody Agreement") with the Company, as
custodian (the "Custodian"), and
17
Xxxx Xxxxxxxx and Xxxxxxx Xxxxxx, as attorneys-in-fact (the
"Attorneys-in-Fact"), and, such Custody Agreement constitutes the valid, legal
and binding agreement of such Selling Shareholder, enforceable in accordance
with its terms; such Selling Shareholder has pursuant to the Custody Agreement,
duly authorized each and all of the Attorneys-in-Fact to execute and deliver
this Agreement on behalf of such Selling Shareholder, and otherwise to act, and
to execute documents and instruments, on behalf of such Selling Shareholder in
connection with the transactions contemplated by this Agreement, and the
Attorneys-in-Fact and the Custodian are each duly authorized by such Selling
Shareholder under the Custody Agreement to deliver the Shares to be sold by such
Selling Shareholder pursuant to the Agreement, and to accept payment therefor.
When executed and delivered by one or more of the Attorneys-in-Fact on behalf of
such Selling Shareholder in accordance with the Custody Agreement and this
Agreement will have been duly authorized, executed and delivered on behalf of
such Selling Shareholder.
(c) No consent, approval, authorization or order of any court,
government, governmental agency or body or financial institution, domestic or
foreign (other than under the Securities Act and state securities or blue sky
laws), is required for the consummation by such Selling Shareholder of the
transactions contemplated in this Agreement or the Custody Agreement, including,
without limitation, the sale of the Shares to the Underwriter, as contemplated
herein or therein (other than those that have been obtained and are in full
force and effect).
(d) The execution and delivery of this Agreement and the Custody
Agreement, and the consummation of the transactions contemplated herein and
therein, including, without limitation, the sale of the Shares by the
Underwriter, as contemplated herein or therein, will not (i) result in a breach
by such Selling Shareholder of, or constitute a default by such Selling
Shareholder under, any agreement or instrument or any decree, judgement or order
to which such Selling Shareholder is a party or by which such Selling
Shareholder is bound or the properties of such Selling Shareholder are subject
or (ii) violate any provision of the certificate of incorporation, by-laws, or
comparable governing documents of such Selling Shareholder (if such Selling
Shareholder is a corporation), or any law, rule or regulation, domestic or
foreign, applicable to such Selling Shareholder or to which its properties are
subject.
(e) Such Selling Shareholder who is a Selling Shareholder has, and
will on each Option Closing Date have, good and marketable title to the Shares
to be sold by such Selling Shareholder pursuant to this Agreement, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, or restriction on voting or other rights as a
shareholder of any nature, other than pursuant to this Agreement and the Custody
Agreement; such Selling Shareholder has full right, power and authority to sell,
transfer and deliver the Shares, pursuant to this Agreement; upon delivery of
such Shares and payment of the purchase price therefor as contemplated in this
Agreement the Underwriter will receive good and marketable title to the Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind or of
any restriction on transfer or voting or other rights as a shareholder of any
nature.
18
(f) Certificates for the Shares to be sold by such Selling
Shareholder pursuant to this Agreement in suitable form for transfer by delivery
or accompanied by duly executed instruments of transfer or assignment, executed
in blank, have been placed in custody with the Custodian pursuant to the Custody
Agreement for purpose of effecting delivery, in accordance with the Custody
Agreement and this Agreement.
(g) Each Selling Shareholder hereby agrees that for a period of
twenty-four months from the Effective Date (the "Lock-Up-Period"), such Selling
Shareholder will not, without prior written consent of the Underwriter, directly
or indirectly, offer, sell or grant any option to purchase, transfer or
otherwise dispose of or contract to dispose of (or announce any offer, sale,
grant of any option to purchase, or other disposition of), for value or
otherwise, any shares of Common Stock, options or warrants to purchase Common
Stock, or any securities convertible into or exchangeable for Common Stock,
owned directly by such person or with respect to which such person has the power
of disposition, other than the sale of the Shares under this Agreement.
(h) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, violate Rule 102 of Regulation M under the 1934 Act, or cause or
result in stabilization or manipulation of the price of the Common Stock; and
such Selling Shareholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
(i) In the event the Selling Shareholder is a corporation, such
Selling Shareholder is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, as the case
may be, with all necessary power and authority to execute, deliver and perform
the Custody Agreement and this Agreement and to sell and deliver the Shares to
the Underwriter in accordance with this Agreement, and upon execution and
delivery thereof by one or more of the Attorneys-in-Fact, such agreements will
be duly executed and delivered and enforceable against such Selling Shareholder
in accordance with their respective terms.
5. Expenses
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, the accountants and any other experts or
advisors retained by the
19
Company, (iv) the preparation, issuance and delivery to the Underwriter of any
certificates evidencing the Securities, including transfer agent's, warrant
agent's and registrar's fees or any transfer or other taxes payable thereon, (v)
the qualification of the Securities under state blue sky or securities laws,
including filing fees and fees and disbursements of counsel for the Underwriter
relating thereto (such counsel fees not to exceed $35,000, of which $10,000
shall be due and payable upon the commencement of blue sky filing, together with
the related filing fees) and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
Nasdaq Small Cap Market, the Boston Stock Exchange and in the Standard and
Poor's Corporation Descriptions Manual, (viii) any "road shows" or other
meetings with prospective investors in the Securities, including transportation,
accommodation, meal, conference room, audio-visual presentation and similar
expenses of the Underwriter or its representatives or designees (other than as
shall have been specifically approved by the Underwriter to be paid for by the
Underwriter) and (ix) the placing of "tombstone advertisements" in The Wall
Street Journal and the Investment Dealers Digest and the manufacture of
prospectus memorabilia. In addition to the foregoing, the Company shall
reimburse the Underwriter for its expenses on the basis of a non-accountable
expense allowance in the amount of 3.00% of the gross offering proceeds to be
received by the Company, $50,000 of which has been paid by the Company to the
Underwriter. The Underwriter hereby acknowledges receipt of such $50,000, which
shall be credited against the non-accountable expense allowance to be paid by
the Company. The unpaid portion of the expense allowance, based on the gross
proceeds from the sale of the Firm Securities, shall be deducted from the funds
to be paid by the Underwriter in payment for the Firm Securities, pursuant to
section 2 of this Agreement, on the Firm Closing Date. To the extent any Option
Securities are sold, any remaining non-accountable expense allowance based on
the gross proceeds from the sale of the Option Securities shall be deducted from
the funds to be paid by the Underwriter in payment for the Option Securities,
pursuant to section 2 of this Agreement, on the Option Closing Date. The Company
warrants, represents and agrees that all such payments and reimbursements will
be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the
offering of the Securities contemplated hereby is terminated for any reason, the
Company agrees that, in addition to the Company paying its own expenses as
described in subparagraph (a) above, (i) the Company shall reimburse the
Underwriter only for its actual accountable out-of-pocket expenses (in addition
to blue sky legal fees and expenses referred to in subparagraph (a) above), and
(ii) the Underwriter shall be entitled to retain the non-accountable expense
allowance paid by the Company pursuant to subparagraph (a) above; provided,
however, that the amount retained pursuant to this clause (ii) shall not exceed
the Underwriter's expenses on an accountable basis to the date of such
cancellation and that all unaccounted for amounts shall be refunded to the
Company. Such expenses shall include, but are not to be limited to, fees for the
services and time of counsel for the Underwriter to the extent not covered by
clause (i) above, plus any additional expenses and fees, including, but not
limited to, travel expenses, postage expenses, duplication expenses,
long-distance telephone expenses, and other expenses incurred by the Underwriter
in connection with the proposed offering.
20
6. Warrant Solicitation Fee. The Company agrees to pay the Underwriter a
fee of five percent (5%) of the aggregate exercise price of the Warrants if (i)
the market price of the Common stock is greater than the exercise price of the
Warrants on the date of exercise; (ii) the exercise of the Warrants is solicited
by a member of the NASD; (iii) the Warrants are not held in a discretionary
account; (iv) the disclosure of compensation arrangements is made both at the
time of this offering and at the time of the exercise of the Warrant; and (v)
the solicitation of the Warrant exercise is not in violation of Rule 10b-6 under
the 1934 Act. The Company agrees not to solicit the exercise of any Warrant
other than through the Underwriter and will not authorize any other dealer to
engage in such solicitation without the prior written consent of the Underwriter
which will not be unreasonably withheld. The Warrant solicitation fee will not
be paid in a non solicited transaction. Any request for exercise will be
presumed to be unsolicited unless the customer states in writing that the
transaction was solicited and designates in writing the broker/dealer to receive
compensation for the exercise. No Warrant solicitation by the Underwriter will
occur for a period of 12 months after the Effective Date.
7. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the registration
statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 11 A.M., New York time, on the date on which the amendment to such
registration statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriter; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of Xxxxxxx, Savage, Kaplowitz, Xxxxxxxxxx & Xxxxxx LLP, counsel to
the Company, to the effect that:
(1) the Company and each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
state of its
21
incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which its ownership or leasing of any properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a materially adverse effect upon the Company;
(2) the Company and each Subsidiary has full corporate power
and authority to own or lease its property and conduct its business as now being
conducted and as proposed to be conducted, as described in the Registration
Statement and the Prospectus, and the Company has full corporate power and
authority to enter into this Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Shares have been duly authorized and the Warrant Shares and
the Underwriter's Warrant Shares have been duly reserved for issuance by all
necessary corporate action on the part of the Company and, the Shares when
issued and delivered to and paid for by the Underwriter pursuant to this
Agreement, the Warrant Shares when issued upon payment of the exercise price
specified in the Warrants, Underwriter's Warrants when issued and delivered and
paid for in accordance with this Agreement and the Underwriter's Warrant
Agreement by the Underwriter and the Warrant Shares when issued upon payment of
the exercise price specified in the Underwriter's Warrants, will be validly
issued, fully paid, nonassessable and free of preemptive rights and will conform
to the description thereof in the Prospectus; to the knowledge of such counsel,
no holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares, the Warrant
Shares, or the Underwriter's Warrant Shares; and to the knowledge of such
counsel, no person is entitled to have securities registered by the Company
under the Registration Statement or otherwise under the Act other than as
described in the Prospectus;
(4) the Shares have been approved for inclusion in The Nasdaq
Small Cap Market and the Boston Stock Exchange;
(5) the execution and delivery of this Agreement, the Warrant
Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and
Investment Banking Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement, the Warrant
Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and
Investment Banking Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement may be limited by applicable law;
22
(6) the Underwriter's Warrants conform to the description
thereof in the Registration Statement and in the Prospectus and are duly
authorized and upon payment of the purchase price therefore specified in Section
2(d) of this Agreement are validly issued and constitute valid and binding
obligations of the Company entitled to the benefits of the Underwriter's Warrant
Agreement;
(7) the statements set forth in the Prospectus under the
caption "Description of Securities" in the Prospectus, insofar as those
statements purport to summarize the terms of the capital stock and warrants of
the Company, provide a fair summary of such terms; the statements in the
Prospectus, insofar as those statements constitute matters of law or legal
conclusions, or summaries of the contracts, agreement instruments, leases or
licenses referred to therein, constitute a fair summary of those matters, legal
conclusions, contracts, agreement instruments, leases or licenses and include
all material terms thereof, as applicable;
(8) none of (A) the execution and delivery of this Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriter of the Securities pursuant
to this Agreement and the Underwriter's Warrant Securities pursuant to the
Underwriter's Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement and the consummation of the transactions contemplated hereby
and thereby, (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws, or (2) conflicts with or results in a breach or violation of,
or constitutes a default under, any material contract, indenture, mortgage, deed
of trust, loan agreement, note, lease or other material agreement or instrument
known to us to which the Company is a party or by which the Company or any of
its property is bound or subject, or the certificate of incorporation or by-laws
of the Company, or any material statute or any judgment, decree, order, rule or
regulation of any court or other governmental or regulatory authority known to
us applicable to the Company;
(9) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or a Subsidiary is a
party or to which the property of the Company or a Subsidiary is subject and (B)
no contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(10) the Company and each of the Subsidiaries possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal or state regulatory agencies or bodies
necessary to conduct its business as described in the Registration Statement and
the Prospectus, and, to the knowledge of such counsel, there are no pending or
threatened proceedings relating to the revocation or modification of any such
license, order, authorization, approval, certificate or permit, except as
disclosed in the Registration Statement and the Prospectus;
23
(11) neither the Company nor the Subsidiary is in violation or
breach of, or in default with respect to, any term of its certificate of
incorporation or by-laws, and to the knowledge of such counsel, neither the
Company nor any Subsidiary is in (i) violation in any material respect of any
law, statute, regulation, ordinance, rule, order, judgment or decree of any
court or any governmental or regulatory authority applicable to it, or (ii)
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
material agreement or instrument to which it is a party or by which it or any of
its property may be bound or subject, and no event has occurred which with
notice, lapse of time or both would constitute such a default.
(12) the Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(13) the registration statement originally filed with respect
to the Securities and each amendment thereto and the Prospectus (in each case,
other than the financial statements and schedules and other financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder; and
(14) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company Act.
Counsel also shall state in its opinion that it has participated in the
preparation of the Registration Statement and the Prospectus and that nothing
has come to its attention that has caused them to believe that the Registration
Statement, at the time it became effective (including the information deemed to
be a part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A(b), if applicable), contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus, as of its
date or as of the Firm Closing Date, contained an untrue statement of material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of
24
the laws of certain jurisdictions, on the opinions of other counsel to the
Company, which opinions shall also be delivered to the Underwriter, in form and
substance acceptable to the Underwriter, if such other counsel expressly
authorize such reliance and counsel to the Company expressly states in their
opinion that such counsel's and the Underwriter's reliance upon such opinion is
justified.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Underwriter shall have received from KPMG, a letter dated
the Firm Closing Date and dated each Option Closing Date (as defined below), if
applicable, in form and substance satisfactory to the Underwriter, to the effect
that (i) they are independent public accountants with respect to the Company
within the meaning of the Act and the applicable rules and regulations
thereunder; (ii) in their opinion, the consolidated financial statements audited
by them and included in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder; (iii) based
upon procedures set forth in detail in such letter, nothing has come to their
attention which causes them to believe that (A) the unaudited financial
statements as of August 31, 1996 included in the Registration Statement was not
determined on a basis substantially consistent with that used in determining the
corresponding amounts in the audited financial statements as of December 31,
1995 included in the Registration Statement or (B) at a specified date not more
than five days prior to the date of this Agreement, there has been any change in
the capital stock of the Company, any increase in the long-term debt or decrease
in net sales of the Company and its Subsidiaries, as compared with the amounts
shown in the August 31, 1996 balance sheet included in the Registration
Statement or as of the date of the most recent financial statements made
available by the Company there has been any change in the capital stock of the
Company, any increase in the long-term debt or any decrease in net sales,
working capital or net assets of the Company and its Subsidiaries as compared
with the amounts shown in the August 31, 1996 balance sheet included in the
Registration Statement or, during the period from August 31, 1996 through date
of the most recent financial statement made available by the Company and its
Subsidiaries, there were any decreases, as compared with the corresponding
period in the preceding year, in revenues, or any increase in net loss of the
Company, except in all instances for changes, increases or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur;
and (iv) in addition to the audit referred to in their opinion and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information (including the summary of
consolidated financial information and secured financial information) which are
included in the Registration Statement and Prospectus and which are specified by
the Underwriter, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and other
records of the Company identified in such letter. References to the Registration
Statement and the Prospectus in this paragraph (c) with respect to the letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
25
(d) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company shall
have performed all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company and the Subsidiaries, except in
each case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(g) The Underwriter shall have received a certificate, dated the
Firm Closing Date, of the Chief Executive Officer and the Secretary of the
Company to the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock and Warrants shall be qualified in such
jurisdictions as the Underwriter may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the Underwriter
the Underwriter's Warrant Agreement and a certificate or certificates evidencing
the Underwriter's Warrants, in each case in a form acceptable to the
Underwriter.
(j) The Underwriter shall have received Lock-up Agreements executed
by the persons listed on Schedule 2 annexed hereto.
(k) The Underwriter shall have received on each Closing Date a
certificate from each Selling Shareholder selling Shares, under this Agreement
on such Closing Date to the affect that, and the Underwriter shall be satisfied
that, the representations and warranties of such Selling Shareholder contained
in this Agreement are true and correct as if made on and as of such Closing
Date, and that such Selling Shareholder has complied with all agreements and
satisfied all conditions on its part to be complied with or satisfied at or
prior to such Closing Date.
26
(l) The Selling Shareholders shall have each delivered to the
Underwriter on or prior to the date hereof a fully executed Custody Agreement.
Each such Selling Shareholder shall also agree and consent to the entry of stop
transfer instructions with the Company's transfer agent against the transfer of
shares held by such persons, except in compliance with the Custody Agreement and
this Agreement.
(m) On or before the Firm Closing Date, the Underwriter and counsel
for the Underwriter shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and the Selling Shareholders.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Underwriter and counsel for the Underwriter shall reasonably request.
The obligation of the Underwriter to purchase and pay for any Option
Securities shall be subject, in its discretion, to each of the foregoing
conditions to purchase the Firm Securities, except that all references to the
Firm Securities and the Firm Closing Date shall be deemed to refer to such
Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each Selling Shareholder and each person, if any, who controls the
Underwriter or such Selling Shareholder within the meaning of section 15 of the
Act or section 20 of the 1934 Act against any losses, claims, damages, or
liabilities, joint or several, to which the Underwriter, such Selling
Shareholder or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
27
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter or such Selling Shareholder, as the
case may be, specifically for use therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have. The Company will
not, without the prior written consent of the Underwriter, such Selling
Shareholder or controlling person, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not the
Underwriter or any person who controls the Underwriter or such Selling
Shareholder within the meaning of section 15 of the Act or section 20 of the
1934 Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Underwriter or such Selling Shareholder and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless the Company, each director of the Company and each
officer of the Company who signed the Registration Statement, the Underwriter
and each person, if any, who controls the Company or the Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act against any
losses, claims, damages, liabilities, joint or several, to which the Company,
such director or officer of the Company, the Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action,
28
investigation, litigation or proceeding, in each case to the extent, but only to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or the Underwriter by the Selling
Shareholder specifically for use therein. This indemnity agreement will be in
addition to any liability which the Selling Shareholder may otherwise have. The
Selling Shareholder will not, without the prior written consent of the Company
and the Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Company or the Underwriter or any person who controls the Company or the
Underwriter within the meaning of section 15 of the Act or section 20 of the
1934 Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Company, the Underwriter and each such controlling person from all liability
arising out of such claim, action, suit or proceeding.
(c) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, each Selling Shareholder, and each person, if any, who controls the
Company or such Selling Shareholder within the meaning of section 15 of the Act
or section 20 of the Exchange Act against, any losses, claims, damages or
liabilities to which the Company or any such director, officer, Selling
Shareholder or controlling person may become subject under the Act or otherwise,
but only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer, such Selling Shareholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this section 8. In case any such action is brought against any indemnified
party, and it notifies the
29
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree that it would not be equitable if
30
the amount of such contribution were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). Notwithstanding any other provision of this paragraph (d), the Underwriter
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Securities purchased by the
Underwriter under this Agreement, less the aggregate amount of any damages that
the Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of section 15 of the Act or section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of section 15 of the Act or section 20 of the 1934
Act, shall have the same rights to contribution as the Company.
9. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
10. Termination.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the Underwriter by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied under Section 7 hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively.
(1) the Company sustains a loss by reason of explosion, fire,
flood, accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign
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or other governmental or regulatory commission, board or agency wherein any
unfavorable result or decision could materially adversely affect the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company;
(3) trading in the Common Stock or Warrants shall have been
suspended by the Commission or the NASD, or trading in securities generally on
the New York Stock Exchange shall have been suspended or minimum or maximum
prices shall have been established on either such exchange or quotation system;
(4) a banking moratorium shall have been declared by New York
or United States authorities;
(5) there shall have been (A) an outbreak of hostilities
between the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement;
(6) termination of this Agreement pursuant to this section 10
shall be without liability of any party to any other party, except as provided
in section 5(b) and section 8 hereof.
11. Information Supplied by the Underwriter. The statements set forth in
the penultimate paragraph on page 3, in the third and eleventh paragraphs under
the heading "Underwriting" in any Preliminary Prospectus or the Prospectus (to
the extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes of
sections 1 (b) and 8(b) hereof. The Underwriter confirm that such statements (to
such extent) are correct.
12. Notices. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company at: Med-Emerg International, Inc.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
Attn: Xxxx Xxxxxxxx
Fax: (905) ____________
To the Underwriter at: Network 1 Financial Securities, Inc.
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One Financial Galleria
0 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxxxx 00000
Attn: Corporate Finance Department
Fax: (000) 000-0000
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
13. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
14. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
15. Applicable Law. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
16. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
17. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
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19. Severability. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
20. Counterparts. This agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
21. Successors. This agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
22. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
24. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
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25. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
MED-EMERG INTERNATIONAL, INC.
By:_________________________________
Name: Xxxx Xxxxxxxx
Title: President
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
NETWORK 1 FINANCIAL SECURITIES, INC.
By:_________________________________
Name:
Title:
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