Form of Underwriting Agreement
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3,000,000 SHARES OF SERIES A PREFERRED STOCK
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UNITED STATES FINANCIAL GROUP, INCORPORATED
UNDERWRITING AGREEMENT
New York, New York
______________, 1998
Xxxxx Xxxx and Shire, Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
United States Financial Group, Incorporated, a Delaware corporation
(the "COMPANY"), confirms its agreement with Xxxxx Xxxx and Shire, Inc.,
("YOU", the "UNDERWRITER" or "KMS") as follows: The Company retains KMS as its
exclusive agent to sell (the "OFFERING"), on a best efforts basis, a minimum of
666,667 shares (the "SHARES") of the Company's common stock, $.0001 par value
per share (the "COMMON STOCK" or the "SECURITIES") and a maximum of 3,000,000
shares of Common Stock, at a price to the public of $15.00 per share of Common
Stock during an offering period commencing on the date hereof and expiring on
_______________________, 199__, (the "OFFERING PERIOD"). The Company also
proposes to issue and sell to you warrants (the "UNDERWRITER'S WARRANTS") at a
purchase price of $.0001 per
Underwriter's Warrant pursuant to the Underwriter's Warrant Agreement entitling
the holder to purchase an aggregate of 3,000,000 shares of Common Stock
exercisable for a period of four years from ______________, 199___ until
___________________, 200__ at an initial exercise price of $24.00 per share,
subject to adjustment in amount pro rata in the event all of the Common Stock
is not sold in the Offering. The Underwriter's Warrants and the Common Stock
issuable upon exercise of the Underwriter's Warrants are hereinafter referred
to as the "Underwriter's Securities." The Underwriter's Securities are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. REPRESENTATIONS AND WARRANTIES. (a) The Company, a Delaware
corporation, which has one wholly-owned subsidiary, Xxxxx Xxxx and Shire, Inc.,
an Indian corporation (the "SUBSIDIARY"), represents and warrants to, and
agrees with, the Underwriter as of the date hereof, and as of the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined), if
any, as follows:
(i) The Company has prepared and filed with the Securities
and Exchange Commission (the "COMMISSION") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-52687), including any
related preliminary prospectus ("PRELIMINARY PROSPECTUS"), for the registration
of the Shares of Common Stock and the Underwriter's Securities under the
Securities Act of 1933, as amended (the "ACT"), which registration statement
and amendment or amendments have been prepared by the Company in conformity
with the requirements of the Act, and the Rules and Regulations of the
Commission thereunder. The Company will promptly file a further amendment to
said registration statement in the form heretofore delivered to the Underwriter
and will not file any other amendment thereto to which the Underwriter shall
have objected in writing after having been furnished with a copy thereof.
Except as the context
may otherwise require, such registration statement, as amended, on file with
the Commission at the time the registration statement becomes effective
(including the Prospectus, financial statements, schedules, exhibits and all
other documents or information incorporated by reference therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the rules and regulations), is hereinafter called the
"REGISTRATION STATEMENT", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the rules and regulations, is
hereinafter called the "PROSPECTUS". For purposes hereof, "RULES AND
REGULATIONS" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), as applicable.
(ii) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or Prospectus or any part of
any thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any of the Company's securities have been
instituted or are pending or threatened. Each of the Preliminary Prospectus,
the Registration Statement and Prospectus at the time of filing thereof
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectuses, the Registration Statement or Prospectus
at the time of filing thereof contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein and necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that this representation and warranty does
not apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus or any amendment or supplement thereto.
(iii) When the Registration Statement becomes effective and
at all times subsequent thereto up to the Closing Date (hereinafter defined)
and each Option Closing Date (hereinafter defined), if any, and during such
longer period as the Prospectus may be required to be delivered in connection
with sales by the Underwriter or a dealer, the Registration Statement and the
Prospectus will contain all statements which are required to be stated therein
in accordance with the Act and the Rules and Regulations, and will conform to
the requirements of the Act and the Rules and Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, contains or will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, PROVIDED, HOWEVER, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information furnished to the Company in writing by
or on behalf of the Underwriter (as set forth in paragraph 1(a)(ii) hereof)
expressly for use in the Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(iv) The Subsidiary is a wholly-owned subsidiary of the
Company. Each of the Company and the Subsidiary has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation. Except as set forth in the Prospectus, neither the
Company nor the Subsidiary own an equity interest in any corporation,
partnership, trust, joint venture or other business entity. Each of the Company
and the Subsidiary is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations require such qualification or
licensing except where the failure(s) to be so qualified, licensed and in good
standing, individually or in the aggregate, would not materially and adversely
affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operations of the Company
and the Subsidiary. Each of the Company and the Subsidiary has all requisite
power and authority (corporate and other), and has obtained any and all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), necessary to own or lease its properties and conduct its
business as described in the Prospectus, or is subject to no material liability
or disability by reason of the failure to obtain such authorizations,
approvals, orders, licenses, certificates, franchises and permits; each of the
Company and the Subsidiary is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state, local and foreign laws, rules and
regulations and neither the Company nor the Subsidiary have received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operations, properties, business, or results of operations of the
Company and the Subsidiary. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the business of the Company and the Subsidiary as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
(v) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and will have the
adjusted capitalization set forth therein
on the Closing Date (hereinafter defined) and the Option Closing Date
(hereinafter defined), if any, based upon the assumptions set forth therein,
and the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
described in the Prospectus. The Common Stock, the Underwriter's Warrants and
the Common Stock into which the Underwriter's Warrants are exercisable
(collectively, hereinafter sometimes referred to as the "IPO SECURITIES") and
all other securities issued or issuable by the Company conform or, when issued
and paid for, will conform, in all material respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company and its Subsidiary have been
duly authorized and validly issued and are fully paid and non-assessable and
the holders thereof have no rights of rescission with respect thereto except as
disclosed in the Registration Statement, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or the Subsidiary or similar contractual rights granted by the
Company or the Subsidiary. The IPO Securities are not and will not be subject
to any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the IPO Securities has been duly and validly taken; and the certificates
representing the IPO Securities are in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the IPO Securities to be sold by
the Underwriter hereunder, the purchasers of the IPO Securities will acquire
good and marketable title to such IPO Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(vi) The financial statements of the Company together with
the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, income, changes in cash flow, changes in stockholders'
equity and the results of operations of the Company and the Subsidiary at the
respective dates and for the respective periods to which they apply and the pro
forma financial information included in the Registration Statement, each
Preliminary Prospectus and the Prospectus presents fairly on a basis consistent
with that of the audited financial statements included therein, the Company's
and the Subsidiary's pro forma net income or loss per share, as the case may
be, pro forma net tangible book value, and the pro forma capitalization and
such financial statements have been prepared in conformity with generally
accepted accounting principles and the Rules and Regulations, consistently
applied throughout the periods involved. There has been no material adverse
change or development involving a material change in the condition, financial
or otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company or the
Subsidiary whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement and the
Prospectus, and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and the Subsidiary conforms in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(vii) The Company and its Subsidiary (A) has paid
all federal, state, local,
and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the
"CODE"), and has furnished all information returns it is required to furnish
pursuant to the Code, (B) has established adequate reserves for such taxes
which are not due and payable, and (C) does not have any tax deficiency or
claims outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the purchasers of the IPO Securities in connection
with (A) the purchase of and the issuance and transfer by the Company of the
IPO Securities and (B) the consummation by the Company of any of its
obligations under this Agreement.
(ix) The Company and its Subsidiary each maintains
insurance policies, including, but not limited to, general liability, product
liability if applicable and property insurance, which insures the Company and
its Subsidiary and their employees, against such losses and risks generally
insured against by comparable businesses. The Company and its Subsidiary (A)
have not failed to give notice or present any insurance claim with respect to
any matter, including but not limited to the Company's or the Subsidiary's
business, property or employees, under the insurance policy or surety bond in a
due and timely manner, (B) does not have any disputes or claims against any
underwriter of such insurance policies or surety bonds or has not failed to pay
any premiums due and payable thereunder, and (C) has not failed to comply with
all conditions contained in such insurance policies and surety bonds. To the
Company's knowledge there are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company and/or its
Subsidiary.
(x) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of the
Company or its Subsidiary which (A) questions the validity of the capital stock
of the Company, its Subsidiary or this Agreement, or of any action taken or to
be taken by the Company pursuant to or in connection with this Agreement or the
Underwriter's Warrant Agreement, (B) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (C) if adversely determined, might materially and
adversely affect the condition, financial or otherwise, or the business affairs
or business prospects, earnings, liabilities, prospects, stockholders' equity,
value, properties, business or assets of the Company and its Subsidiary.
(xi) The Company has full legal right, power and authority
to authorize, issue, deliver and sell the IPO Securities, enter into this
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions provided for herein and therein; and each of this Agreement and
the Underwriter's Warrant Agreement have been duly and properly authorized,
executed and delivered by the Company. This Agreement and the Underwriter's
Warrant Agreement each constitute a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, and
neither the Company's issue and sale of the IPO Securities or execution or
delivery of this Agreement and the Underwriter's Warrant Agreement or its
performance hereunder and thereunder, its consummation of the transactions
contemplated herein and therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company or its Subsidiary pursuant to the terms
of,
(A) the certificate of incorporation or by-laws of the Company or its
Subsidiary (B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement
or any other agreement or instrument to which the Company or its Subsidiary is
a party or by which it is or may be bound or by which its properties or assets
(tangible or intangible) are or may be subject, or any indebtedness, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the Company
or its Subsidiary by any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without limitation,
those having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or its Subsidiary or any of their
activities or properties, in each case except as described in the Prospectuses
and except for conflicts, breaches, violations, defaults, creations or
impositions which do not and would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, position,
shareholder's equity, value, operation, properties, business or results of
operations of the Company and its Subsidiary.
(xii) No consent, approval, authorization or order of, and
no filing with, any court, regulatory body, government agency or other body,
domestic or foreign which has not theretofore been obtained, is required for
the issuance of the IPO Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Underwriter's Warrants, the
execution, delivery or performance of this Agreement, the Underwriter's Warrant
Agreement and the transactions contemplated hereby and thereby, including,
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the IPO
Securities, except such as have been or may be obtained under the Act or may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the IPO Securities and the Underwriter's purchase
of the Underwriter's Warrants to be sold by the
Company hereunder and thereunder.
(xiii) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company and/or its
Subsidiary is a party or by which it may be bound or to which its assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by the Company and/or its Subsidiary and constitute the
legal, valid and binding agreement of the Company and its Subsidiary,
enforceable against the Company and its Subsidiary, in accordance with its
terms. The descriptions in the Registration Statement of agreements, contracts
and other documents and statutes and regulations are accurate and fairly
present the information required to be shown with respect thereto by Form S-1,
and there are no contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(xiv) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company nor its Subsidiary have (A) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (B) entered
into any transaction other than in the ordinary course of business, or (C)
declared or paid any dividend or made any other distribution on or in respect
of its capital stock of any class, and there has not been any change in the
capital stock, or any change in the debt (long or short term) or liabilities or
material change in or affecting the business affairs or prospects, management,
stockholders' equity, properties, business, financial operations or assets of
the Company and its Subsidiary.
(xv) Except as described in the final Prospectus no default
exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other material agreement
or instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which the Company or its Subsidiary is a
party or by which the Company or its Subsidiary may be bound or to which the
property or assets (tangible or intangible) of the Company or its Subsidiary is
subject or affected, which default would have a material adverse effect on the
condition, financial or otherwise, earnings, business affairs, position,
stockholder's equity, value, operation, properties, business or results of
operations of the Company and the Subsidiary.
(xvi) Each of the Company and its Subsidiary has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance in all material respects with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or the Subsidiary by the U.S. Department
of Labor, or any other governmental agency responsible for the enforcement of
such federal, state, local, or foreign laws and regulations. There is no unfair
labor practice charge or complaint against the Company or the Subsidiary
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or the Subsidiary, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees
of the Company or the Subsidiary and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or its
Subsidiary. No grievance or arbitration proceeding is pending under any expired
or
existing collective bargaining agreements of the Company or its Subsidiary.
No labor dispute with the employees of the Company or its Subsidiary exists,
or, to the knowledge of the Company is imminent.
(xvii) Except as described in the Prospectus, each of the
Company and its Subsidiary does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan", an "employee
welfare benefit plan" or a "multi employer plan" as such terms are defined in
Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA PLANS"). The Company and/or
its Subsidiary does not maintain or contribute, now or at any time previously,
to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan
(or any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code, which
could subject the Company or the Subsidiary to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is in
compliance with all material reporting, disclosure and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. Determination letters
have been received from the Internal Revenue Service with respect to each ERISA
Plan which is intended to comply with Code Section 401(a), stating that such
ERISA Plan and the attendant trust are qualified thereunder. Neither the
Company or the Subsidiary has never completely or partially withdrawn from a
"multi employer plan".
(xviii) The Company and its Subsidiary have not taken and
will not take, directly or indirectly, and the Company and its Subsidiary will
use their best efforts to ensure that any of their employees, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has not taken or will not take, directly or indirectly,
any action designed to or which has constituted or which might be expected to
cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the IPO Securities
or otherwise.
(xix) None of the patents, patent applications, trademarks,
service marks, trade names and copyrights, and licenses and rights to the
foregoing presently owned or held by the Company or its Subsidiary are in
dispute, to the Company's knowledge, or are in any conflict with the right of
any other person or entity. The Company and its Subsidiary (i) own or have the
license or other right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of their business as now conducted or proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing, except as set forth in the Prospectuses and
(ii) except as set forth in the Prospectus, are not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service xxxx, tradename, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of their business or otherwise.
(xx) Neither the Company nor its Subsidiary have received
any notice of infringement of or conflict with asserted rights of others with
respect to any trademark, service xxxx, trade name or copyright or other
intangible asset used or held for use by it in connection with the conduct of
its business which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect
on the condition, financial or otherwise, or the business affairs, position,
properties, results of operations or net worth of the Company and its
Subsidiary.
(xxi) The Company and its Subsidiary have good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property stated in the Prospectus, to be owned or leased
by it free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects, or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for taxes
not yet due and payable.
(xxii) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which each of its officers,
directors or any person or entity deemed to be an affiliate of the Company and
any stockholders, noteholders and any other parties holding, or in the future
holding, securities, instruments or contract rights convertible into common
shares or preferred shares and/or any other securities of the Company,
including common shares issued pursuant to the Company's Stock Option Plan, has
agreed, or shall agree prior to issuance as the case may be, not to, directly
or indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any
securities issued by the Company (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than 24 months following the effective date of the
Registration Statement without the prior written consent of the Underwriter,
and that for a period of 2 years following the Effective Date of the
Registration Statement any such security which has been issued and is
outstanding on the effective date of the Registration Statement and is to be
sold or otherwise disposed of pursuant to such Rule 144 with the consent of the
Underwriter shall only be sold or otherwise disposed of through the
Underwriter. The Company will cause the Transfer Agent, as defined below, to
xxxx an appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's stock
ledgers.
(xxiii) The Company has caused to be duly executed binding
and enforceable agreements with respect to all of the outstanding loans made to
the Company from time to time from affiliated persons wherein the Company and
each such lender has agreed that the Company will not make payment of principal
or accumulated interest thereon for an eighteen (18) month period from the
completion of the Offering except that three (3) Bridge Loans in the aggregate
principal sum of $600,000 plus accumulated interest thereon which are being
repaid to the Bridge Lenders out of the proceeds of the Offering.
(xxiv) There are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for services in the
nature of a finder's or origination fee with respect to the sale of the IPO
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company, the Subsidiary or any of
their officers, directors, stockholders, partners, employees or affiliates that
may affect the Underwriter's compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD") and the Company is aware that
the Underwriter shall compensate any of its personnel who may have acted in
such capacities as they shall determine in their sole discretion.
(xxv) The Common Stock has been approved for quotation on
the Nasdaq Small Cap Market and upon notice of issuance, listing on the Boston
Stock Exchange ("BSE").
(xxvi) Neither the Company, the Subsidiary nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or the Subsidiary has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who was,
is, or may be in a position to help or hinder the business of the Company or
the Subsidiary (or assist the Company or the Subsidiary in connection with any
actual or proposed transaction) which (A) might subject the Company or the
Subsidiary, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (B) if
not given in the past, might have had a materially adverse effect on the
assets, business or operations of the Company or the Subsidiary, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of the Company or the Subsidiary. The Company's and the
Subsidiary's internal accounting controls are sufficient to cause the Company
to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(xxvii) Except as set forth in the Prospectus, no officer,
director, or stockholder of the Company or the Subsidiary, or any "affiliate"
or "associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (A) an interest in any person or entity
which (1) furnishes or sells services or products which are furnished or sold
or are proposed to be furnished or sold by the Company or the Subsidiary, or
(2) purchases from or sells or furnishes to the Company or the Subsidiary any
goods or services, or (B) a beneficiary interest in any contract or agreement
to which the Company or the Subsidiary is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "Certain
Transactions", there are no existing agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company or the Subsidiary, and any officer,
director, and 5% or more stockholders (as such term is defined in the
Prospectus) of the Company or the Subsidiary, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the
Company and delivered to the Underwriter or to Underwriter's Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(xxix) The minute books of the Company and the Subsidiary
have been made available to the Underwriter and contains a complete summary of
all meetings and actions of the directors and stockholders of the Company and
the Subsidiary since the time of its incorporation, and reflects all
transactions referred to in such minutes accurately in all material respects.
(xxx) Except and to the extent described in the Prospectus,
no holders of any securities of the Company or the Subsidiary or of any
options, warrants or other convertible or exchangeable securities of the
Company or the Subsidiary have the right to include any securities issued by
the Company or the Subsidiary in the Registration Statement or any registration
statement under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of the Company or the Subsidiary.
(xxxi) The Company has as of the effective date of the
Registration Statement (a) entered into employment agreements with its
President, Xxxxxxxx Xxx Khan and its Chief Operating Officer, Xxxx X. Xxxxx, on
terms and conditions satisfactory to the Underwriter, and (ii) purchased
"Key-Man" insurance on the life of Xxxxxxxx Xxx Khan in the sum of $1,000,000
which names the Company as the sole beneficiary on terms and conditions
satisfactory to the Underwriter.
(xxxii) The Company has entered into an Underwriter's
Warrant Agreement with respect to the Underwriter's Warrants substantially in
the form filed as Exhibit _______ to the Registration Statement, with American
Stock Transfer and Trust Company in form and substance satisfactory to the
Underwriter.
(xxxiii) Immediately prior to the effective date of the
Registration Statement there shall be no more than an aggregate of ____________
shares of Common Stock issued and outstanding (including any and all (a)
securities with equivalent rights as the Common Stock or Common Stock, (b)
Common Stock, or such equivalent securities, issuable upon the exercise of
options, warrants and other contract rights, and (c) Securities convertible
directly or indirectly into Common Stock or such equivalent securities, but
excluding a maximum of ___________ shares of Common Stock which are issuable
upon exercise of options which may be granted pursuant to the Company's Stock
Option Plan.
(xxxiv) Subsequent to the date hereof and prior to any
Closing Date or Option Closing Date except as otherwise described in or
contemplated by the Prospectuses, the Company will not issue or acquire any
debt or equity securities.
(xxxv) Except for fair market value the Company shall not
issue any common shares, options, warrants or any other equity or debt security
within three (3) years following the Effective Date of the Registration
Statement without the express written consent of the Underwriter except for a
maximum of _____________ shares of common stock which may be issued pursuant to
the Company's Stock Option Plan nor shall the Company, during such three (3)
year period, effect a reverse split or reclassification of shares of its
capital stock without the express written consent of the Underwriter.
(xxxvi) Services currently being provided to the Company by
affiliated companies, if any, shall continue to be provided to the Company
without charge except for reasonable disbursements incurred on behalf of the
Company.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the warranties, representations and
agreements herein
contained, and subject to the satisfaction of all the terms and conditions of
this Agreement, the Company agrees to engage the Underwriter, and the
Underwriter agrees to serve as the Company's exclusive agent to sell, on a best
efforts basis, a minimum of 666,667 shares of Common Stock (the "MINIMUM
OFFERING") and a maximum of 3,000,000 shares of Common Stock (the "MAXIMUM
OFFERING"), less, in the case of each such security, an underwriting commission
of ten percent (10%) of the gross sale price of each such security sold in the
Offering by deduction from the proceeds of the Offering. The Underwriter may
allow a concession not exceeding $_______ per share of Common Stock to Selected
Dealers who are members of the NASD, and to certain foreign dealers, and such
dealers may reallow to NASD members and to certain foreign dealers a concession
not exceeding $_____ per share of Common Stock.
(b) The proceeds from the sale of the Securities shall be
deposited by the Underwriter upon receipt thereof in an escrow account (the
"ESCROW ACCOUNT") at The Chase Manhattan Bank, a New York state charted bank
with offices at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 until the
Minimum Offering amount of 666,667 shares of Common Stock is deposited in the
Escrow Account. If the Minimum Offering amount is not sold and the proceeds
thereof deposited into the Escrow Account prior to the expiration of the
Offering Period, the Offering proceeds received from investors will be promptly
refunded to the investors in full without
interest thereon and/or deduction of any kind therefrom.
(c) Delivery of the Securities and payment therefore shall
be made at 10:00 a.m., New York time on each Closing Date and Option Closing
Date, if any, as hereinafter defined, at the offices of the Underwriter or such
other location as may be agreed upon by you and the Company. Delivery of
certificates for the Common Stock (in definitive form and registered in such
names and in such denominations as you shall request by written notice to the
Company
delivered at least four business days' prior to the Closing Date or Option
Closing Date, if any), shall be made to you for the account of the purchasers
of the Securities against payment of the purchase price therefor by certified
or bank check or wire transfer payable in New York Clearing House funds to the
order of the Company. The Company will make such certificates available for
inspection at least one business day prior to the Closing Date and Option
Closing Date, if any, at such place as you shall designate.
3. Closing Date
The "Closing Date" shall be not later than the fourth
business day following receipt of the Minimum Offering amount in cleared funds
and thereafter as additional funds are received up to the Maximum Offering
amount at such times as you shall determine (the "OPTION CLOSING DATE") and
advise the Company by at least three full business days' notice.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable (such Registration Statement to be in form and
substance satisfactory to the Underwriter and its counsel) and will not at any
time, whether before or after the effective date of the Registration Statement,
file any amendment to the Registration Statement or supplement to the
Prospectus or file any document under the Act or Exchange Act before
termination of the Offering of the Securities by the Underwriter of which the
Underwriter shall not previously have been advised and furnished with a copy,
or to which the Underwriter shall have objected unless required under the Act,
the Exchange Act or the Rules and Regulations thereunder or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceeding, suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities
for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter and its counsel) or transmit the
Prospectus by a means reasonably calculated to result in filing with the
Commission pursuant to Rule 424 (b) (or, if applicable and if consented to by
the Underwriter, pursuant to Rule 424 (b)(47).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment)
or any amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriter in connection
with the Offering of the IPO Securities which differs from the corresponding
prospectus on file at the Commission at the time the Registration Statement
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish
the Underwriter with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such prospectus to which the Underwriter or Doros & Brescia,
P.C. ("UNDERWRITER'S COUNSEL"), shall reasonably object unless required under
the Act or the Rules and Regulations thereunder.
(e) The Company shall take all action, in cooperation with
the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the IPO Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such
purpose; PROVIDED, HOWEVER, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall
be effected, the Company will, unless the Underwriter agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification. It is
agreed that Underwriter's Counsel (or its designees) shall perform all such
required Blue Sky legal services.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon
it by the Act and the Exchange Act, as now and hereafter amended and by the
Rules and Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the IPO Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the IPO
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the reasonable opinion of counsel for the
Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act and the Rules and Regulations, the Company will notify
the Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be reasonably satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriter may reasonably request.
(g) During the time when a prospectus relating to the IPO
Securities is required to be delivered under the Act, the Company will use its
best efforts to comply with all requirements imposed upon it by the Act and the
Securities Exchange Act of 1934 (the "EXCHANGE ACT"), as now and hereafter
amended and by the Regulations, as from time to time in force, as necessary to
permit the continuance of sales of or dealings in the IPO Securities in
accordance with the provisions hereof and the Prospectus and the Company shall
use its best efforts to keep the Registration Statement current and effective
so long as a Prospectus is required to be delivered in connection with the sale
of the IPO Securities by the Underwriter or by dealers effecting transactions
therein in connection with the initial public offering thereof. If at any time
when a prospectus relating to the IPO Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
reasonable opinion of counsel for the Company or counsel for the Underwriter,
the Prospectus as then amended or supplemented (or the prospectus contained in
a new registration statement filed by the Company pursuant to Paragraph 4(x),
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
or if, in the reasonable opinion of either such counsel, it is necessary at any
time to amend the Prospectus (or the prospectus contained in such new
registration statement) to comply with the Act, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act and will furnish to you
copies thereof.
(h) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon exercise of the Underwriter's Warrants (including the
underlying securities) outstanding from time to time.
(i) The Company will timely prepare and file at its sole cost
and expense one or more post-effective amendments to the Registration Statement
or a new registration statement as required by law as will permit holders of
the Underwriter's Warrants to be furnished with a current prospectus in the
event and at such time as the Underwriter's Warrants are exercised, and the
Company will use its best efforts and due diligence to have the same be
declared effective (with the intent that the same be declared effective as soon
as the Underwriter's Warrants become exercisable) and to keep the same
effective so long as the Underwriter's Warrants are outstanding. The Company
will deliver a draft of each such post-effective amendment or new registration
statement to the Underwriter at least ten days prior to the filing of such
post-effective amendment or registration statement.
(j) So long as any of the Underwriter's 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 holder of the
Underwriter's Warrants where such Prospectus delivery is by law required to be
made.
(k) So long as any of the Underwriter's Warrants remain
outstanding, the Company shall continue to employ the services of a firm of
independent certified public accountants reasonably acceptable to the
Underwriter in connection with the preparation of the financial statements to
be included in any registration statement to be filed by the Company hereunder,
or any amendment or supplement thereto. During the same period, the Company
shall employ the services of a law firm(s) reasonably acceptable to the
Underwriter in connection with all legal work of the Company, including the
preparation of a registration statement to be filed by the Company hereunder,
or any amendment or supplement thereto.
(l) So long as any of the Underwriter's Warrants remain
outstanding, the Company shall continue to appoint a Warrant Agent for the
Underwriter's Warrants, who shall be reasonably acceptable to the Underwriter.
(m) As soon as practicable, but in any event not later than
45 days after the end of the 12-month period beginning on the day after the end
of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and
Regulations, and to the Underwriter, an earnings statement which will be in the
detail required by, and will otherwise comply with, the provisions of Section
11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement
need not be audited unless required by the Act, covering a period of at least
12 consecutive months after the effective date of the Registration Statement.
(n) During a period of seven years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Underwriter:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each quarter in the
form filed on Form 10-Q with the Commission and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its businesses which
the Underwriter may reasonably request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are consolidated,
and will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(o) The Company will maintain American Stock Transfer and
Trust Company as its Transfer Agent and Registrant (the "TRANSFER AGENT") and
counsel, accounting firm and financial printer for its Common Stock, all of
whom shall be reasonably acceptable to the Underwriter. Such Transfer Agent
shall, for a period of two years following the Closing Date, deliver to the
Underwriter the daily securities position of the Company's stockholders of
record and for a period of three (3) years thereafter the monthly securities
position.
(p) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement,
any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any
Prospectus prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the Underwriter may
reasonably request.
(q) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with true copies of duly
executed, legally binding and enforceable agreements pursuant to which for a
period of not less than 24 months after the effective
date of the Registration Statement, (except for 275,000 shares of Common Stock
being offered by an affiliated selling stockholder) each holder of securities
issued by the Company and outstanding at the effective date of the Registration
Statement (including securities convertible into Common Stock or Common Stock
of the Company) agrees that it or he or she will not, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any of such securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Underwriter (collectively, the "LOCK-UP AGREEMENTS"). During the two (2)
year period commencing with the effective date of the Registration Statement,
the Company shall not issue any securities under Regulation S and will not,
without the prior written consent of the Underwriter, sell, contract or offer
to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any debt security of the Company or any shares of
Common Stock or any options, rights or warrants with respect to any shares of
Common Stock (other than upon exercise of options or warrants referred to in
the Registration Statement, or with respect to transactions between the Company
and its lenders and purchasers of mortgage backed securities). On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate legends on the certificates representing
the securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers.
(r) The Company has not taken and will not take, directly or
indirectly, and the Company will use their its efforts to ensure that any of
its employees, officers, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) will take, directly or indirectly, any
action designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any
securities of the Company.
(s) The Company shall apply the net proceeds from the sale of
the IPO Securities in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used, directly or indirectly, to acquire any securities issued by the
Company except as described in the Prospectuses.
(t) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act and the Rules and
Regulations.
(u) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 6(j) hereof.
(v) The Company shall cause the Common Stock to be listed on
the Nasdaq Small Cap Market and on the BSE, and for a period of seven (7) years
from the date hereof, use its best efforts to maintain such listings of the
Common Stock to the extent outstanding.
(w) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Underwriter at the Underwriter's request and at
the Company's sole expense, (i) the list of holders of all of the Company's
securities, (ii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company, and (iii) daily
consolidated transfer sheets relating to the Common Stock but not more than six
(6) times per year.
(x) As soon as practicable, (i) but in no event more than
five business days before the effective date of the Registration Statement,
file a Form 8-A with the Commission providing for the registration under the
Exchange Act of the Securities and (ii) but in no event more than 30 days from
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation Records
Service in order to satisfy the requirements for "manual exemption" in those
states where available and to maintain such inclusion for as long as the IPO
Securities are outstanding.
(y) Until the completion of the distribution of the IPO
Securities, the Company shall not without the prior written consent of the
Underwriter and Underwriter's Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, 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.
(z) For a period of three (3) years after the effective date
of the Registration Statement, the Underwriter shall have the right to
designate, one (1) individual for election to the Company's Board of Directors
("Board") and the Company shall cause such individual to be elected to the
Board. In the event the Underwriter shall not have designated such individual
at the time of any meeting of the Board or such person is unavailable to serve,
the Company shall notify the Underwriter of each meeting of the Board and an
individual designated by the Underwriter shall be permitted to attend all
meetings of the Board and to receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such individual
shall be reimbursed for all out-of-pocket expenses incurred in connection with
his or her service on, or attendance at meetings of, the Board. The Company
shall provide its outside directors
with compensation in the form of cash and/or options on its Common Stock as
deemed appropriate and similar for similar companies.
(aa) The Company hereby grants to the Underwriter a right of
first refusal on the terms and subject to the conditions set forth in this
paragraph, for a period of three years from the effective date of the
Registration Statement, to purchase for its account or to sell for the account
of the Company or its present or future subsidiaries, any securities of the
Company or any of its present or future subsidiaries, with respect to which the
Company or any of its present or future subsidiaries may seek a public or
private sale. The Company, for a period of five years from the effective date
of the Registration Statement, will consult, and will cause such present or
future subsidiaries to consult with the Underwriter with regard to any such
offering or placement and will offer, or cause any of its present or future
subsidiaries to offer, to the Underwriter the opportunity, on terms not more
favorable to the Company or such present or future subsidiary than they can
secure elsewhere, to purchase or sell any such securities. If the Underwriter
fails to accept in writing such proposal made by the Company or any of its
present or future subsidiaries within fifteen business days after receipt of a
notice containing such proposal, then the Underwriter shall have no further
claim or right with respect to the proposal contained in such notice. If,
thereafter, such proposal is materially modified, the Company shall again
consult, and cause each present or future subsidiary to consult, with the
Underwriter in connection with such modification and shall in all respects have
the same obligations and adopt the same procedures with respect to such
proposal as are provided hereinabove with respect to the original proposal.
(bb) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the date of the sale to the public of the
securities issuable upon exercise of the Underwriter's Warrants, the Company
will not take any action or actions which may prevent or
disqualify the Company's use of Form S-1 for the registration under the Act of
the securities issuable upon exercise of the Underwriter's Warrants.
(cc) On or before the effective date of the Registration
Statement, the Company shall have retained a financial public relations firm
reasonably satisfactory to the Underwriter, which shall be continuously engaged
from such engagement date to a date twelve (12) months from the Closing Date.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriter's Counsel, except as
provided in (iv) below) upon presentation of an itemized schedule of expenses
incident to the performance of the obligations of the Company under this
Agreement and the Underwriter's Warrant Agreement including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement and the
Underwriter's Warrant Agreement and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and of the Prospectus
and any amendments thereof or supplements thereto supplied to the Underwriter
and such dealers as the Underwriter may reasonably request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
IPO Securities, including, but not limited to, (x) the purchase by the
Underwriter of
the Underwriter's Warrants from the Company, (y) the consummation by the
Company of any of its obligations under this Agreement and the Underwriter's
Warrant Agreement and (z) the sale of the IPO Securities by the Underwriter in
connection with the distribution contemplated hereby to the extent that
expenses relate to the printing, engraving, issuance and delivery of the IPO
Securities, (iv) the qualification of the IPO Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey", if any, and legal fees of counsel
Doros & Brescia, P.C., of $125,000 plus disbursements incurred by them in
connection therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show", information
meetings and presentations, bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses (not to exceed $5,000), (vi) costs, fees and
expenses in connection with due diligence investigations, including but not
limited to the costs of background checks on key management and/or personnel of
the Company, (vii) fees and expenses of the transfer agent, and registrar,
(viii) applications for assignments of a rating of the IPO Securities by
qualified rating agencies, (ix) the fees payable to the Commission, and the
NASD, and (x) the fees and expenses incurred in connection with the listing of
the IPO Securities on the NASD Electronic Bulletin Board, the BSE and any other
exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel (and in addition to fees and expenses of Underwriter's Counsel incurred
pursuant to Section 5(a)(iv) above for which the Company shall remain liable)
less any amounts
previously paid, provided, however, that in the event of a termination pursuant
to Section 10(a) hereof such obligation of the Company shall not exceed
$50,000.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Underwriter by certified or bank cashier's check or, at the election of the
Underwriter, by deduction from the proceeds of the Offering on the initial
Closing Date and each Option Closing Date a non-accountable expense allowance
equal to two and one-half percent (2.5%) of the gross proceeds of the Offering.
(d) The Underwriter shall not be responsible for any expense
of the Company or others or for any charge or claim related to the Offering in
the event that the sale of the IPO Securities as contemplated hereunder is not
consummated.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and its Subsidiary herein as of
the date hereof and as of the Closing Date and each Option Closing Date, if
any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement, which shall be in form and
substance satisfactory to Underwriter's Counsel, shall have become effective no
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter,
and, at the Closing Date and each Option Closing Date, if any, 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
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriter's Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the price of the
IPO Securities and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing
Date the Company shall have provided evidence satisfactory to the Underwriter
of such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits to
state a fact which, in the Underwriter's opinion, is material and is required
to be stated therein or is necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel, such opinion or opinions with respect
to the organization of the Company and its Subsidiary, the validity of the IPO
Securities, the Underwriter's Warrants, the Registration Statement, the
Prospectus and other related matters as the Underwriter may request and
Underwriter's Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriter shall have received
the favorable opinion of ___________________________, counsel to the Company,
dated as of the Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been
duly organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction; (B) to such counsel's knowledge has all requisite
corporate power and authority to own or lease its properties and conduct its
business as described in the Prospectus; (C) to such counsel's knowledge is
duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing; and (D)
to such counsel's knowledge, has not received any notice of proceedings
relating to the revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the business, operations, condition, financial or
otherwise, or the earnings, business affairs or prospects, properties,
business, assets or results of operations of the Company and the Subsidiary
taken as a whole. To the knowledge of such counsel the disclosures in the
Registration Statement concerning the effects of federal, state and local laws,
rules and regulations on the Company's or the Subsidiary's business as
currently conducted and as contemplated are correct in all material respects
and do not omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made:
(ii) to such counsel's knowledge, except as set forth in
the Prospectus, the Company nor the Subsidiary does not own an equity interest
in any other corporation, partnership, joint venture, trust or other business
entity;
(iii) to such counsel's knowledge the Company has a duly
authorized, issued and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto, under "Capitalization",
and, to such counsel's knowledge, the Company nor the Subsidiary is not a party
to or bound by any instrument, agreement or other arrangement providing for it
to issue any capital stock, rights, warrants, options or other securities,
except for this Agreement and the Underwriter's Warrant Agreement and as
described in the Prospectus. The IPO Securities, and all other securities
issued or issuable by the Company, conform in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. To the knowledge of such counsel all issued and outstanding
securities of the Company and the Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable; the holders thereof have
no contractual rights of rescission with respect thereto, and are not subject
to personal liability under the laws of the State of Nevada as currently in
effect by reason of being such holders; and none of such securities were issued
in violation of the preemptive rights of any holders of any security of the
Company. The IPO Securities to be sold by the Company hereunder and under the
Underwriter's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and conform
to the description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and sale of the IPO
Securities when issued will be duly and validly taken;
and the certificates representing the IPO Securities are in due and proper
form. The Underwriter's Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment therefore the
number and type of securities of the Company called for thereby. Upon payment
the issuance and delivery pursuant to this Agreement of the IPO Securities to
be sold by the Company hereunder, the purchasers thereof, will acquire good and
marketable title to the IPO Securities free and clear of any pledge, lien,
charge, claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever;
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and, to such counsel's knowledge, no stop
order suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending, threatened or
contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplement thereto (other
than the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations;
(vi) to the best of such counsel's knowledge, (A) there
are no agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if upon
such filing they would be incorporated, in whole or in part, by reference
therein) and the Prospectus and
filed as exhibits thereto, and the exhibits which have been filed are
substantially correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other documents to
which the Company or the Subsidiary is a party or by which it is bound,
including any document to which the Company or the Subsidiary is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form S-1; (C) there is
not pending or threatened against the Company or the Subsidiary any action,
arbitration, suit, proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company or the Subsidiary which (1)
is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), (2) questions the validity of the
capital stock of the Company or the Subsidiary or this Agreement or the
Underwriter's Warrant Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) except as disclosed in the
Prospectus, there is no action, suit or proceeding pending, or threatened,
against or affecting the Company or the Subsidiary before any court or
arbitrator or governmental body, agency or official (or any basis thereof known
to such counsel) in which an adverse decision which may result in a material
adverse change in the condition, financial or otherwise, or the earnings,
position, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company and the
Subsidiary taken as a whole, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement or the Underwriter 's Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or the
Underwriter's Warrant Agreement;
(vii) the Company has full legal right, power and
authority to enter into this Agreement and the Underwriter's Warrant Agreement
and to consummate the transactions provided for herein and therein; and this
Agreement and the Underwriter's Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement and the
Underwriter's Warrant Agreement assuming due authorization, execution and
delivery by each other party hereto constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law), and neither the
Company's execution or delivery of this Agreement and the Underwriter's Warrant
Agreement, its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of, (A) the certificate of incorporation or by-laws of the Company or
the
Subsidiary, (B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement
or any other agreement or instrument to known to such counsel which the Company
or the Subsidiary is a party or by which it is or may be bound or to which any
of its properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Subsidiary of any arbitrator,
court, regulatory body or administrative agency or other governmental agency or
body domestic or foreign, having jurisdiction over the Company or the
Subsidiary or any of its activities or properties, except for conflicts,
breaches, violations, defaults, creations or impositions which do not and would
not have a material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs, position, shareholder's equity, value,
operations, properties, business or results of operations of the Company and
the Subsidiary taken as a whole;
(viii) except as described in the Prospectus, no consent,
approval, authorization or order, and no filing with, any court, regulatory
body, government agency or other body (other than such as may be required under
Blue Sky laws, as to which no opinion need be rendered) is required in
connection with the issuance of the IPO Securities pursuant to the Prospectus
and the Registration Statement, the issuance of the Underwriter's Warrants, the
performance of this Agreement and the Underwriter's Warrant Agreement and the
transactions contemplated hereby and thereby;
(ix) the properties and business of the Company and the
Subsidiary conform to the description thereof contained in the Registration
Statement and the Prospectus;
(x) to such counsel's knowledge and except as described in
the
Prospectus neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract, indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company or
the Subsidiary is a party or by which the Company or the Subsidiary may be
bound or to which the property or assets (tangible or intangible) of the
Company or the Subsidiary is subject or affected, which could materially
adversely affect the Company or of the Subsidiary; and neither the Company nor
the Subsidiary is in violation of any term or provision of its Certificate of
Incorporation or By-Laws, or in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation the result of which would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, shareholders' equity, value, operation,
properties, business or results of operations of the Company and the Subsidiary
taken as a whole;
(xi) to the knowledge of such counsel and except as
described in the Prospectus the Company and the Subsidiary owns or possesses,
free and clear of all liens or encumbrances and rights thereto or therein by
third parties, the requisite licenses or other rights to use all trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications and licenses necessary to conduct its business (including, without
limitation any such licenses or rights described in the Prospectus as being
owned or possessed by the Company or the Subsidiary), and to the best of such
counsel's knowledge after reasonable investigation, there is no claim or action
by any person pertaining to, or proceeding, pending, or threatened, which
challenges the exclusive rights of the Company or the Subsidiary with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct
of the Company's or the Subsidiary's business (including, without limitations,
any such licenses or rights described in the Prospectus as being owned or
possessed by the Company or the Subsidiary);
(xii) the IPO Securities have been approved for listing on
the Nasdaq Small Cap Market and the Company's Registration Statement on Form
8-A under the Exchange Act has become effective;
(xiii) to such counsel's knowledge, the persons listed
under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
(xiv) to such counsel's knowledge, except as described in
the Prospectus, no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xv) to such counsel's knowledge, except as described in
the Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the IPO Securities hereunder or the financial consulting
arrangement or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriter's compensation, as determined by the
NASD;
(xvi) the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against each such party and any
subsequent holder of the securities subject thereto in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable); and
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriter's Counsel) of
other counsel acceptable to Underwriter's Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company or the Subsidiary, provided that copies of any
such statements or certificates shall be delivered to Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriter shall have
received an opinion letter from ____________________________, counsel to the
Company, dated the Option Closing Date, addressed to the Underwriter and in
form and substance satisfactory to Underwriter's Counsel confirming as of such
Option Closing Date the statements made in its opinion delivered on the Closing
Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company and its Subsidiary, or herein contained.
(f) Prior to each Closing Date and each Option Closing Date, if any,
(i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company and the
Subsidiary taken as a whole, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company or the Subsidiary, (iii) neither the Company nor the Subsidiary shall
be in default under any provision of any instrument relating to any outstanding
indebtedness; (iv) neither the Company nor the Subsidiary shall have issued any
securities (other than the IPO Securities and the Underwriter's Warrants) or
declared or paid any dividend or made any distribution in respect of its
capital stock of any class and there has not been any change in the capital or
any change in the debt (long or short term) or liabilities or obligations of
the Company or the Subsidiary (contingent or otherwise); (v) no material amount
of the assets of the Company or the Subsidiary shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been
pending or threatened (or circumstances giving rise to same) against the
Company or any Subsidiary, or affecting any of its properties or business
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
adversely affect the business, operations, management prospects or financial
condition or assets of the Company or the Subsidiary taken as a whole, except
as set forth in the Registration Statement and Prospectus: and (vii) no stop
order shall have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or
contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the
effect that each of such persons has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of
the Company and its Subsidiary are true and correct, as if made on and as of
the Closing Date or the Option Closing Date, as the case may be, and the
Company and its Subsidiary have complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on their part to be
performed or satisfied at or prior to such Closing Date or Option Closing Date,
as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and neither the Preliminary Prospectus or any supplement thereto
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there must not have been any
material change in the shares of Common Stock, Common Stock or liabilities of
the Company or the Subsidiary except as set forth in or contemplated by the
Prospectus; (B) there must not have been any material adverse change in the
general affairs, management, business, financial condition or results of
operations of the Company or the Subsidiary, whether or not arising from
transactions in the ordinary course of business, as set forth in or
contemplated by the Prospectus; (C) the Company and the Subsidiary must not
have sustained any material loss or interference with its business from any
court or from legislative or other governmental action, order or decree,
whether foreign or domestic, or from any other occurrence, not described in the
Registration Statement and Prospectus; (D) there must not have occurred any
event that makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or Prospectus or that is
not reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information therein, in
light of the circumstances in which they were made, not misleading in any
material respect; (E) the Company and the Subsidiary must not have incurred up
to and including the Closing Date or the Option Closing Date, as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (F) the Company and the Subsidiary must
not have paid or declared any dividends or other distributions on its capital
stock; (G) the Company and the Subsidiary must not have entered into any
transactions not in the ordinary course of business; (H) there has not been any
change in the capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in the
ordinary course of business) of the Company or the Subsidiary; (i) the Company
and the Subsidiary must not have sustained any material loss or damage to its
property or assets, whether or not insured;
and (J) there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(h) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date, addressed to the Underwriter in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriter and Underwriter's Counsel, from ____________:
(i) confirming that they are independent accountants with
respect to the Company and the Subsidiary within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company and the Subsidiary included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of ________________ with respect
to the financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company and the Subsidiary (with an indication of the date of
the latest available unaudited interim financial statements), a reading of the
latest available minutes of the stockholders and board of directors and the
various
1
committees of the boards of directors of the Company and the Subsidiary,
consultations with officers and other employees of the Company and the
Subsidiary responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which would lead
them to believe that (A) the unaudited financial statements, if any, of the
Company and the Subsidiary included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company and the Subsidiary included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital stock or
long-term debt of the Company and the Subsidiary, or any decrease in the
stockholders' equity or net current assets or net assets of the Company and the
Subsidiary as compared with amounts shown in the ________________, 19__ balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of liabilities of
the Company and the Subsidiary (including a breakdown of commercial paper and
notes payable to banks) ;
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company and the Subsidiary set forth in
the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and the Subsidiary
and excluding any
2
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement;
(vi) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information;
(vii) stating that they have not during the immediately
preceding five (5) year period brought to the attention of any of the Company's
management any "weakness", as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an
Audit", in any of the Company's internal controls; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from _____________________, a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (i) of this Section, except that the specified date in the
referred to letter shall be a date not more than five days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and
Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection (i) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Underwriter and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(k) On each of the Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Underwriter the appropriate number of IPO
Securities.
(l) No order suspending the sale of the IPO Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or shall be contemplated.
(m) On or before the Closing Date, the Common Stock shall have been
approved for quotation on the Nasdaq Small Cap Market and shall have been
authorized upon official notice of issuance for trading on the BSE.
(n) On or before the Closing Date, there shall have been delivered to
the Underwriter the Lock-up Agreements, in form and substance satisfactory to
Underwriter's Counsel.
(o) On or before the Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Underwriter's Warrant Agreement
substantially in the form filed as Exhibit _____ to the Registration Statement
in final form and substance satisfactory to the Underwriter, and (ii) the
Underwriter's Warrants in such denominations and to such designees as shall
have been provided to the Company.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the
Underwriter may terminate this Agreement or, if the Underwriter so elects, it
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
7. Indemnification.
(a) The Company and its Subsidiary, jointly and severally,
agrees to indemnify and hold harmless the Underwriter (for purposes of this
Section 7 "Underwriter" shall include the officers, directors, partners,
employees, agents and counsel of the Underwriter, and each person, if any, who
controls the Underwriter ("CONTROLLING PERSON") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions in respect thereof), whatsoever (including but not limited to any and
all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act, or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any time new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the IPO Securities; or (iii) in any application or
other document or written communication (in this Section 7 collectively called
"APPLICATION") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the IPO
Securities under the securities laws thereof or filed with the Commission, any
securities commission or agency, the NASD, the BSE or any securities exchange;
or the omission or alleged omission therefrom of a material fact required to be
stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any Application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in
any Application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in
any such Application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus directly relating to the transactions effected by the
Underwriter in connection with this offering. The Company acknowledges that the
statements with respect to the public offering of the IPO Securities set forth
under the heading "Plan of Distribution" and the stabilization legend in the
Prospectus have been furnished by the Underwriter expressly for use therein.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this Section 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section 7 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise). In case any such action
is brought against any indemnified party, and it notifies an indemnifying party
or parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to employ
its or their own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless (i)
the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of one additional
counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that such
consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution
in any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the IPO Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable
considerations. In any case where the Company is a contributing party and the
Underwriter is the indemnified party, 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 net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the
Prospectus. Relative fault 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 necessary to make the
statements made, in light o the circumstances under which they were made, not
misleading relates to information supplied by the Company, or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriter shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
IPO Securities sold by the Underwriter hereunder. 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 was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d), Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such
party in respect to which a claim for contribution may be made against another
party or parties under this subparagraph (d), notify such party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than
under this subparagraph (d), or to the extent that such party or parties were
not adversely affected by such omission. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party may
have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and any Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and its Subsidiaries and the
respective indemnity agreements contained in Section 7 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, the Company, any controlling person of the
Underwriter or the Company, and shall survive termination of this Agreement or
the issuance and delivery of the IPO Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the first full business day following the day on
which the Registration Statement becomes effective.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Underwriter shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Underwriter's opinion will in the immediate future materially disrupt
the financial markets; or (ii) any material adverse change in the financial
markets shall have occurred; or (iii) if trading on the New York Stock
Exchange, the American Stock Exchange, or in the over-the-counter market shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required on
the over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall
have been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (v) if a banking
moratorium has been declared by a state or federal authority; or (vi) if a
moratorium in foreign exchange trading has been declared; or (vii) if the
Company and/or any of its Subsidiaries, shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the IPO Securities; or (vii) if
there shall have been such a material adverse change in the condition
(financial or otherwise), business affairs or prospects of the Company and/or
any of its Subsidiaries, whether or not arising in the ordinary course of
business, which would render, in the Underwriter's judgment, either of such
parties unable to perform satisfactorily its respective obligations as
contemplated by this Agreement or the Registration Statement, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Underwriter's judgment would make it
inadvisable to proceed with the offering,
sale and/or delivery of the IPO Securities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Underwriter for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriter
in an amount not to exceed $50,000 (less amounts previously paid pursuant to
Section 5(c) above). Notwithstanding any contrary provision contained in this
Agreement, if this Agreement shall not be carried out within the time specified
herein, or any extension thereof granted to the Underwriter, by reason of any
failure on the part of the Company to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to Section 6 or Section 12) then, the Company
shall promptly reimburse and indemnify the Underwriter for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriter (less amounts previously paid pursuant to Section 5 (c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 6 and 10
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxxxx
Xxx Khan, President, with a copy to Doros & Brescia, P.C., 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx X. Xxxxxxx, Esq. Notices
to the Company shall be directed to the Company at 000 Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, Attention: Xxxxxxxx Xxx Khan, President, with a copy to
___________________________, Attention: _____________________.
12. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal Underwriters and assigns and no other person shall
have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from the Underwriter shall be deemed to
be a successor by reason merely of such purchase.
13. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of _____________ without
giving effect to the choice of law or conflict of laws principles.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Underwriter and
the Company.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
UNITED STATES FINANCIAL GROUP,
INCORPORATED
By:
-------------------------------
Name: Xxxxxxxx Xxx Khan
Title: President
Confirmed and accepted as of
the date first above written
XXXXX XXXX & SHIRE, INC.
By:
--------------------------------
Name: Xxxxxxxx Xxx Khan
Title: President
