Form of Underwriting Agreement
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1,100,000 Shares of Series A 6% Preferred Stock
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AWG, LTD.
UNDERWRITING AGREEMENT
New York, New York
___________ ___, 1999
Nutmeg Securities, Ltd.
000 Xxxx Xxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Klein Xxxx and Shire, Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
As Representatives of the
Several Underwriters listed on Schedule A hereto
Ladies and Gentlemen:
AWG, Ltd., a Nevada corporation (the "Company"), confirms
its agreement (the "Agreement") with Nutmeg Securities, Ltd. ("Nutmeg") and
Xxxxx Xxxx and Shire, Inc., ("KMS") (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided
in Section 11), for whom Nutmeg and KMS are acting as representatives (in
such capacity, Nutmeg and KMS shall hereinafter be collectively referred to
as "you" or the "Representatives"), with respect to the sale (the "Offering")
by the Company and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of securities set forth in Schedule A
consisting of 600,000 shares (the "Shares") of the Company's Series A 6%
Preferred Stock, $.001 par value per share (the "Preferred Stock"). Such
600,000 shares of Preferred Stock
are hereinafter also referred to as the "Firm Securities." Upon your request,
as provided in Section 2(b) of this Agreement, the Company shall also issue
and sell to you up to an additional 90,000 shares of Preferred Stock for the
purpose of covering over-allotments, if any, in the sale of the Firm
Securities. Such additional 90,000 shares of Preferred Stock are hereinafter
referred to as the "Option Securities." The Firm Securities and the Option
Securities are hereinafter collectively referred to as the "Securities." The
Company also proposes to issue and sell to the Underwriters warrants (the
"Representatives' Warrants") pursuant to the Representatives' Warrant
Agreement (as defined in Section (xxxii) hereof) to purchase an aggregate of
60,000 shares of Preferred Stock (and additionally up to 9,000 shares of
Preferred Stock if the over-allotment is exercised). The 60,000 shares of
Preferred Stock (or up to 69,000 shares if the over-allotment is exercised)
issuable upon exercise of the Representatives' Warrants are hereinafter
referred to as the "Representatives' Securities" or the "Warrant Shares". The
Securities, the Representatives' Warrants and the Representatives' Securities
are more fully described in the Registration Statement and the Prospectus
referred to below. Additionally, 500,000 shares of Preferred Stock are being
registered on behalf of a single shareholder.
1. Representations and Warranties. (a) The Company, a
Nevada corporation, which has one wholly owned subsidiary, AWG, Inc., a
Delaware corporation (the "Subsidiary") represents and warrants to, and
agrees with, each of the Underwriters' 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
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thereto, on Form SB-1 (No. 333-48165), including any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the Preferred
Stock, the Representatives' Warrants and the Representatives' 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
Underwriters and will not file any other amendment thereto to which the
Underwriters 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
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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 Prospectus, 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
Underwriters by or on behalf of the Underwriters 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 Underwriters 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 any
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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 each 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
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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 Securities, the
Representatives' Warrants and the Representatives' Securities (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
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rescission with respect thereto, 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 Company hereunder, the Underwriters or the Representatives, as the case
may be, 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 consolidated 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
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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) have each
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 Underwriters in connection with
(A) the issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Securities and the purchase by the Representatives of the
Representatives' Warrants from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, or (D) resales of the
Securities in connection with the
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distribution contemplated hereby.
(ix) The Company and its Subsidiary maintain
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) do 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) have 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, the
Representatives' Warrant Agreement, (as defined in Section 1(xxxii) below) or
of any action taken or to be taken by the Company or its Subsidiary pursuant
to or in connection with this Agreement or the Representatives' Warrant
Agreement, (B) is required
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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 Representatives' Warrant Agreement and to
consummate the transactions provided for herein and therein; and each of this
Agreement and the Representatives' Warrant Agreement have been duly and
properly authorized, executed and delivered by the Company. This Agreement
and the Representatives' 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
Representatives' 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
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agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company or its Subsidiary are a party or by which
they are or may be bound or by which their 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 Representatives'
Warrants, the execution, delivery or performance of this Agreement and the
Representatives' 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 Underwriters' purchase and distribution
of the Securities and the Representatives' purchase of the Representatives'
Warrants
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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 are a party or by which they may be bound or to which their
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 agreements of the Company and its
Subsidiary, enforceable against the Company and its Subsidiary, in accordance
with their respective 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 SB-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,
neither the Company nor its Subsidiary has (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
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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 Prospectuses 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,
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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 the 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 "multiemployer 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
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has ever completely or partially withdrawn from a "multiemployer plan."
(xviii) The Company and the Subsidiary has not
taken, and will not take, directly or indirectly, and the Company and the
Subsidiary will use their best efforts to ensure that, any of their
employees, directors, nor any of its 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 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
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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 or 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 them free and clear of all liens, charges, claims, encumbrances, pledges,
security interest, 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 two Stock
Option Plans, has agreed or shall agree prior to issuance
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as the case may be, not to, directly or indirectly, offer to sell, grant any
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any securities issued by the Company including,
without limitation, common shares or preferred shares (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 Representatives except only with respect to 3,495,000 shares
of common stock of the Company held by unaffiliated persons which constitute
the tradeable "public float" on the NASD Electronic Bulletin Board, 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 Representatives
shall only be sold or otherwise disposed of through the Representatives. 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 commencing from the effective date of the Registration Statement
except that $750,000 in presently outstanding loans to the Company including
interest thereon from affiliated persons and no more may be repaid at any
time and a Bridge Loan in the principal sum of $50,000 plus accumulated
interest thereon which is being repaid to a Bridge Lender out of the proceeds
of the Offering.
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(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
its officers, directors, stockholders, partners, employees or affiliates that
may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD") except for the sum of
$25,000 previously paid by the Company to KMS and the Company is aware that
the Representatives and each of the Underwriters shall compensate any of
their respective personnel who may have acted in such capacities as they
shall determine in their sole discretion.
(xxv) The Preferred Stock has been approved for
quotation on the Nasdaq SmallCap Market.
(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
-18-
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 any
Subsidiary, and any officer, director, and 50% or more stockholders (as such
term is defined in the Prospectus) of the Company or any 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 Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a
-19-
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
(xxix) The minute books of the Company and the
Subsidiary have been made available to the Underwriters 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 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 Xxxx X. Xxxxxxxx and a consulting agreement with its Chairman,
Xxxxxx X. Xxxxxxxx, on terms and conditions satisfactory to the
Representatives, and (ii) purchased "Key-Man" insurance on the life of Xxxx
X. Xxxxxxxx in the sum of $1,000,000 which names the Company as the sole
beneficiary on terms and conditions satisfactory to the Representatives.
(xxxii) The Company has entered into a
Representatives' Warrant Agreement with respect to the Representatives'
Warrants in the form filed as Exhibit "1." to the Registration
-20-
Statement, with American Stock Transfer and Trust Company in form and
substance satisfactory to the Underwriters.
(xxxiii) Immediately prior to the effective date
of the Registration Statement there shall be no more than an aggregate of
7,973,635 shares of Common Stock and 500,000 shares of Preferred Stock issued
and outstanding including any and all (a) securities with equivalent rights
as the Common Stock or Preferred Stock, (b) Common Stock or Preferred 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 Preferred Stock or such equivalent
securities, but excluding a maximum of 1,957,500 shares of Common Stock which
are issuable upon exercise of options which may be granted pursuant to the
Company's two Stock Option Plans.
(xxxiv) Except for fair market value the Company
shall not issue any 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
Representatives except for a maximum of 1,957,500 shares of common stock
which may be issued pursuant to the Company's stock option plans 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 Representatives. Notwithstanding the foregoing, the Company
shall not issue any shares of preferred stock or securities convertible into
preferred stock during such three (3) year period without the express written
consent of the Representatives.
-21-
(xxxv) 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 representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter, severally
and not jointly, agrees to purchase from the Company at a price of $9.00 per
share of Preferred Stock that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Underwriters in their sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriters may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase all or any part of
an additional 90,000 shares of Preferred Stock at a price of $9.00 per share.
The option granted hereby will expire 45 days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Rules and Regulations, or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm
-22-
Securities upon notice by the Underwriters to the Company setting forth the
number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for any
such Option Securities. Any such time and date of delivery (an "Option
Closing Date") shall be determined by the Underwriters, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Date (hereinafter defined), unless otherwise
agreed upon in writing by the Underwriters and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No
Option Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of
certificates evidencing the Firm Securities shall be made at the offices of
Xxxxx Xxxx and Shire, Inc., at 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or
at such other place as shall be agreed upon in writing by the Underwriters
and the Company. Such delivery and payment shall be made at 10:00 a.m. (New
York City time) on ___________________, 1999 or at such other time and date
as shall be agreed upon by the Underwriters and the Company, but not less
than five (5) nor more than ten (10) full business days after the effective
date of the Registration Statement (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such
Option Securities shall be made at the above mentioned office of the
Underwriters or at such other place as shall be agreed upon by the
Underwriters and the Company on each Option Closing Date as specified in the
notice from the Representatives to the Company. Delivery of the certificates
for the Firm Securities and the Option Securities if any, shall be made
-23-
to the Underwriters against payment by the Underwriters, severally and not
jointly, of the purchase price for the Firm Securities and the Option
Securities if any, to the order of the Company by New York Clearing House
Funds. In the event such option is exercised, each of the Underwriters,
acting severally and not jointly, shall purchase that proportion of the total
number of Option Securities then being purchased which the number of Firm
Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each
case to such adjustments as the Underwriters in their discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for
the Firm Securities and the Option Securities if any, shall be in definitive,
fully registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the
relevant Option Closing Date, as the case may be. The certificates for the
Firm Securities and the Option Securities if any, shall be made available to
the Underwriters at such office or such other place as the Underwriters may
designate for inspection, checking and packaging no later than 9:30 a.m. on
the last business day prior to the Closing Date or the relevant Option
Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell
to the Representatives the Representatives' Warrants at a purchase price of
$.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 60,000 shares of Preferred Stock (or 69,000 shares
if the over-allotment is exercised). The Representatives' Warrants shall be
exercisable for a period of four (4) years commencing one (1) year from the
Closing Date at a price equal to 165% of the initial public offering price of
one (1) share of the Preferred Stock. The Representatives' Warrant Agreement
and Warrant Certificate shall be substantially in the form filed as Exhibit
"1." to the
-24-
Registration Statement. Payment for the Representatives' Warrants shall be
made on the Closing Date or the relevant Option Closing Date as the case may
be.
3. Public Offering of the Securities. As soon after the
Registration Statement becomes effective as the Underwriters deem advisable,
the Underwriters shall make a public offering of the Firm Securities and such
of the Option Securities as they may determine (other than to residents of or
in any jurisdiction in which qualification of the Securities is required and
has not become effective) at the price and upon the other terms set forth in
the Prospectus. The Underwriters may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or
more broker-dealers who shall act as dealers in connection with such public
offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with each of the Underwriters 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 Representatives and their 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 Underwriters of which
the Representatives shall not previously have been advised and furnished with
a copy, or to which the Representatives shall have objected unless required
under the Act, the Exchange Act or the Rules
-25-
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 Representatives 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 Representatives and their counsel) or transmit
the Prospectus by a means reasonably calculated
-26-
to result in filing with the Commission pursuant to Rule 424 (b) (or, if
applicable and if consented to by the Representatives, pursuant to Rule 424
(b)(47) not later than the Commission's close of business on the earlier of
(i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representatives 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 Underwriters 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 Representatives
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 Representatives or Doros & Brescia, P.C.
("Underwriters' 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 Underwriters, 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 Underwriters 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
-27-
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 Underwriters
agree 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 Underwriters' 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 Underwriters' 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 Representatives 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 Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the
-28-
Underwriters 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 Underwriters 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 Underwriters, 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 the
Representatives promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act
and will furnish to the Representatives copies thereof.
-29-
(h) The Company will reserve and keep available for
issuance that maximum number of its authorized but unissued shares of
Preferred Stock which are issuable upon exercise of the Representatives'
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 Representatives' Warrants to be furnished with a current
prospectus in the event and at such time as the Representatives' 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 Representatives' Warrants become
exercisable) and to keep the same effective so long as the Representatives'
Warrants are outstanding. The Company will deliver a draft of each such
post-effective amendment or new registration statement to the Representatives
at least ten days prior to the filing of such post-effective amendment or
registration statement.
(j) So long as any of the Representatives' 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
Representatives' Warrants where such Prospectus delivery is by law required
to be made.
(k) So long as any of the Representatives' Warrants remain
outstanding, the Company shall continue to employ the services of a firm of
independent certified public accountants reasonably acceptable to the
Representatives in connection with the preparation of the financial
-30-
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 Representatives 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 Representatives' Warrants remain
outstanding, the Company shall continue to appoint a Warrant Agent for the
Representatives' Warrants, who shall be reasonably acceptable to the
Representatives.
(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 Underwriters, 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
-31-
Underwriters:
(i) concurrently with furnishing such quarterly
reports to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders 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 Subsidiary) or its businesses which
the Underwriters may reasonably request.
-32-
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 a Transfer Agent, designated
American Stock Transfer and Trust Company, counsel, accounting firm,
financial printer and, if necessary under the jurisdiction of incorporation
of the Company, a Registrar (which shall be the same entity as the Transfer
Agent) for its Common Stock and Preferred Stock all of whom shall be
reasonably acceptable to the Underwriters. Such Transfer Agent shall, for a
period of two years following the Closing Date, deliver to the Underwriters
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 Representatives or on
the Representatives' order, without charge, at such place as the
Representatives 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 Representatives may reasonably request.
(q) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with true copies of
duly executed, legally binding and enforceable
-33-
agreements pursuant to which for a period of not less than 24 months after
the effective date of the Registration Statement (except only with respect to
3,495,000 shares of common stock held by unaffiliated persons which
constitute the tradeable "public float" on the NASD Electronic Bulletin
Board), each holder of securities issued by the Company and outstanding at
the effective date of the Registration Statement (including, without
limitation, after the effective date of the Registration Statement securities
issued under the Company's stock option plans, Common Stock, Preferred Stock
and securities convertible into Common Stock or Preferred 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 Representatives (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 Representatives, 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 Preferred
Stock or any options, rights or warrants with respect to any shares of Common
Stock of Preferred 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.
-34-
(r) The Company and the Subsidiary have not taken and will
not take, directly or indirectly, and the Company and the Subsidiary will use
their best efforts to ensure that any of their 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
or the Subsidiary.
(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 or the Subsidiary 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 Underwriters 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
-35-
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(v) The Company shall cause the Preferred Stock to be
listed on the Nasdaq SmallCap Market, and for a period of seven (7) years
from the date hereof, use its best efforts to maintain such listing of the
Preferred Stock to the extent outstanding.
(w) For a period of five (5) years from the Closing Date,
the Company shall furnish to the Underwriters at the Underwriters' 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 Preferred 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
Underwriters and Underwriters' Counsel, issue, directly or indirectly any
press release or other communication or hold any press conference with
-36-
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 Representatives, jointly, 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 Representatives 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 Representatives
of each meeting of the Board and an individual designated by the
Representatives 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 and/or Preferred Stock as deemed appropriate and similar for similar
companies.
(aa) The Company and the Subsidiary hereby grant to the
Representatives a right of first refusal on the terms and subject to the
conditions set forth in this paragraph, for a period of five 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 Subsidiary,
any securities of the company or any of its present or future Subsidiary,
with respect to which the Company or any of its present or future Subsidiary
may seek a public or private sale. The Company, for a period of five years
from
-37-
the effective date of the Registration Statement, will consult, and will
cause such present or future Subsidiary to consult with the Representatives
with regard to any such offering or placement and will offer, or cause any of
its present or future Subsidiary to offer, to the Representatives 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 Representatives fail to accept in writing such
proposal made by the Company or any of its present or future Subsidiary
within fifteen business days after receipt of a notice containing such
proposal, then the Representatives 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 Representatives 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 Representatives' Warrants and
the Representatives' Securities, the Company will not take any action or
actions which may prevent or disqualify the Company's use of Form SB-1 for
the registration under the Act of the securities issuable upon exercise of
the Representatives' Warrants and the Representatives' Securities.
(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 Underwriters, which shall be continuously
engaged from such engagement date to a date twelve (12) months from
-38-
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
Underwriters' Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement and the
Representatives' 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, the Representatives' 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 Underwriters and such dealers
as the Underwriters 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
Underwriters of the IPO Securities and the purchase by the Representatives of
the Representatives' Warrants from the Company, (y) the consummation by the
Company of any of its obligations under this Agreement, and the
Representatives' Warrant Agreement and (z) resale of the IPO Securities by
the Underwriters 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
-39-
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 $75,000 less $20,000 heretofore paid plus
disbursements incurred by them in connection therewith, (v) advertising costs
and expenses, (not to exceed $5,000) including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses, (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, warrant 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, Nasdaq and the
NASD, and (x) the fees and expenses incurred in connection with the listing
of the IPO Securities on the Nasdaq SmallCap Market and any exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriters for all of their
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel (and in addition to fees and expenses of Underwriters'
Counsel incurred pursuant to Section 5(a)(iv) above for which the Company
shall remain liable), 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
-40-
to subsection (a) of this Section 5, it will pay to the Underwriters on the
Closing Date by certified or bank cashier's check or, at the election of the
Underwriters, by deduction from the proceeds of the Offering a
non-accountable expense allowance equal to two percent (2%) of the gross
proceeds of the Offering less the amount of $25,000 previously paid by the
Company to KMS. In the event the Underwriters elect to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Underwriters on the Option Closing Date (by certified or
bank cashier's check or, at the Underwriters' election, by deduction from the
proceeds of the Offering) a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds of this Offering in connection with the
sale of the Option Securities.
(d) The Underwriters 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 Underwriters' Obligations. The
obligations of the Underwriters 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:
-41-
(a) The Registration Statement, which shall be in form and
substance satisfactory to the Representatives and Underwriters' 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 Representatives, 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
Underwriters' 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 Underwriters 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 Representatives shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Underwriters' 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 Representatives' opinion, is material and is required
to be stated therein or is necessary to make the statements therein, in light
-42-
of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives
shall have received from Underwriters' Counsel, such opinion or opinions with
respect to the organization of the Company and its Subsidiary, the validity
of the IPO Securities, the Representatives' Warrants, the Registration
Statement, the Prospectus and other related matters as the Representatives
may request and Underwriters' 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 Underwriters shall have
received the favorable opinion of Jackier, Gould, Bean, Upfal & Xxxxxxxx,
counsel to the Company, dated as of the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' 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, 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), 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;
-43-
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. 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 neither the Company nor the Subsidiary owns an equity
interest in any other corporation, partnership, joint venture, trust or other
business entity except with respect to the Company the Subsidiary;
(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, neither the Company nor the Subsidiary is 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, the Representatives' 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
-44-
respects to all statements with respect thereto contained in the Registration
Statement and the Prospectus. 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 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 Representatives'
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 has been
duly and validly taken; and the certificates representing the IPO Securities
are in due and proper form. The Representatives' 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 the issuance and delivery pursuant to this
Agreement of the IPO Securities to be sold by the Company, the Underwriters
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. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the IPO Securities, (B) the purchase by the
Underwriters of the IPO Securities from the Company, (C) consummation by the
Company of any of its obligations under this Agreement, or (D) resales of the
Securities in connection with the distribution contemplated hereby;
-45-
(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 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
-46-
information required to be shown by Form SB-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
Representatives' 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 Representatives' Warrant Agreement or which in any manner
draws into question the validity or enforceability of this Agreement or the
Representatives' Warrant Agreement;
(vii) the Company has full legal right, power and
authority to enter into this
-47-
Agreement and the Representatives' Warrant Agreement and to consummate the
transactions provided for herein and therein; and this Agreement and the
Representatives' Warrant Agreement have been duly authorized, executed and
delivered by the Company. Each of this Agreement, the Representatives'
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
Representatives' Warrant Agreement, its performance hereunder or thereunder,
its consummation of the transactions contemplated herein or therein, or the
conduct of their 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 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
-48-
Company or the Subsidiary of 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 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
Representatives' Warrants, the performance of this Agreement and the
Representatives' 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
-49-
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 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 except as
described in the Prospectus each of 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
-50-
rights described in the Prospectus as being owned or possessed by the Company
or the Subsidiary);
(xii) except as described in the Prospectus,
neither the Company nor the Subsidiary (A) maintains, sponsors, or
contributes to any ERISA Plans, (B) maintains or contributes now or at any
time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA, and (C) has ever completely or partially withdrawn from a
"multiemployer plan";
(xiii) the IPO Securities have been approved for
listing on the Nasdaq SmallCap Market, and the Company's Registration
Statement on Form 8-A under the Exchange Act has become effective;
(xiv) to such counsel's knowledge, the persons
listed under the caption "PRINCIPAL SHAREHOLDERS" 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;
(xv) 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 or the Subsidiary in the Registration Statement,
require the Company or the Subsidiary to file any registration statement or,
if filed, to include any security in such registration statement;
(xvi) to such counsel's knowledge, except as
described in the Prospectus,
-51-
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 Underwriters' compensation, as determined by the NASD;
(xvii) 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
Such counsel shall state that such counsel has participated
in conferences including telephone conferences with officers and other
representatives of the Company, the Subsidiary and representatives of the
independent public accountants for the Company and the Subsidiary, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed
and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary Prospectus, the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or the Preliminary
Prospectus or Prospectus or amendment or
-52-
supplement thereto as of the date of such opinion contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
(it being understood that such counsel need express no opinion with respect
to the financial statements and schedules and other financial and statistical
data included in the Preliminary Prospectus, the Registration Statement or
Prospectus).
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
Underwriters' Counsel) of other counsel acceptable to Underwriters' 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 or the Subsidiary 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 Underwriters' 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 and that the
Representatives and the Underwriters are justified in relying thereon.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Jackier, Gould, Bean, Upfal &
Xxxxxxxx, counsel to the Company, dated the Option Closing Date, addressed to
the Underwriters and in form and substance satisfactory to Underwriters'
Counsel confirming as of such Option Closing Date the statements made in its
opinion
-53-
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' 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, 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
Representatives' 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
-54-
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 the
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 Closing Date and each Option Closing Date, if
any, the Underwriters 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 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
has complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its 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
-55-
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, Preferred 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
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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-terms 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 Underwriters will have
received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory (including
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the non-material nature of the changes or decreases, if any, referred to in
clause (iii) below) in all respects to the Underwriters and Underwriters'
Counsel, from Deloitte & Touche:
(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 Representatives may rely upon the opinion of Deloitte
& Touche 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 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
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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 __________________ 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 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;
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(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 or the Subsidiary'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 Representatives may
reasonably request.
(j) At the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received from Deloitte & Touche, 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 letter referred to 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,
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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 Representatives 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 the Option Closing
Date, if any, there shall have been duly tendered to the several
Underwriters' accounts the appropriate number of IPO Securities.
(l) No order suspending the sale of the IPO Securities in
any jurisdiction designated by the Underwriters 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 Closing Date, the Preferred Stock shall
have been approved for quotation on the Nasdaq SmallCap Market.
(n) On or before the Closing Date, three shall have been
delivered to the Underwriters the Lock-up Agreements in form and substance
satisfactory to Underwriters' Counsel.
(o) On or before the Closing Date, the Company shall have
executed and delivered to the Underwriters, (i) the Representatives' Warrant
Agreement substantially in the form
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filed as Exhibit "1." to the Registration Statement in final form and
substance satisfactory to the Underwriters, and (ii) the Representatives'
Warrants in such denominations and to such designees as shall have been
provided to the Company.
If any condition to the Underwriters' 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 Underwriters may
terminate this Agreement or, if the Underwriters so elect, they 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,agree to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for
an Underwriter as provided in Section 11 hereof), and each person, if any,
who controls the Underwriters ("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
Underwriters 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
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amended and supplemented); (ii) in any post-effective amendment or amendments
or any 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, NASDAQ 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 any
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) Each of the Underwriters agrees severally, but not
jointly, 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
Underwriters but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration
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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 any 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 Underwriters in connection with this offering.
(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
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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
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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
Underwriters are the indemnified party, the relative benefits received by the
Company, on the one hand, and the Underwriters, 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 Underwriters 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 Underwriters, 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 Underwriters shall
not be required to
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contribute any amount in excess of the underwriting discount applicable to
the IPO Securities purchased by the Underwriters 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 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 any Underwriter, the Company, any controlling person of any
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Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the IPO Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the
date hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriters, in their discretion, shall release the
Securities for the sale to the public; provided, however, that the provisions
of Sections 5, 7 and 10 of this Agreement shall at all times be effective.
For purposes of this Section 9, the Securities to be purchased hereunder
shall be deemed to have been so released upon the earlier of dispatch by the
Underwriters of telegrams to securities dealers releasing such shares for
offering or the release by the Underwriters for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination. (a) Subject to subsection (b) of this
Section 10, the Underwriters shall have the right to terminate this Agreement
based upon any of the following events which result in a material impairment
of this Agreement to offer the Securities for sale: , (i) if any domestic or
international event or act or occurrence has disrupted, or in the
Underwriters' opinion will in the immediate future 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
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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 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 Underwriters' 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 the Subsidiary, whether
or not arising in the ordinary course of business, which would render, in the
Underwriters' 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 Underwriters' 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 Underwriters in
accordance with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Underwriters for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for
the Underwriters 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
Underwriters, by reason of any failure on the part of the Company to perform
any undertaking
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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 Underwriters for all
of their actual out-of-pocket expenses, including the fees and disbursements
of counsel for the Underwriters (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, 10, 11 and 12 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. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 6, Section
10 or Section 12 hereof) to purchase the Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the remaining Underwriters shall have the right, within 24
hours thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, the remaining Underwriters
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated
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to purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the remaining Underwriters shall have the
right to postpone the Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at
the Closing Date or any Option Closing Date, as applicable, to sell and
deliver the number of Securities which it is obligated to sell hereunder on
such date, then this Agreement shall terminate (or, if such default shall
occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at their option, by notice from the
Underwriters to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any
liability on the part of any non-defaulting party other than pursuant to
Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this
Section shall relieve the Company from liability,
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if any, in respect of such default.
13. 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 Underwriters shall be
directed to the Representatives at Nutmeg Securities, Ltd., 000 Xxxx Xxxx
Xxxx, Xxxxxxxx, Xxxxxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxxxx, Director
of Investment Banking and Xxxxx Xxxx and Shire, Inc., 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 0000 Xxx Xxxxx Xxxx, Xxxx, Xxxxxxxxxx 00000, Attention:
Xxxx X. Xxxxxxxx, President, with a copy to Jackier, Gould, Bean, Upfal &
Xxxxxxxx, 0000 Xxxxx Xxxxxxxx, Xxxxx 000, Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000,
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
14. Parties. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 7 hereof,
and their respective successors, legal representatives and assigns and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
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15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
16. 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.
17. Entire Agreement; Amendments. This Agreement and the
Representatives' 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
Underwriters and the Company.
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter
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shall constitute a binding agreement among us.
Very truly yours,
AWG, LTD.
By: ________________________________
Xxxx X. Xxxxxxxx, President
Confirmed and accepted as of
the date first above written
For themselves and as Representatives of the several
Underwriters named in Schedule A hereto
NUTMEG SECURITIES, LTD.
By: ______________________________________________
Name: Xxxxxx X. Xxxxxxxxx
Title: Director of Investment Banking
XXXXX XXXX AND SHIRE, INC.
By: ______________________________________________
Name: Xxxxxxxx Xxx Khan
Title: President
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SCHEDULE A
Number of Firm Securities
Name of Underwriters to be purchased
----------------------------------- --------------------------------
Nutmeg Securities, Ltd.
Xxxxx Xxxx and Shire, Inc.
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AWG, LTD.
AND
NUTMEG SECURITIES, LTD.
and
XXXXX XXXX AND SHIRE, INC.
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of _______________, 1999
REPRESENTATIVES' WARRANT AGREEMENT dated as of __________,
1999 (the "Agreement") between AWG, LTD., a Nevada corporation (the
"Company") and NUTMEG SECURITIES, LTD. ("Nutmeg") and XXXXX XXXX AND SHIRE,
INC. ("KMS"), their successors, designees and assigns (hereinafter referred
to collectively as the "Representatives" or the "Underwriters").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Nutmeg
Securities, Ltd. and Xxxxx Xxxx and Shire, Inc. (collectively the
"Representatives" or the "Underwriters") warrants (the "Representatives'
Warrants") entitling the holder(s) to purchase up to an aggregate of 60,000
shares (or up to 69,000 shares if the over-allotment is exercised), of the
Company's Series A 6% Preferred Stock, $.001 par value per share (the
"Preferred Stock"), at a purchase price of $.0001 per Representatives'
Warrant ($6.00 in aggregate) ($6.90 in aggregate if the over-allotment is
exercised in full) (the Representatives' Warrants and Preferred Stock into
which the Representatives' Warrants are exercisable being collectively
referred to as the "Warrant Securities"); and
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof among the underwriters named therein and the Company to act as the
representatives of such underwriters, in connection with the Company's
proposed public offering of 600,000 shares of Preferred Stock at a public
offering price of $10.00 per share of Preferred Stock (the "Public
Offering"); and
WHEREAS, the Representatives' Warrants to be issued
pursuant to this Agreement will be issued on the Closing Date and each Option
Closing Date (s), if any, (as such terms are defined in the Underwriting
Agreement) by the Company to the Underwriters in consideration for, and as
part of the Underwriters' compensation in connection with, and pursuant to
the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the
payment by the Underwriters to the Company of an aggregate six dollars
($6.00), ($6.90 in aggregate if the over-allotment is exercised in full) the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant. The Underwriters are hereby granted the right to
purchase, at any time from ____________, 2000 until 5:00 P.M., New York time,
on _______________, 2004, up to an aggregate of 60,000 shares of Preferred
Stock (69,000 shares if the over-allotment is exercised in full) (the
"Shares") at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) of $16.50 per share of Preferred Stock subject to the terms
and conditions of this Agreement. Except as set forth herein, the shares of
Preferred Stock issuable upon exercise of the Representatives' Warrants are
in all respects identical to the shares of Preferred Stock being purchased by
the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement.
2
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and
made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Representatives' Warrants
initially are exercisable at an aggregate initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Preferred Stock as
set forth in Section 6 hereof payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the shares of Preferred Stock purchased at
the Company's principal offices (presently located at 0000 Xxx Xxxxx Xxxx,
Xxxx, Xxxxxxxxxx 00000) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Preferred Stock so purchased. The purchase
rights represented by each Warrant Certificate are exercisable at the option
of the Holders thereof, in whole or part (but not as to fractional shares of
the Preferred Stock). In the case of the purchase of less than all of the
Preferred Stock purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute
and deliver a new Warrant Certificate of like tenor for the balance of the
shares of Preferred Stock purchasable thereunder.
3
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Representatives' Warrants shall
have the right at any time and from time to time to exercise the
Representatives' Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1. The number of shares of
Preferred Stock to be issued pursuant to this Section 3.2 shall be equal to
the difference between (a) the number of shares of Preferred Stock in respect
of which the Representatives' Warrants are exercised and (b) a fraction, the
numerator of which shall be the number of shares of Preferred Stock in
respect of which the Representatives' Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price.
3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) when referring to the
Preferred Stock, the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices
for the last three (3) trading days, in either case as officially reported by
the principal securities exchange on which the Preferred Stock is listed or
admitted to trading or by the Nasdaq National Market ("NNM") or the Nasdaq
Small Cap Market ("NSCM"), or, if the Preferred Stock is not listed or
admitted to trading on any national securities exchange or quoted by NNM or
NSCM, the average closing bid price as furnished by a similar organization
including the National Association of Securities Dealers, Inc. ("NASD")
through the NASD Electronic Bulletin Board if Nasdaq is no longer reporting
such information, or if the Preferred Stock is not quoted on Nasdaq, or such
similar organization as determined in good faith by resolution of the Board
of Directors of the Company, based on the best information available to it.
Notwithstanding the foregoing, for purposes of Section 8, the Market Price of
a share of Preferred Stock
4
shall be determined by reference to the relevant information set forth above
during the thirty (30) trading days immediately preceding the date of the
event requiring the determination of the Market Price (except that, in the
event of a public offering of shares of Preferred Stock, the Market Price of
a share of Preferred Stock shall be determined by reference to the trading
day immediately preceding the effective date of the public offering and not
such thirty (30) trading day period).
4. Issuance of Certificates. Upon the exercise of the
Representatives' Warrants, the issuance of certificates for shares of
Preferred Stock and/or other securities, properties or rights underlying such
Representatives' Warrants, shall be made forthwith (and in any event within
five (5) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
The Warrant Certificates and the certificates representing
the shares of Preferred Stock (and/or other securities, property or rights
issuable upon the exercise of the Representatives' Warrants) shall be
executed on behalf of the Company by the manual or facsimile signature of the
then present
5
Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary of the Company. Warrant Certificates shall
be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Representatives' Warrants are being acquired as an investment and not with a
view to the distribution thereof; that the Representatives' Warrants may not
be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, for a period of one (1) year from the date hereof, except
to officers of the Underwriters.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Underwriters Warrant shall be $16.50 per share of Preferred Stock. The
adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
6
7.1 Current Registration Under the Securities Act of 1933.
The Representatives' Warrants and the shares of Preferred Stock issuable upon
exercise of the Representatives' Warrants have been registered under the
Securities Act of 1933, as amended (the "Act"), pursuant to the Company's
Registration Statement on Form SB-1 (Registration No. 333-48165) (the
"Registration Statement"). The Company covenants and agrees to use its best
efforts to maintain the effectiveness of the Registration Statement for a
period of five (5) years from its effective date.
7.2 Contingent Registration Rights. In the event that, for
any reason whatsoever, the Company shall fail to maintain the effectiveness
of the Registration Statement for a period of five (5) years from its
effective date and, in any event, from and after the fifth (5th) anniversary
of the effective date of the Registration Statement, the Representatives' and
other Holders shall have, commencing the date of any such occasion, the
contingent registration rights ("Registration Rights") set forth in Sections
7.3 and 7.4 hereof.
7.3 Piggyback Registration. (a) If, at any time commencing
after the effective date of the Registration Statement and expiring on the
seventh (7th) anniversary of the effective date of the Registration
Statement, the Company proposes to register any of its securities under the
Act, either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or comparable
registration statement), it shall give written notice, at least thirty (30)
days prior to the filing of each such registration statement, to the
Representatives and to all other Holders of Representatives' Warrants and/or
shares of Preferred Stock issuable upon exercise of the Representatives'
Warrants (collectively
7
the "Registrable Securities") of its intention to do so. If the
Representatives or other Holders of Registrable Securities notify the Company
within twenty-one (21) days after the receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representatives and such other
Holders of such securities the opportunity to have any such securities
registered under such registration statement.
(b) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Representatives and such other Holders as part of
the written notice given pursuant to Section 7.3(a) hereof. The right of the
Representatives or any such other Holders to registration pursuant to this
Section 7.3 shall be conditioned upon their participation in such
underwriting and the inclusion of their Registrable Securities in the
underwriting to the extent hereinafter provided. The Representatives and all
other Holders proposing to distribute their securities through such
underwriting shall (together with the Company and any officers, directors or
other stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
representatives of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 7.3, if the
representatives of the underwriter or underwriters advises the Company in
writing that marketing factors require a limitation or elimination of the
number of shares of Preferred Stock or other securities to be underwritten,
the representatives may limit the number of shares of Preferred Stock or
other securities to be included in the registration and underwriting. The
Company shall so advise the Representatives and all other Holders of
Registrable Securities requesting registration, and the number of shares of
Preferred Stock or other securities that are entitled to be included in the
registration and underwriting shall be allocated among the Representatives
and other Holders requesting registration, in
8
each case, in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration at
the time of filing the registration statement.
(c) Notwithstanding the provisions of this Section
7.3, the Company shall have the right at any time after it shall have given
written notice pursuant to Section 7.3(a) hereof (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw
the same after the filing but prior to the effective date thereof.
7.4 Demand Registration. (a) At any time commencing after
the effective date of the Registration Statement and ending on the fifth
(5th) anniversary of the effective date of the Registration Statement, the
Holders of Registrable Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the
Representatives' Warrants) (the "Initiating Holders") shall have the right
(which right is in addition to the registration rights under Section 7.3
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Commission, on one occasion, a registration
statement and such other documents, including a prospectus, as may be
necessary in the opinion of both counsel for the Company and counsel for the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Registrable Securities for up to
two hundred and seventy (270) days by such Holders and any other Holders of
Registrable Securities, as well as any other security holders possessing
similar registration rights, who notify the Company within twenty-one (21)
days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give
written notice of any
9
registration request under this Section 7.4 by any Holder or Holders to all
other registered Holders of Registrable Securities, as well as any other
security holders possessing similar registration rights, within ten (10) days
after the date of the receipt of any such registration request.
(c) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 7.4(a) hereof. The right of any Holder to
registration pursuant to this Section 7.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent and subject
to the limitations provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities it holds.
(d) The Company shall (together with all Holders,
officers, directors and other stockholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representatives of the underwriters selected for such
underwriting by the Initiating Holders, which underwriter(s) shall be
reasonably acceptable to the Representatives. Notwithstanding any other
provision of this Section 7.4, if the representatives of the underwriter or
underwriters advises the Initiating Holders in writing that marketing factors
require a limitation or elimination of the number of shares of Preferred
Stock or other securities to be underwritten, the representatives may limit
the number of shares of Preferred Stock or other securities to be included in
the registration and underwriting. The Company shall so advise the
Representatives and all Holders of Registrable Securities requesting
registration, and the number of shares of Preferred Stock or other securities
that are entitled to be included in the registration and underwriting shall
be allocated among the Representatives and other Holders requesting
registration, in each case, in
10
proportion, as nearly as practicable, to the respective amounts of securities
which they had requested to be included in such registration at the time of
filing the registration statement. If the Company or any Holder of
Registrable Securities who has requested inclusion in such registration as
provided above disapproves of the terms of any such underwriting, such person
may elect to withdraw its securities therefrom by written notice to the
Company, the Representatives and the Initiating Holders. Any securities so
excluded shall be withdrawn from such registration. No securities excluded
from such registration by reason of such underwriters' marketing limitations
shall be included in such registration. To facilitate the allocation of
shares in accordance with this Section 7.4(d), the Company or underwriter or
underwriters selected as provided above may round the number of securities of
any holder which may be included in such registration to the nearest 100
shares.
(e) In the event that the Initiating Holders are
unable to sell all of the Registrable Securities for which they have
requested registration due to the provisions of Section 7.4(d) hereof and if,
at that time, the Initiating Holders are not permitted to sell Registrable
Securities under Rule 144(k), the Initiating Holders shall be entitled to
require the Company to afford the Initiating Holders an opportunity to effect
one additional demand registration under this Section 7.4.
(f) In addition to the registration rights under
Section 7.3 and subsection (a) of Section 7.4 hereof, at any time commencing
on the date hereof and expiring five (5) years thereafter any Holder of
Registrable Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with
the Commission a registration statement so as to permit a public offering and
sale for 270 days by any such Holder of its Registrable Securities provided,
however, that the provisions of Section 7.5(b) hereof, shall not apply to any
such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holder's
11
making such request.
(g) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration
statement for the Registrable Securities of the Initiating Holders or the
Holder(s) referred to in Section 7.5(f) above (the "Paying Holders"), within
the time period specified in Section 7.5(a) below, the Company shall upon the
written notice of election of the Initiating Holders or the Paying Holders,
as the case may be, repurchase (i) any and all shares of Preferred Stock at
the higher of the Market Price per share of Preferred Stock on (x) the date
of the notice sent to the Company under Section 7.4(a) or (f), as the case
may be, or (y) the expiration of the period specified in Section 7.5(a) and
(ii) any and all Representatives' Warrants at such Market Price less the
Exercise Price of such Representatives' Warrant. Such repurchase shall be in
immediately available funds and shall close within five (5) business days
after the expiration of the period specified in Section 7.5(a).
7.5 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 7.3 and 7.4 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file
a registration statement within sixty (60) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each
Holder desiring to sell Registrable Securities such number of prospectuses as
shall reasonably be requested.
(b) The Company shall pay all costs (excluding
fees and expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.3 and 7.4 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, blue
sky fees and expenses. If the Company
12
shall fail to comply with the provisions of Section 7.5(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the exercise period of the Representatives' Warrants by
such number of days as shall equal the delay caused by the Company's failure.
(c) The Company will take all necessary action
which may be required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested by the
Holder(s); provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of
the Registrable Securities to be sold pursuant to any registration statement
and each person, if any, who controls such Holders within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from
such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to
indemnify each of the Underwriters contained in Section 7 of the Underwriting
Agreement.
(e) The Holder(s) of the Registrable Securities to
be sold pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or
13
defending against any claim whatsoever) to which they may become subject
under the Act, the exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns,
for specific inclusion in such registration statement to the same extent and
with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) For a period of one hundred eighty (180) days
after the effectiveness of any registration statement filed pursuant to
Section 7.4 hereof, the Company shall not permit any other registration
statement (other than (1) a registration statement relating to the securities
for which the Company has granted demand registration rights, as described in
the Prospectus included in the Registration Statement, (2) a registration
statement relating to the securities for which the Company has granted
piggyback registration rights, as described in the Prospectus included in the
Registration Statement and (3) a registration statement filed on Forms S-4 or
S-8 to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Holders of the Registrable Securities representing a Majority
of such securities.
(g) The Company shall furnish upon request to each
Holder participating in the offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under
the underwriting agreement) signed by the independent public
14
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially
the same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after
the effective date of any registration statement filed pursuant to Sections
7.3 and 7.4 hereof, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12
consecutive months beginning after the effective date of the registration
statement.
(i) The Company shall deliver promptly to each
Holder participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of all
written correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each Holder and
underwriters to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the NASD. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such
Holder or underwriter shall reasonably
15
request.
(j) With respect to any registration under Section
7.4 hereof, the Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by the Initiating Holders
or the Paying Holders, as the case may be. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such
managing underwriters, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders shall
be parties to any underwriting agreement relating to an underwritten sale of
their Registrable Securities and may, at their option, require that any or
all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters, except
as they may relate to such Holders and their intended methods of
distribution.
(k) For purposes of this Agreement, the term
"Majority" in reference to the Holders of Registrable Securities, shall mean
in excess of fifty percent (50%) of the then outstanding Representatives'
Warrants and/or Shares of Preferred Stock issued upon exercise of the
Representatives' Warrants that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to
a registration statement filed with the Commission under the Act.
(l) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Representatives'
Warrants prior to the initial filing of any registration
16
statement or the effectiveness thereof.
(m) In addition to the Registrable Securities,
upon the written request therefor, by any Holder(s), the Company shall
include in the registration statement any other securities of the Company
held by such Holder(s) as of the date of filing of such registration
statement, including without limitation restricted shares of Preferred Stock,
options, warrants or any other securities convertible into shares of
Preferred Stock.
7.6 Restrictive Legends. In the event that the Company
fails to maintain the effectiveness of the Registration Statement, such that
the exercise, in part or in whole, of the Representatives' Warrants are not,
at the time of such exercise, registered under the Act, any certificates
representing the shares of Preferred Stock underlying the Representatives'
Warrants and any of the other securities issuable upon exercise of the
Representatives' Warrants shall bear the following restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended ("Act"), and may
not be offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Computation of Adjusted Exercise Price. Except as
hereinafter provided, in the
17
event the Company shall at any time after the date hereof issue or sell any
shares of Preferred Stock (other than the issuances or sales referred to in
Section 8.7 hereof), including shares held in the Company's treasury and
shares of Preferred Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Preferred Stock and shares of Preferred
Stock issued upon the direct or indirect conversion or exchange of securities
for shares of Preferred Stock, for a consideration per share less than the
Market Price in effect immediately prior to the issuance or sale of such
shares, or without consideration, then forthwith upon such issuance or sale,
the Exercise Price shall (until another such issuance or sale) be reduced to
the price (calculated to the nearest full cent) equal to the quotient derived
by dividing (i) an amount equal to the sum of (a) the total number of shares
of Preferred Stock outstanding immediately prior to the issuance or sale of
such shares, multiplied by the Exercise Price in effect immediately prior to
such issuance or sale, and (b) the aggregate of the amount of all
consideration, if any, received by the Company upon such issuance or sale, by
(ii) the total number of shares of Preferred Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in
excess of the Exercise Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Preferred Stock,
as provided by Section 8.3 hereof.
For the purposes of this Section 8 the term Exercise Price
shall mean the Exercise Price per share of Preferred Stock set forth in
Section 6 hereof, as adjusted from time to time pursuant to the provisions of
this Section 8.
For the purposes of any computation to be made in
accordance with this Section 8.1, the following provisions shall be
applicable:
(i) In case of the issuance or sale of shares of
Preferred Stock for a consideration
18
part or all of which shall be cash, the amount of the cash consideration
therefor shall be deemed to be the amount of cash received by the Company for
such shares (or, if shares of Preferred Stock are offered by the Company for
subscription, the subscription price, or, if either of such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or other performing similar services, or
any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (other than
as a dividend or other distribution on any stock of the Company) of shares of
Preferred Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall be
deemed to be the value of such consideration as determined in good faith by
the Board of Directors of the Company and shall include any amounts payable
to security holders or any affiliates thereof, including without limitation,
pursuant to any employment agreement, royalty, consulting agreement, covenant
not to compete, earnout or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written; all such amounts being
valued for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of the
period or uncertainty of payment, the rate of interest, if any, or the
contingent nature thereof; provided, however, that if any Holder(s) does not
agree with such evaluation, a mutually acceptable independent appraiser shall
make such evaluation, the cost of which shall be borne by the Company.
(iii) Shares of Preferred Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day
following the record date for the determination of stockholders entitled to
receive
19
such dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the
Company other than shares of Preferred Stock into securities including shares
of Preferred Stock shall be deemed to involve the issuance of such shares of
Preferred Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration allocable
to such shares of Preferred Stock shall be determined as provided in
subsection (ii) of this Section 8.1.
(v) The number of shares of Preferred Stock at any
one time outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Preferred
Stock, or issue any securities convertible into or exchangeable for shares of
Preferred Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, or without consideration, the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the
case may be, shall be reduced to a price determined by making a computation
in accordance with the provisions of Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares of
Preferred Stock, as the case
20
may be, issuable under such options, rights or warrants shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, and for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance,
plus the consideration (determined in the same manner as consideration
received on the issue or sale of shares in accordance with the terms of the
Representatives' Warrants), if any, received by the Company for such options,
rights or warrants.
(b) The aggregate maximum number of shares of
Preferred Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at the
time of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Preferred Stock in accordance with the terms of
the Representatives' Warrants) received by the Company for such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subsection (a) of this Section 8.2, or in the price per share at which the
securities referred to in subsection (b) of this Section 8.2 are convertible
or exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated on
the date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the
new price in respect of the number of shares issuable upon the exercise of
such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
21
8.3 Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding shares of Preferred Stock,
the Exercise Price shall forthwith be proportionately decreased in the case
of subdivision or increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section
8, the number of Warrant Securities issuable upon the exercise at the
adjusted exercise price of each Representatives' Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price
in effect immediately prior to such adjustment by the number of Warrant
Securities issuable upon exercise of the Representatives' Warrants
immediately prior to such adjustment and dividing the product so obtained by
the adjusted Exercise Price.
8.5 Definition of Preferred Stock. For the purpose of this
Agreement, the term "Preferred Stock" shall mean those shares of Series A 6%
Preferred Stock, $.001 par value per share (the "Preferred Stock") of the
Company authorized for issuance in the Company's Certification of
Incorporation by the Company's Board of Directors, which do not have voting
rights except as may be required by applicable law, entitles the holders
thereof to a Preferred Annual Return of 6% per annum payable in Preferred
Stock in an amount equivalent to 6% of the number of shares of Preferred
Stock registered in the name of each of the holders as of the close of
business on December 31 of each year and will have a preference upon
liquidation of the Company in the amount of $10.00 per share.
8.6 Merger or Consolidation. In case of any
consolidation of the Company with, or
22
merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in
any reclassification or change of the outstanding Preferred Stock), the
corporation formed by such consolidation or merger shall execute and deliver
to the Holder a supplemental warrant agreement providing that the holder of
each Representatives' Warrant then outstanding or to be outstanding shall
have the right thereafter (until the expiration of such Representatives'
Warrant) to receive, upon exercise of such warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Preferred
Stock of the Company for which such Representatives' Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall
be identical to the adjustments provided in Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or
mergers.
8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the
Representatives' Warrants or the shares of Preferred Stock issuable upon the
exercise of the Representatives' Warrants; or
(b) If the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided, however, that in
such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per Warrant Security.
23
8.8 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Representatives'
Warrants declare a dividend (other than a dividend consisting solely of
shares of Preferred Stock) or otherwise distribute to its stockholders any
assets, property, rights, evidences of indebtedness, securities (other than
shares of Preferred Stock), whether issued by the Company or by another, or
any other thing of value, the Holders of the unexercised Representatives'
Warrants shall thereafter be entitled, in addition to the shares of Preferred
Stock or other securities and property receivable upon the exercise thereof,
to receive, upon the exercise of such Representatives' Warrants, the same
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of
such dividend or distribution as if the Representatives' Warrants had been
exercised immediately prior to such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this
subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Warrant Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Representatives' Warrants, if
24
mutilated, the Company will make and deliver a new Warrant Certificate of
like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall
not be required to issue fractional shares of Preferred Stock upon the
exercise of Representatives' Warrants. Representatives' Warrants may only be
exercised in such multiples as are required to permit the issuance by the
Company of one or more whole shares of Preferred Stock. If one or more
Representatives' Warrants shall be presented for exercise in full at the same
time by the same Holder, the number of whole shares of Preferred Stock which
shall be issuable upon such exercise thereof shall be computed on the basis
of the aggregate number of shares of Preferred Stock purchasable on exercise
of the Representatives' Warrants so presented. If any fraction of a share of
Preferred Stock would, except for the provisions provided herein, be issuable
on the exercise of any Representatives' Warrant (or specified portion
thereof), the Company shall pay an amount in cash equal to such fraction
multiplied by the then current market value of a share of Preferred Stock,
determined as follows:
(1) If the Preferred Stock is listed or admitted to
unlisted trading privileges on the NYSE or the AMEX, or is traded on the NNM,
the current market value of a share of Preferred Stock shall be the closing
sale price of the Preferred Stock at the end of the regular trading session
on the last business day prior to the date of exercise of the
Representatives' Warrants on whichever of such exchanges or NNM had the
highest average daily trading volume for the Preferred Stock on such day; or
(2) If the Preferred Stock is not listed or admitted to
unlisted trading privileges, on either the NYSE or the AMEX and is not traded
on NNM, but is quoted or reported on the Nasdaq
25
SmallCap Market ("NSCM"), the current market value of a share of Preferred
Stock shall be the average of the closing bid and asked prices (or the last
sale price, if then reported by the NSCM) of the Preferred Stock at the end
of the regular trading session on the last business day prior to the date of
exercise of the Representatives' Warrants as quoted or reported on the NSCM,
as the case may be; or
(3) If the Preferred Stock is not listed, or admitted to
unlisted trading privileges, on either of the NYSE or the AMEX, and is not
traded on NNM or the NSCM, but is listed or admitted to unlisted trading
privileges on any national securities exchange (other than the NYSE or the
AMEX), the current market value of a share of Preferred Stock shall be the
closing sale price of the Preferred Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the
Representatives' Warrants on whichever of such exchanges has the highest
average daily trading volume for the Preferred Stock on such day; or
(4) If the Preferred Stock is not listed or admitted to
unlisted trading privileges on any national securities exchange, or listed
for trading on NNM or NSCM, but is traded in the over-the-counter market
including the NASD Electronic Bulletin Board, the current market value of a
share of Preferred Stock shall be the average of the last reported bid and
asked prices of the Preferred Stock reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of exercise of the
Representatives' Warrants; or
(5) If the Preferred Stock is not listed, admitted to
unlisted trading privileges on any national securities exchange, or listed
for trading on NNM or NCSM, and bid and asked prices of the Preferred Stock
are not reported by the National Quotation Bureau, Inc., the current market
value of a share of Preferred Stock shall be an amount, not less than the
book value thereof as of the end of the most recently completed fiscal
quarter of the Company ending prior to the date of exercise, determined
26
in accordance with generally acceptable accounting principles, consistently
applied.
11. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized shares of
Preferred Stock, solely for the purpose of issuance upon the exercise of the
Representatives' Warrants, such number of shares of Preferred Stock or other
securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the
Representatives' Warrants and payment of the Exercise Price therefor, all
shares of Preferred Stock and other securities, if any, issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the
Representatives' Warrants shall be outstanding, the Company shall use its
best efforts to cause all shares of Preferred Stock issuable upon the
exercise of the Representatives' Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Preferred Stock
issued to the public in connection herewith may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote
or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Representatives' Warrants
and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Preferred Stock for the purpose of entitling them to receive a
dividend or distribution payable other than in cash, or a
27
cash dividend or distribution payable other than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Preferred Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer
book, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Representatives' Warrants.
The form of the certificate representing the
Representatives' Warrants (and the form of election to purchase shares of
Preferred Stock upon the exercise of Representatives' Warrants and the form
of assignment printed on the reverse thereof) shall be substantially as set
forth in Exhibit "A" to the Representatives' Warrant Agreement. Each
Representatives' Warrant shall entitle the Holder to
28
purchase one fully paid and non-assessable share of Preferred Stock at an
initial purchase price of $16.50 per share from ______________, 2000 until
5:00 P.M. New York time on _____________, 2004 at which time the
Representatives' Warrants shall expire. The exercise price of the
Representatives' Warrants and the number of shares of Preferred Stock
issuable upon the exercise of the Representatives' Warrants are subject to
adjustment, whether or not the Representatives' Warrants have been exercised,
in the manner and upon the occurrence of the events set forth in Section 8 of
this Agreement. Subject to the provisions of this Agreement and upon issuance
of the Representatives' Warrants, each registered holder of such
Representatives' Warrants shall have the right to purchase from the Company
(and the Company shall issue to such registered holders) up to the number of
fully paid and non-assessable shares of Preferred Stock (subject to
adjustment as provided herein and in the Warrant Agreement), free and clear
of all preemptive rights of stockholders, provided that such registered
holder complies with the terms governing exercise of the Representatives'
Warrants set forth in the Warrant Agreement, and pays the applicable exercise
price, determined in accordance with the terms of the Warrant Agreement. Upon
exercise of the Representatives' Warrants, the Company shall forthwith issue
to the registered holder of any such Representatives' Warrant in his name or
in such name as may be directed by him, certificates for the number of shares
of Preferred Stock so purchased. Except as otherwise provided herein and in
Section 6.1 hereof, the Representatives' Warrants shall be governed in all
respects by the terms of the Warrant Agreement. The Representatives' Warrants
shall be transferable in the manner provided in the Warrant Agreement, and
upon any such transfer, a new Warrant Certificate shall be issued promptly to
the transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), which will not be
unreasonably withheld, the Warrant Agreement will not be modified, amended,
canceled, altered or superseded, and that the Company will
29
send to each Holder, irrespective of whether or not the Representatives'
Warrants have been exercised, any and all notices required by the Warrant
Agreement to be sent to holders of the Representatives' Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Representatives'
Warrants, to the address of such Holder as shown on the books of the Company;
or
(b) If to the Company, to the address set forth in Section
3 hereof or to such other address as the Company may designate by notice to
the Holders.
15. Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates in order to cure
any ambiguity, to correct or supplement any provision contained herein which
may be defective or inconsistent with any provisions herein, or to make any
other provisions in regard to matters or questions arising hereunder which
the Company and the Underwriters may deem necessary or desirable and which
the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding
30
upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the
close of business on ___________, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until
the close of business on ___________, 2009.
18. Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be
a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State of New York
without giving effect to the rules of said State of New York governing the
conflicts of laws.
The Company, the Representatives and any other registered
Holders hereby agree that any action, proceeding or claim against it arising
out of, or relating in any way to, this Agreement shall be brought and
enforced in the courts of the State of New York or of the District Court of
the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representatives and any other registered Holders
hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company, the Representatives and the Holders (at the option of the party
bringing such action, proceeding or claim) may be served by transmitting a
copy thereof, by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 14
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
31
Company, the Representatives and any other registered Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
19. Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement and the Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may
not be modified or amended except by a writing duly signed by the party
against whom enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company and the Representatives and any other registered Holder(s) of the
Warrant Certificates or Warrants Securities any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the
sole benefit of the Company and the
32
Representatives and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] AWG, LTD.
By: ______________________________________
Xxxx X. Xxxxxxxx, President
Attest:
_____________________________
Xxxx Xxxxxxxxx, Secretary
NUTMEG SECURITIES, LTD.
By: ______________________________________
Xxxxxx X. Xxxxxxxxx,
Director of Investment Banking
XXXXX XXXX AND SHIRE, INC.
By: ______________________________________
Xxxxxxxx Xxx Khan, President
33
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______________, 2004
No. RW-______ ______ Warrants to Purchase
______ Shares of Series A 6% Preferred Stock
34
WARRANT CERTIFICATE
This Warrant Certificate certifies that _________________,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from _________, 2000 until 5:00 p.m. New York time on
___________, 2004 (the "Expiration Date"), up to ___________ fully-paid and
non-assessable shares of Series A 6% Preferred Stock, $.001 par value per
share ("Preferred Stock") of AWG, Ltd., a Nevada corporation (the "Company"),
at the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $16.50 per share of Preferred Stock upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in
the Representatives' Warrant Agreement dated as of ________________, 1999
between the Company and Nutmeg Securities, Ltd. and Xxxxx Xxxx and Shire,
Inc. (the "Representatives' Warrant Agreement"). Payment of the Exercise
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time,
on the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part
of a duly authorized issue of Warrants issued pursuant to the
Representatives' Warrant Agreement, which Representatives' Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Representatives' Warrant Agreement provides that upon
the occurrence of certain events the Exercise Price and the type and/or
number of the Company's securities issuable thereupon may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of
the holder, issue a new Warrant Certificate evidencing the adjustment in the
Exercise Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company
to issue such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the
Representatives' Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Representatives' Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with
such transfer.
Upon the exercise of less than all of the Warrants
evidenced by this Warrant Certificate, the Company shall forthwith issue to
the holder hereof a new Warrant Certificate representing such
35
numbered unexercised Warrants.
The Company may deem and treat the registered holder(s)
hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Warrant Certificate which are
defined in the Representatives' Warrant Agreement shall have the meanings
assigned to them in the Representatives' Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ____________, 1999
[SEAL] AWG, LTD.
By: __________________________________
Xxxx X. Xxxxxxxx, President
Attest:
______________________________
Xxxx Xxxxxxxxx, Secretary
36
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
_______________ Warrant Securities
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of AWG, Ltd.
in the amount of $ _____ , all in accordance with the terms of Section 3.1 of
the Representatives' Warrant Agreement dated as of ___________________, 1999
between AWG, Ltd., Nutmeg Securities, Ltd. and Xxxxx Xxxx and Shire, Inc. The
undersigned request that a certificate for such Warrant Securities be
registered in the name of ___________________ whose address is
___________________ and that such Certificate be delivered to
___________________ whose address is ___________________.
Signature _______________________________________________
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate)
_________________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
37
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________ hereby sells,
assigns and _______________ unto
_______________________________________________________________________
(Please print name and address of transferee)
_______ Warrant Certificate, together with all right, title and interest
therein, and does hereby reasonably constitute and appoint _____________,
as Attorney, to transfer the within Warrant Certificate on the books of
the within-named Company, with full power of substitution.
Date: _______________ Signature: ____________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
38
