EPI TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1997
Duke & Co., Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
The undersigned, EPI Technologies, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Duke & Co., Inc. (the
"Underwriter" or "You"), as follows:
1. INTRODUCTION. The Company proposes to issue and sell to the
Underwriter an aggregate of 1,250,000 shares of Common Stock, $.01 par value
(the "Common Stock"), of the Company and 1,250,000 redeemable Common Stock
purchase warrants (the "Redeemable Warrants"), each Redeemable Warrant
exercisable to purchase one share of Common Stock. Each Redeemable Warrant
shall be exercisable for a period of three (3) years, commencing two years after
the Effective Date, and shall entitle the holder to purchase one share of Common
Stock at a price equal to $5.50 per share, which price is subject to adjustment
in certain circumstances to prevent dilution. The Company shall have the right,
upon the written consent of the Underwriter, to call each of the Redeemable
Warrants for redemption upon not less than thirty (30) days' prior written
notice at any time commencing two years from the Effective Date at a redemption
price of $.10 per Redeemable Warrant, subject to adjustment, provided that the
closing bid quotation of the Common Stock as reported on The Nasdaq Stock Market
or the last sales price if quoted on a national securities exchange for a period
of 20 consecutive trading days, which period ends on the third trading day prior
to the date on which the Company gives notice of redemption, exceeds $8.25 per
share, subject to adjustment in certain circumstances to prevent dilution. The
Redeemable Warrants will be issued pursuant to a warrant agreement dated the
date hereof between the Company and Continental Stock Transfer and Trust Company
(the "Public Warrant Agreement"), a form of which has been filed as Exhibit 4.2
to the Registration Statement. It is contemplated that the shares of Common
Stock and the Redeemable Warrants will trade separately and be purchasable
separately immediately upon issuance.
The 1,250,000 shares of Common Stock and 1,250,000 Redeemable Warrants are
hereinafter referred to as the "Firm Securities." Upon your request, as
provided in Section 3 of this Agreement, the Company shall also issue and sell
to you up to an
additional 187,500 shares of Common Stock and 187,500 Redeemable Warrants for
the purpose of covering over-allotments in the sale of the Firm Securities.
Such additional securities are hereinafter referred as the "Option Securities."
The Firm Securities and the Option Securities are hereinafter sometimes referred
to as the "Offered Securities." The 1,437,500 shares of Common Stock included
as part of the Offered Securities are hereinafter referred to as the "Shares";
the 1,437,500 shares of Common Stock issuable upon exercise of the Redeemable
Warrants included as part of the Offered Securities are hereinafter referred to
as the "Public Warrant Shares"; and the Offered Securities and Public Warrant
Shares are sometimes hereinafter referred to collectively as the "Public
Securities."
The Company also proposes to issue and sell to you, pursuant to the terms
of a warrant agreement, dated as of the First Closing Date (as hereinafter
defined), between you and the Company (the "Underwriter's Warrant Agreement"),
warrants (the "Underwriter's Warrants) to purchase up to 125,000 shares of
Common Stock and 125,000 Redeemable Warrants. The Underwriter's Warrants shall
be exercisable during the four-year period commencing 12 months from the
Effective Date, at $5.50 per share of Common Stock and $0.11 per Redeemable
Warrant, subject to adjustment in certain events to protect against dilution.
The 125,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants are hereinafter referred to as the "Underwriter's Shares"; the 125,000
Redeemable Warrants issuable upon exercise of the Underwriter's Warrants are
hereinafter referred to as the "Underwriter's Redeemable Warrants"; the 125,000
shares of Common Stock issuable upon exercise of the Underwriter's Redeemable
Warrants are hereinafter referred to as the "Underwriter's Warrant Shares"; and
the Underwriter's Warrants, the Underwriter's Shares, the Underwriter's
Redeemable Warrants and the Underwriter's Warrant Shares are sometimes
hereinafter referred to collectively as the "Underwriter's Securities." The
Public Securities and the Underwriter's Securities are sometimes hereinafter
referred to collectively as the "Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to, and agrees with, the Underwriter:
(a) A registration statement on Form S-1 (File No. 333-_____)
including a preliminary form of prospectus, relating to the registration of the
Registered Securities has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
registration statement has been filed with the Commission
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under the Act. One or more amendments to said registration statement has or
have, as the case may be, been similarly prepared and filed with the Commission
and the Company may file on or prior to the Effective Date of said registration
statement an additional amendment thereto which will include the final
prospectus. The Company will not, so long as any Redeemable Warrants or
Underwriter's Warrants remain outstanding and exercisable, file any amendment
thereto or any amendment or supplement to the Preliminary Prospectus or the
Prospectus (as those terms are defined below) unless the Company has given
reasonable and prior notice thereof to the Underwriter and counsel for the
Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and
unless the context indicates otherwise, the term "Registration Statement" refers
to and means said registration statement, including any exhibit, financial
statement and prospectus included therein, as finally amended and revised on or
prior to the effective date (the "Effective Date") of said registration
statement. The term "Preliminary Prospectus" refers to and means any prospectus
filed with the Commission and included in said registration statement before it
becomes effective, and the term "Prospectus" refers to and means the prospectus
included in the Registration Statement, except that if the prospectus first
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations shall
differ from the Prospectus, the term "Prospectus" shall refer to the prospectus
filed pursuant to Rule 424(b). If the Registration Statement or the Prospectus
is amended or supplemented after the Effective Date and prior to or on the
Closing Dates (as hereinafter defined), then the terms "Registration Statement"
and "Prospectus" shall refer to such documents as so amended or supplemented.
The terms used herein shall have the same meaning as in the Prospectus unless
the context hereof otherwise requires.
(b) Neither the Commission nor any state regulatory authority has
issued an order preventing or suspending the use of the Preliminary Prospectus
nor has the Commission or any such authority instituted or, to the best
knowledge of the Company, threatened to institute any proceedings with respect
to such an order; the Preliminary Prospectus, at the time of filing with the
Commission, conformed in all material respects to the requirements of the Act
and the Rules and Regulations, contained all statements which were required to
be stated therein by the Act and the Rules and Regulations and did not include
an untrue statement of a material fact or omit to state a 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; and the
Registration Statement at the time when it becomes effective, and the Prospectus
(and any amendments or supplements thereto) at all subsequent times up to the
date set forth in the Prospectus as required by Item 502(e) of Regulation S-K of
the Rules and Regulations, will contain all statements which are required to be
stated therein in accordance with the Act and
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the Rules and Regulations and will conform in all material respects to the
requirements of the Act and the Rules and Regulations, and at such times neither
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the representations and
warranties in this Section 2(b) do not apply to statements or omissions made in
the Registration Statement or Prospectus by or on behalf of the Underwriter made
in reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter, expressly for use therein.
(c) Each of the Company and the Subsidiaries (as defined in paragraph
(d) of this Section 1 below) has been duly organized and is now, and at the
Closing Dates will be, validly existing and in good standing as a corporation or
partnership, as the case may be, under the laws of the jurisdiction of its
organization, and has (i) with respect to the Company, an authorized and
outstanding capitalization and indebtedness as set forth in the Registration
Statement at the respective dates referred to therein and (ii) full power and
authority to own its properties and conduct its business as presently conducted
and as described in, or contemplated by, the Registration Statement. Each of
the Company and the Subsidiaries is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the nature of the business
transacted by it or the character or location of its properties makes such
qualification necessary. Each of the Company and the Subsidiaries holds all
authorizations, approvals, licenses, certificates, franchises and permits from
state, federal or other regulatory authorities necessary for the conduct of its
business as presently conducted and as described in or contemplated by the
Registration Statement and is in compliance with all laws and regulations and
all orders and decrees applicable to it or to such business or assets, and there
are no proceedings pending or, to the best knowledge of the Company, threatened,
seeking to cancel, terminate or limit such authorizations, approvals, licenses,
certificates, franchises or permits.
(d) The Company does not own, directly or indirectly, any capital
stock or other equity interest in or of any corporation, partnership or other
legal entity whatsoever, except that the Company owns 100% of the outstanding
securities of National Purification, Inc., a ________ corporation ("NPI"), and
MEPI Corporation, a __________ corporation ("MEPI"). Environmental Purification
Industries Company is an Ohio general partnership whose sole partners are NPI
and MEPI ("EPIC" and collectively with NPI and MEPI, the "Subsidiaries"). All
of the securities or partnership interests owned by the Company, directly or
indirectly, in the Subsidiaries are free and clear of all liens, charges,
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encumbrances and restrictions. There are no options or warrants for the
purchase of, or other rights to purchase, or outstanding securities convertible
into or exchangeable for, any capital stock or other securities of the
Subsidiaries. [Add other reps/covenants re: Subsidiaries.]
(e) The financial statements of the Company, including the related
notes included as part of the Registration Statement, present fairly the
financial condition of the Company and Subsidiaries as of the dates thereof and
the results of operations for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as otherwise stated therein, and all adjustments necessary for a fair
presentation of results for such periods have been made.
(f) Ernst & Young LLP, who have audited the financial statements
included as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(g) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus, except as disclosed in or contemplated by
the Registration Statement and Prospectus, (i) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions other than in the ordinary course of business; (ii) there has not
been any change in the capital stock, funded debt (other than regular repayments
of principal and interest on existing indebtedness) or other securities of the
Company; (iii) there has not been any adverse change in the condition (financial
or otherwise), business, operations, income, net worth or properties, including
any loss or damage to the properties, of the Company (whether or not such loss
is insured against); and (iv) the Company has not paid or declared any dividend
or other distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities.
(h) This Agreement, the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement (as defined in Section 5(v)
hereof), have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement, when executed and delivered
pursuant to this Agreement (assuming due execution by the Underwriter and/or the
appropriate parties to such agreements), will each constitute, a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws
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affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
(i) The Shares have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Redeemable Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Public Warrant Agreement. The
Public Warrant Shares have been reserved for issuance upon exercise of the
Redeemable Warrants and, when issued in accordance with the terms of the
Redeemable Warrants and Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's Warrants have
been duly authorized and, when issued and delivered pursuant to this Agreement
and the Underwriter's Warrant Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Underwriter's Warrant Agreement. The Underwriter's Shares have
been reserved for issuance upon exercise of the Underwriter's Warrants and, when
issued in accordance with the terms of the Underwriter's Warrants and
Underwriter's Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriter's Redeemable Warrants, when issued in
accordance with the terms of the Underwriter's Warrants and Underwriter's
Warrant Agreement, will be duly authorized and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Public Warrant Agreement. The Underwriter's Warrant Shares have
been reserved for issuance upon exercise of the Underwriter's Redeemable
Warrants and, when issued in accordance with the terms of the Underwriter's
Redeemable Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. Neither the issuance of any of
the Public Securities nor any of the Underwriter's Securities will violate or
otherwise be subject to the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company, and none of
the holders of any of the Public Securities or any of the Underwriter's
Securities will be subject to personal liability by reason of being such
holders.
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(j) All issued and outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and non-assessable; the
issuances and sales of all such capital stock complied in all respects with
applicable Federal and state securities laws; the holders thereof have no rights
of 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 similar contractual rights granted by the Company.
(k) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage, deed
of trust, note, loan or credit agreement, or any other agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary may be bound or to which any of the property or assets of the Company
or any Subsidiary are subject.
(l) The Company and the Subsidiaries are not in violation of any term
or provision of its Certificate of Incorporation or By-Laws thereof. Neither
the execution and delivery of this Agreement, nor the issuance and/or sale of
any of the Public Securities or the Underwriter's Securities, nor the
consummation of any of the transactions contemplated herein, nor the compliance
by the Company with the terms and provisions hereof, has conflicted with or will
conflict with, or has resulted in or will result in a breach of, any of the
terms and provisions, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien, charge
or encumbrance upon the property or assets of the Company or any Subsidiary
pursuant to the terms of, any indenture, mortgage, deed of trust, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company or
any Subsidiary is a party, or by which the Company or any Subsidiary is or may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject; nor will such actions result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company or
any Subsidiary or of any contract or agreement, or of any statute or any order,
rule or regulation applicable to the Company or any of the Subsidiaries or of
any other regulatory authority or other governmental body having jurisdiction
over the Company or any of the Subsidiaries .
(m) There is neither pending nor, to the best knowledge of the
Company, threatened, any action, suit, or proceeding at law or in equity or any
arbitration (or circumstances that may give rise to the same) to which the
Company or any Subsidiary or any of the respective officers, directors or
securityholders thereof is a party before or by any court, arbitration tribunal
or governmental instrumentality, agency, or
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body, which might result in any materially adverse change in the condition
(financial or otherwise), business, operations, income, net worth or properties
of the Company or any Subsidiary, or which might materially adversely affect the
properties or assets thereof, or prevent consummation of the transactions
contemplated hereby; nor are there any such actions, suits or proceedings
against the Company related to environmental matters or matters related to
discrimination on the basis of age, sex, religion or race; and no labor
disturbance by the employees of the Company or any Subsidiary exists or to the
best knowledge of the Company is imminent which might be expected to materially
adversely affect the conduct of the business, property, operations, financial
condition or earnings of the Company or any Subsidiary.
(n) There is no contract or other document which is required by the
Act or by the Rules and Regulations to be filed as an exhibit to the
Registration Statement which has not been so filed, and each contract which is
filed as an exhibit to the Registration Statement is and shall be in full force
and effect at each of the Closing Dates or shall have been terminated in
accordance with its terms or as set forth in the Registration Statement and
Prospectus, and no party to any such contract has given notice to the Company of
the cancellation of or, to the knowledge of the Company, shall have threatened
to cancel, any such contract, and, except as set forth in the Prospectus, the
Company and the Subsidiaries are not or shall not be in default thereunder.
(o) Except as set forth in the Registration Statement, neither the
Company nor any Subsidiary owns any real property. Each of the Company and the
Subsidiaries has good and marketable title to all of its property and assets,
including any licenses, trademarks and copyrights, described in the Registration
Statement as owned by it, free and clear of all liens, charges, encumbrances and
restrictions other than such as do not materially affect the value or
transferability of such property and assets and do not interfere with the use of
such property or assets made or proposed to be made by the Company or any
Subsidiary, and other than as described in the Registration Statement (including
the financial statements and notes included therein); all of the leases,
subleases and licenses under which it holds or uses any real or personal
property, including those described or referred to in the Prospectus, are in
full force and effect, and the Company and the Subsidiaries are not in default
in respect of any of the terms or provisions of any such leases, subleases and
licenses, and, to the best of the Company's knowledge, no claim of any sort has
been asserted by anyone adverse to the rights of the Company or any Subsidiary
under any such leases, subleases or licenses affecting or questioning the rights
of the Company or such Subsidiary to the continued use or enjoyment of the
rights and property covered thereby. Each of the Company and the Subsidiaries
owns or leases all such properties as are necessary to its
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operations as now conducted and as proposed to be conducted as set forth in the
Prospectus.
(p) Each of the Company and the Subsidiaries has timely (giving
effect to permitted extensions) and properly prepared and filed all necessary
Federal, state, local and foreign income and franchise tax returns and has paid
all taxes shown on such returns and all assessments received by it to the extent
the same have become due, other than those due without interest or penalty, and
except to the extent the Company is in good faith contesting any such tax or
assessment in appropriate proceedings and has established reserves in accordance
with normal accounting practices. The Company has no knowledge of any tax
deficiency which might be asserted against the Company or any Subsidiary which
could adversely affect the business or properties thereof, and has established
adequate reserves for such taxes which are not yet due and payable.
(q) Each of the Company and the Subsidiaries maintains insurance,
which is in full force and effect, of the types and in the amounts currently
adequate for its business, including but not limited to personal injury and
product liability insurance, insurance covering all personal property owned or
leased by the Company or any Subsidiary against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against. The Company and
the Subsidiaries have not (i) failed to give notice or present any insurance
claim with respect to any matter, including but not limited to the Company's
business, property or employees, under the insurance policy or surety bond in a
due and timely manner, (ii) had any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to pay any premiums due
and payable thereunder, or (iii) failed to comply with all conditions contained
in such insurance policies and surety bonds. To the best knowledge of the
Company, 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 or any Subsidiary.
(r) The Company and the Subsidiaries own or possess adequate rights
to use all patents, patent rights, inventions, trademarks, service marks, trade
names and copyrights necessary for the conduct of their business as described in
the Prospectus and the Company and the Subsidiaries have not received any notice
of infringement of or conflict with, and the Company and the Subsidiaries, to
the best of the Company's knowledge, are not infringing or in conflict with
asserted rights of others with respect to, any patents, patent rights,
inventions, trademarks, service marks, trade names or copyrights.
(s) Except as set forth in the Prospectus, neither the Company nor
any Subsidiary is obligated or under any liability whatsoever to make any
payment by way of royalties, fees or
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otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service xxxx, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise. In addition, the Company and the
Subsidiaries own and have the unrestricted right to use all trade secrets,
know-how (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively herein "intellectual property") that are material to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company and any Subsidiary, free and clear of
and without violating any right, lien, or claim of others, including without
limitation, former employers of its employees. The Company is not aware of any
development by any other person or entity of trade secrets or items of technical
information similar to those of the Company. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
its intellectual property in all material aspects.
(t) The Company is not obligated to pay and has not paid within the
past twelve months, and has not obligated, and will not obligate, the
Underwriter to pay, any finder's fee in connection with the underwriting
contemplated hereby or any other fee (cash, securities or otherwise) in
consideration of financial, consulting or investment banking services.
(u) No officer or director of the Company or any affiliate (as such
term is defined in Rule 405 promulgated under the Rules and Regulations) of any
such officer or director has taken, and each officer or director has agreed that
he will not take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of any security issued by the Company.
(v) No officer, director or greater than 5% stockholder of the
Company or any 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, (i)
an interest (other than ownership of an immaterial number of shares of capital
stock of an entity whose securities are publicly traded) in any person or entity
which (A) furnishes or sells products or services which are furnished or sold or
are proposed to be furnished or sold by the Company or any Subsidiary, or (B)
purchases from or sells or furnishes to the Company or any Subsidiary any goods
or services, or (ii) a beneficial interest in any contract or agreement to which
the Company or any 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, or transactions, between or
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among the Company or any of its Subsidiaries and any officer or director of the
Company or any Subsidiary, or any partner, affiliate or associate of any of the
foregoing persons or entities.
(w) The minute books of each of the Company and the Subsidiaries have
been made available to the Underwriter and contain a complete summary of all
meetings and actions of the directors and stockholders or partners, as the case
may be, of each of the Company and the Subsidiaries since the time of their
respective dates of organization, and reflect all transactions referred to in
such minutes accurately in all respects.
(x) The Company is not aware of any bankruptcy, labor disturbance or
other event affecting any of its principal suppliers or customers which is
reasonably likely to result in a material adverse change in the condition,
financial or otherwise, prospects, business or results of operation of the
Company and the Subsidiaries, taken as a whole.
(y) The Registered Securities and all the other securities of the
Company conform to all statements in relation thereto in the Registration
Statement.
(z) On the Effective Date, (i) the authorized capital stock of the
Company will be as set forth in the Registration Statement, and (ii) not more
than an aggregate of 1,250,000 shares of Common Stock shall be issued and
outstanding, not including: (A) an aggregate of 150,000 shares of Common Stock
issuable upon exercise of warrants, having terms equivalent to those of the
Redeemable Warrants (subject to the terms hereof), which may be issued to the
Minority Stockholders referred to herein (the "Minority Stockholder Warrants");
(B) 500,000 shares of Common Stock issuable upon exercise of warrants issued in
connection with a bridge financing ("Bridge Financing") in August 1997 (the
"Bridge Warrants"); (C) an aggregate of [250,000] shares of Common Stock
reserved for issuance under the Company's 1996 Non-Qualified and Incentive Stock
Option Plan and 1996 Non-Employee Directors' Stock Option Plan (collectively,
the "Stock Option Plans"); [(D) an aggregate of ______ shares of Common Stock
reserved for issuance pursuant to an option granted to a consultant to the
Company (the "Consultant's Option")]. Other than the shares of Common Stock
already issued (or reserved for issuance as described in the immediately
preceding sentence), the 1,437,500 Public Warrant Shares reserved for issuance
upon the Redeemable Warrants, the 125,000 Underwriter's Shares reserved for
issuance upon exercise of the Underwriter's Warrants, the 125,000 Underwriter's
Warrant Shares reserved for issuance upon exercise of the Underwriter's
Redeemable Warrants, and the Public Securities and Underwriter's Securities to
be offered in or in connection with the proposed public offering ("Public
Offering"), no other shares of capital stock or securities convertible into
capital stock shall be
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outstanding or reserved for issuance at the completion of the Public Offering,
without the consent of the Underwriter.
(aa) Except for the registration rights granted (i) under the
Underwriter's Warrant Agreement, (ii) to the holders of the Bridge Warrants and
(iii) to Meridian and the Minority Stockholders (each as described in the
Registration Statement), no holder of any securities of the Company has the
right to require that the Company include such securities in the Registration
Statement or any registration statement to be filed by the Company; and Meridian
(as hereinafter defined), the Minority Stockholders and the holders of the
Bridge Warrants have agreed not to exercise such registration rights for a
period of thirty-six (36) months from the completion of the Public Offering and
to waive any right which such person or entity may have to include any of such
holder's securities in the Registration Statement.
(bb) The Common Stock and the Redeemable Warrants are eligible for
quotation on The Nasdaq SmallCap Market ("NASDAQ") and have been approved for
listing on the Boston Stock Exchange, subject to official notice of issuance.
The Company has filed a registration statement with the Commission pursuant to
Sections 12(g) and 12(b) of the 1934 Act, and has used its best efforts to have
same declared effective by the Commission on an accelerated basis on the
Effective Date.
(cc) Neither the Company or any Subsidiary nor any officer, director
or other agent thereof has, acting on behalf of the Company or any Subsidiary,
at any time (i) made any contributions to any candidate for political office in
violation of law, or failed to disclose fully any such contributions in
violation of law, (ii) made any payment to any state, Federal or foreign
governmental officer or official, or any other person charged with similar
public or quasi-public duties, other than payments required or not prohibited
by law or (iii) made any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation and
under circumstances requiring the disclosure of such payment, receipt or
retention of funds in the Prospectus.
(dd) Since February 28, 1997, neither the Company nor any Subsidiary
has sustained any material casualty loss or interference with its business from
fire, storm, explosion, flood or other like or unlike casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree which is not disclosed or reflected in the Prospectus.
(ee) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
-12-
(ff) No unregistered securities of the Company have been sold by the
Company within the three years prior to the date hereof, except as disclosed in
Part II of the Registration Statement.
(gg) The employment agreements between the Company and its respective
officers, as disclosed in the Registration Statement, are or will be on or
before the First Closing Date binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except to
the extent enforceability may be limited by any bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting
creditors' rights generally and to the extent that the remedy of specific
performance and injunction or other forms of equitable relief may be subject to
equitable defenses and the discretion of the court before which any proceeding
therefor may be brought.
(hh) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(ii) There are no voting or other shareholder agreements between the
Company and any shareholders of the Company or between or by and among any
shareholders of the Company.
(jj) Each of the Company and the Subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance 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 any of the Subsidiaries 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 any of the Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the Company's best
knowledge, threatened against or involving the Company or the Subsidiaries or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company or any of the Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of the Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements to which the Company or any of the Subsidiaries is or was
a party. No labor dispute with the employees of the Company or any of the
Subsidiaries exists, or is imminent.
-13-
(kk) The statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, regulations or legal conclusions are correct in all material
respects.
(ll) (i) Meridian National Corporation ("Meridian"), the principal
stockholder of the Company, has agreed to exchange, prior to the First Closing
Date, indebtedness of the Company to Meridian in the approximate amount of
[principal amount of indebtedness] for _________ shares of a new class of
preferred stock ("Meridian Preferred") plus an amount payable in cash out of the
proceeds of the Public Offering equal to the interest on such indebtedness which
accrued from and after [May 1, 1996] through the First Closing Date. The
Meridian Preferred is non-voting, non-convertible, and has a liquidation
preference equal to the amount of the debt surrendered in the exchange and bear
a dividend of 8% per annum, payable annually on the 120th day following the end
of each of the Company's fiscal years commencing with the 120th day following
the first full fiscal year after the First Closing Date If earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company for the
fiscal year immediately preceding a date of payment of the dividend is less than
five times the aggregate dividend payable in respect of all shares of Meridian
Preferred then outstanding, the Company will only pay a pro rata portion of the
aggregate dividend payable, with such portion to be determined by multiplying
the aggregate dividend payable by a fraction, the numerator of which is EBITDA
for such fiscal year and the denominator of which is five times the aggregate
dividend payable in respect of all such shares. In the event that the dividend
payable on any payment date is reduced by operation of the preceding sentence,
some or all of the accrued unpaid dividend may be paid on a subsequent payment
date if EBITDA in the fiscal year immediately preceding such subsequent payment
date exceeds five times the aggregate dividend then payable in respect of the
shares of Meridian Preferred then outstanding, with the amount of the unpaid
dividend which may be paid on such subsequent payment date to be determined by
multiplying the amount of the unpaid dividend by a fraction, the numerator of
which is the amount by which EBITDA in the fiscal year exceeds five times the
dividend scheduled to be paid on the payment date, and the denominator of which
is five times the aggregate dividend scheduled to be paid. The Meridian
Preferred may, at the Company's option, be redeemed in full at any time on or
after the fifth anniversary of the First Closing Date, provided that such
redemption will not cause any of the Company's securities to be delisted from
Nasdaq or any other national securities exchange on which such securities are
then listed for trading.
(ii) Meridian has agreed that all securities of the Company held
by Meridian will be free and clear of all liens and pledges on the First Closing
Date, and Meridian shall not
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pledge or otherwise hypothecate any securities of the Company for a period of 36
months following the First Closing Date, except that Meridian may pledge
securities of the Company at any time following the First Closing Date, provided
that, as a condition of such pledge, the pledgee agrees in writing with the
Underwriter not to sell or otherwise transfer such securities for the remainder
of the 36 month period (whether or not Meridian defaults during that period on
the obligation which is secured by the pledge).
(iii) Each of Xxxxxxx Xxxxxx, MNP Corporation, Xxxxx Xxxxxx and
Xxxxxx Xxxxx (collectively, the "Minority Stockholders") has consented to the
termination of each of the Registration Rights Agreement, Stockholders Agreement
and Section 4.8 of the Stock Purchase Agreement between the Company and the
Minority Stockholders dated November 19, 1996. The Minority Stockholders shall
have piggyback registration rights with respect to the Common Stock underlying
the Minority Stockholder Warrants, but have agreed not to sell or transfer any
securities of the Company for a period of twenty four months following the First
Closing Date; provided, however, that the foregoing limitation shall be for a
period of twelve months following the First Closing Date for the sale or
transfer of the Minority Stockholder Warrants.
(mm) The Company warrants that consummation of the transactions
contemplated herein will not, as of the Effective Date or the First Closing
Date, result in a material breach of any of the terms, provisions or conditions
of any agreement to which it or any Subsidiary is a party.
(nn) The Company has delivered to the Underwriter a business plan
("Business Plan") covering a three year period setting forth its best estimates
of sales, earnings, cash flow, capital expenditures and other significant items.
The Company has also delivered to the Underwriter a comparative analysis of
capital expenditures and operating costs incurred in connection with
construction and operation of (i) the facility using the recycling process
developed by Xxxxx Environmental Corporation and (ii) the facility utilizing the
recycling process developed by Aster, Inc., including budgeted compared to
actual expenditures and costs.
Any certificate signed by an officer of the Company in his capacity as
such and delivered to the Underwriter or counsel for the Underwriter shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
3. PURCHASE, DELIVERY AND SALE OF THE OFFERED SECURITIES AND THE
UNDERWRITER'S WARRANTS.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and
-15-
conditions herein set forth, the Company agrees to sell to the Underwriter the
Firm Securities, consisting of 1,250,000 shares of Common Stock and 1,250,000
Redeemable Warrants, and the Underwriter agrees to purchase such Firm Securities
from the Company, on a firm commitment basis, at a purchase price of $4.50 per
share of Common Stock and $.09 per Redeemable Warrant, to be sold by the
Underwriter at an initial public offering price of $5.00 per share and $.10 per
Redeemable Warrant.
(b) In addition, the Company hereby grants the Underwriter the option
(the "Over-allotment Option) to purchase from the Company, at any time or from
time to time during a period of forty-five (45) calendar days from the date of
the Prospectus, all or any part of the Option Securities at a purchase price of
$4.50 per share of Common Stock and/or $.09 per Redeemable Warrant, to be sold
by the Underwriter at an initial public offering price of $5.00 per share and
$.10 per Redeemable Warrant. Notice of exercise of the Over-allotment Option,
in whole or in part, shall be delivered by the Underwriter to the Company at
least two (2) days in advance of the date on which the Option Securities are to
be delivered to the Underwriter, provided that delivery of the Option Securities
shall be made concurrently with tender of payment therefor. Option Securities
may be purchased by the Underwriter only for the purpose of covering
over-allotments in the sale of the Firm Securities, and the Underwriter shall
have no obligation to make any over-allotments. No Option Securities shall be
delivered and paid for unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered and paid for as herein
provided.
(c) On the First Closing Date, the Company shall issue and sell to
the Underwriter the Underwriter's Warrants. The total purchase price of the
Underwriter's Warrants shall be $250. The Underwriter's Warrants shall be
exercisable for a period of four years commencing 12 months from the Effective
Date, at prices of $5.50 per Underwriter's Share and $.11 per Underwriter's
Redeemable Warrant, respectively. The Underwriter's Warrant Agreement,
including the forms of Underwriter's Warrant Certificates, shall be
substantially in the form filed as Exhibit 4.3 to the Registration Statement.
Payment for the Underwriter's Warrants shall be made on the First Closing Date.
(d) Payment for the Firm Securities and the Option Securities shall
be made on each of the First Closing Date and Option Closing Date (as
hereinafter defined), respectively, by certified or bank cashier's check in New
York Clearing House funds, payable to the order of the Company, or by wire
transfer, at the offices of the Underwriter, or at such other place as agreed
upon by the Underwriter and the Company, upon delivery of certificates (in form
and substance reasonably satisfactory to the Underwriter) representing the Firm
Securities and Option Securities to be sold at such closing or by confirmation
of electronic transfer of the
-16-
Firm Securities or Option Securities, as the case may be, to the Underwriter for
the accounts of the Underwriter. Delivery and payment for the Firm Securities
shall be made at 10:00 A.M. New York time, on or before the fifth business day
following the Public Offering or at such earlier time as the Underwriter shall
determine or as required by law, or at such other time as shall be agreed upon
by the Underwriter and the Company. The hour and date of delivery and payment
for the Firm Securities are called the "First Closing Date." The Firm
Securities shall be registered in such name or names and in such authorized
denominations as the Underwriter may request in writing at least two (2) full
business days prior to Closing Date. The Company will permit the Underwriter to
examine and package any certificates representing the Firm Securities for
delivery, at least one (1) full business day prior to the First Closing Date.
Delivery for each of the Option Securities as provided above shall be made
within two (2) business days after notice of exercise to the Company, and
against payment therefor, as provided above. The hour and date of such delivery
and payment made subsequent to the First Closing Date for Option Securities is
referred to as the "Option Closing Date." The Option Securities shall be
registered in such name or names and in such denominations as the Underwriter
may request in writing at the time of exercise of the Over-allotment Option.
The First Closing Date and Option Closing Date are collectively referred to
herein as the "Closing Dates."
(e) The Company shall not be obligated to sell or deliver any Firm
Securities except upon tender of payment by the Underwriter for all the Firm
Securities.
4. PUBLIC OFFERING BY THE UNDERWRITER. The Underwriter agrees to cause
the Firm Securities to be offered to the public initially at the prices and
under the terms set forth in the Prospectus as soon, on or after the effective
date of this Agreement, as the Underwriter deems advisable, but no more than
five (5) full business days after such effective date. The Underwriter may
allow such concessions and discounts upon sales to other dealers as set forth in
the Prospectus. The Underwriter agrees to notify the Company in writing when
the Public Offering is first made and when it is completed. After the
completion of the initial public offering, the public offering prices, the
concessions and the reallowance may be changed by the Underwriter.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible, and will not at any time,
whether before or after the Effective Date, file any amendment or supplement to
the Registration Statement, (i) which shall not have been previously submitted
to, and approved by, the Underwriter or counsel for the
-17-
Underwriter a reasonable time prior to the filing thereof, (ii) to which the
Underwriter or counsel for the Underwriter shall have reasonably objected in
writing as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it shall
have received notice of the effectiveness of the Registration Statement or any
amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, of the time when the Registration Statement or
any post-effective amendment thereto has become effective or any supplement to
the Prospectus has been filed.
(c) The Company will advise the Underwriter promptly of any request
of the Commission for an amendment or supplement to the Registration Statement
or the Prospectus, or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or of any judgment, order, injunction or decree preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or of the
institution of any proceedings for any of such purposes, of which it has
knowledge, and will use its best efforts to prevent the issuance of any stop
order, and, if issued, to obtain as promptly as possible the lifting thereof.
(d) If at any time when a prospectus relating to the Public
Securities and/or the Underwriter Securities is required to be delivered under
the Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or counsel for the Underwriter, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to counsel for the Underwriter, and the Company
will furnish to the Underwriter copies of such amendment or supplement as soon
as available and in such quantities as the Underwriter may request.
(e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the 1934 Act
or the rules and regulations of the Commission promulgated under the 1934 Act,
each as now or hereafter amended or supplemented, and
-18-
by any order of the Commission so far as necessary to permit the continuance of
sales of, or dealings in, the Registered Securities.
(f) The Company will furnish to the Underwriter, without charge, two
(2) signed copies of the Registration Statement and of any amendment of
supplement thereto which has been filed prior to the date of this Agreement,
together with two (2) copies of each exhibit filed therewith, and of five (5)
conformed copies of such Registration Statement and amendments thereto (unsigned
and exclusive of exhibits). The signed copies of the Registration Statement so
furnished to the Underwriter will include signed copies of any and all consents
and reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies of any
and all consents and certificates of any other person whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified or reviewed any parts
thereof.
(g) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of each Preliminary Prospectus distributed
to the public and filed with the Commission bearing in red ink the statement
required by Item 501 of Regulation S-K of the Rules and Regulations; (ii) on and
from time to time after the Effective Date, copies of the Prospectus; and (iii)
as soon as they are available, and from time to time thereafter, copies of each
amended or supplemented Prospectus, and the number of copies to be delivered in
each such case will be such as the Underwriter may reasonably request. The
Company has consented and hereby consents to the use of each Preliminary
Prospectus for the purposes permitted by the Act and the Rules and Regulations.
The Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Offered Securities and the Public Warrant
Shares, for such period as, in the opinion of counsel for the Underwriter,
delivery of the Prospectus is required to comply with the applicable provisions
of the Act and the Rules and Regulations.
(h) For so long as any Redeemable Warrant is outstanding, the Company
shall, at its own expense, use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or a new registration
statement relating to the Public Warrant Shares, to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of the Registration Statement and of any such post-effective amendment or new
registration statement. The Company also agrees to take such action as may be
necessary to qualify the Registered Securities for offer and sale under the Blue
Sky or securities laws of such states or other jurisdictions as is required and
as the Underwriter or counsel for the Underwriter may designate (provided that
such states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to
-19-
service of process) and to continue such qualifications in effect so long as may
be required for the purposes of the distribution of the Registered Securities.
In each state or jurisdiction where the Company shall qualify the Registered
Securities as above provided, the Company will prepare and file such statements
or reports as may be required by the laws of such state or jurisdiction, and the
Underwriter shall, upon the written request of the Company, supply the Company
with all information known to the Underwriter and required to be included in
such statements or reports.
(i) Except as otherwise provided in (iii) below, during the period of
three years from the First Closing Date, the Company, at its expense, shall
furnish the Underwriter with (i) copies of each annual report of the Company;
(ii) as soon as practicable and in any event upon filing such report with the
Commission, a financial report of the Company, which will include a balance
sheet as of the end of the preceding fiscal year, a statement of operations, a
statement of stockholders' equity (deficit) and a statement of cash flows
covering such fiscal year, such report being in reasonable detail and audited by
independent public auditors; (iii) during the period of two years from the First
Closing Date, for each fiscal quarter of the Company other than the last fiscal
quarter in any fiscal year, as soon as practicable and in any event upon filing
such report with the Commission, a financial report of the Company, which will
include a balance sheet as of the end of the fiscal quarter, a statement of
operations, a statement of stockholders' equity (deficit) and a statement of
cash flows covering such fiscal quarter, together with notes thereto, for such
fiscal quarter and, with respect to the statement of operations, for the fiscal
year to date, setting forth in each case in comparative form the corresponding
figures for the preceding year, such report being in reasonable detail and
certified by the Chief Financial Officer of the Company to be correct and
complete to the best of such officer's knowledge, to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; and (iv) a copy of any Schedule 13D, 13G, 14D-1,
13E-3 or 13E-4 received or filed by the Company from time to time; (v) a copy of
any report filed by the Company pursuant to the 1934 Act; (vi) copies of all
statements, documents or other information which the Company shall mail or
otherwise make available to any class of its security holders, or shall file
with the Commission or with any exchange upon which the securities issued by the
Company shall then be listed or registered; and (vii) such other publicly
available information as the Underwriter may from time to time request. If, and
so long as, the Company has an active subsidiary or subsidiaries, the Company's
financial statements will be on a consolidated basis to the extent the accounts
of the Company and its subsidiary or subsidiaries are consolidated in reports
furnished to its stockholders generally. Separate financial
-20-
statements shall be furnished for all subsidiaries whose accounts are not
consolidated but which at the time are significant subsidiaries as defined by
the Rules and Regulations. With respect to each consolidated and unconsolidated
significant subsidiary and affiliate, if any, the financial reports shall be in
sufficient detail to show the basis of any consolidated reports required
hereunder. Notwithstanding the foregoing, the Company's financial statements
shall be deemed to comply with the requirements of this paragraph if they comply
with the Rules and Regulations.
(j) For a period of three years from the First Closing Date, the
Company shall not change its independent public accountants without the
Underwriter's prior consent. For a period of three years from the First Closing
Date, the Company, at its expense, shall cause its then independent public
accountants to review (but not audit), the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders, provided that such
review shall not be deemed to require submission with the 10-Q quarterly report
of a report on the financial statements included therein from such accountants.
For a period of three years from the First Closing Date, the Company shall
promptly submit to the Underwriter copies of all accountants' management reports
and similar correspondence between the Company and its independent public
accountants.
(k) 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 occurs (90 days in
the event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company will make generally available to its security holders in
accordance with Section 11(a) of the Act and Rule 158 of the Rules and
Regulations an earnings statement of the Company and its subsidiaries (which
need not be audited) in reasonable detail and covering a period of at least 12
months beginning after the Effective Date, and advise the Underwriter that such
statement has been so made available.
(l) No proceeds the Company receives from the sale of the Offered
Securities will be used to pay outstanding loans from officers, directors or
shareholders or to pay any accrued salaries or bonuses to any current or former
employees or consultants or any affiliates thereof within 36 months after the
First Closing Date or to pay off any other outstanding debt other than (i)
current trade payables which arose in the ordinary course of business, (ii)
$500,000 of indebtedness payable to National Bank of Canada, (iii) dividends in
respect of the Meridian Preferred and the interest payment contemplated by
Section 2(ll)(i), (iv) up to $800,000 which may be used to service indebtedness
of the Company outstanding on the First Closing Date in accordance with the debt
-21-
service schedules in effect on the First Closing Date and (v) the promissory
notes issued in the Bridge Financing. In addition, for a period of three years
after the First Closing Date, the Company shall make no loans or advances to
Meridian or any entity affiliated with Meridian.
(m) The Company on the First Closing Date will sell to the
Underwriter the Underwriter's Warrants according to the terms specified in
Section 3 hereof. The Company has reserved and shall continue to reserve a
sufficient number of shares of Common Stock for issuance upon exercise of the
Underwriter's Warrants and the Underwriter's Redeemable Warrants.
(n) For the three year period following the First Closing Date, the
Company agrees that the Underwriter shall have the right to nominate, and the
Company shall use its best efforts to cause the election of, one member of the
Company's Board of Directors, who shall be reasonably acceptable to the Company;
alternatively, the Underwriter may appoint a designee to serve as an observer at
all meetings of the Company's Board of Directors, which observer would be
entitled to the same cash compensation and reimbursement of expenses as the
Company affords its directors who are not also officers or employees of the
Company (and would, in any event, be reimbursed for all reasonable costs
incurred in attending Board meetings, including but not limited to, food,
lodging and transportation) and to receive all copies of all notices and other
documents distributed to the members of the Company's Board of Directors
(including, but not limited to, any unanimous consents prepared and advance
notices of all proposed Board actions or consents), as if such observer were a
member of the Company's Board of Directors. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or advisor) and
the Underwriter harmless against any and all claims, actions, awards and
judgments arising out of his service. The Company shall immediately after the
First Closing Date use its reasonable best efforts to obtain directors' and
officers' liability insurance in amounts reasonable and customary for similarly
situated companies, at a premium that the Company can reasonably afford. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it will, if possible, include the
Underwriter and its designee (as a director) as insureds under such policy. The
rights and benefits of such indemnification and the benefits of such insurance
shall, to the extent possible, extend to the Underwriter insofar as it may be,
or be alleged to be, responsible for such advisor. The Company will deliver, on
or before the date hereof, the agreements of each of its officers, directors and
holders of 5% or more of its Common Stock, including without limitation,
Meridian, to vote, during the three (3) year period commencing on the First
Closing Date, for the election of the Underwriter's designee for director, if
any. In addition, if at any time during the three years following the First
Closing Date,
-22-
the working capital of the Company falls below 33% of the working capital of the
Company on the First Closing Date (with the Company's working capital on the
First Closing Date to be calculated after giving effect to the use of proceeds
of the Public Offering as contemplated by the Registration Statement), the
Company will also establish a Management Advisory Committee, which committee
shall consist of two persons, one of whom shall be the director designated by
the Underwriter and one of whom shall be the Chairman of the Board of the
Company, shall make recommendations to the Board of Directors concerning
management of the Company, its operations and its personnel and shall remain in
place until such time as the Company's working capital (as reflected in a filing
made by the Company with the Commission on either a Form 10-K, 10-Q or 8-K)
equals or exceeds 50% of the Company's working capital on the First Closing
Date.
(o) The Company will maintain insurance in full force and effect of
the types and in the amounts adequate for its business and in line with
insurance maintained by similar companies and businesses, including but not
limited to, personal injury and product liability insurance and insurance
covering all personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against.
(p) During the course of the distribution of the Offered Securities,
the Company will not 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 prices of the Common Stock and/or
Redeemable Warrants. During the so-called "quiet period" in which delivery of a
prospectus is required, if applicable, the Company will not issue press releases
or engage in any other publicity regarding the Company, its business or any
terms of the Public Offering, without the Underwriter's prior written consent.
During such period, copies of all documents which the Company or its public
relations advisors intend to distribute will be provided to the Underwriter for
review prior to such distribution.
(q) The Company will use its reasonable best efforts at its cost and
expense, to take all necessary and appropriate action to maintain the listing of
the Common Stock and the Redeemable Warrants on NASDAQ and the Boston Stock
Exchange for a period of three years from the First Closing Date and will, as
promptly as practicable following determination by the Company that the Common
Stock and Redeemable Warrants will qualify therefor, use its reasonable best
efforts to list such securities on The Nasdaq National Market and maintain such
listing for as long as such securities remain qualified.
(r) On or prior to the Effective Date, the Company shall register
with (i) the Corporation Records Service (including
-23-
annual report information) published by Standard & Poor's Corporation or (ii)
Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial Manual not being sufficient
for these purposes).
(s) The Company has filed a registration statement with the
Commission pursuant to Sections 12(b) and 12(g) of the 1934 Act with respect to
the Common Stock and Redeemable Warrants and will use its best efforts to have
same declared effective by the Commission on or before the Effective Date. The
Company will use its best efforts to maintain such registration in effect for a
period of not less than 5 years from the First Closing Date.
(t) The Company will at all times from the First Closing Date until
at least three (3) years from such date, maintain in full force, or cause to be
maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of Xxxxx X.
Maison. Such policy shall be owned by the Company and all benefits thereunder
shall be payable to the Company.
(u) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Offered Securities and the Underwriter's Warrants will have been
fully paid by the Company and all laws imposing such taxes will have been fully
complied with.
(v) On the First Closing Date, the Company and the Underwriter shall
enter into a consulting agreement, substantially in the form filed as Exhibit
____ to the Registration Statement, pursuant to which the Underwriter will offer
to provide financial consulting services to the Company for a two-year period
(the "Consulting Agreement").
(w) Except for (i) the Public Securities, (ii) the Underwriter's
Securities, (iii) the issuance of Common Stock pursuant to the exercise of the
Minority Stockholder Warrants, the Bridge Warrants and the [Consultant's Option]
as described in the Prospectus, (iv) the issuance, subject to the terms hereof,
to employees, officers and directors of stock options to purchase a number of
shares of Common Stock not to exceed [250,000] shares pursuant to the Stock
Option Plans (provided that (A) the Company may not grant options for more than
_______ of such shares prior to the First Closing Date, (B) any options granted
pursuant to this clause (iv) shall have an exercise price equal to the greater
of $5.00 per share and the market price per share of Common Stock on the date of
grant and (C) the vesting of such options shall be subject to the achievement of
earnings performance criteria acceptable to the Underwriter, and (D) the
recipients of such shares (and their permitted transferees) may not sell them
publicly, pursuant to Rule 144 promulgated under the Act or
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otherwise, at any time prior to the second anniversary of the First Closing Date
without the prior written consent of the Underwriter), and (v) the Meridian
Preferred Stock, the Company will not, from and after the date hereof until
thirty-six (36) months after the First Closing Date, sell or issue any shares of
Common Stock, preferred stock or other equity securities of the Company or sell
or grant options, warrants or rights to purchase any shares of equity securities
of the Company, without the Underwriter's prior written consent, except that the
Company may, during the period commencing as the second anniversary of the First
Closing Date and ending on the fourth anniversary of the First Closing Date,
issue to its employees options to purchase shares of Common Stock in an amount
not exceeding in the aggregate 10% of the shares of Common Stock issued and
outstanding on the second anniversary of the First Closing Date (such amount of
options to be inclusive of all options granted or available for grant under
clause (iv) above). In addition, the Company will not, from and after the date
hereof until thirty-six (36) months after the First Closing Date, sell or issue
any shares of preferred stock without the Underwriter's consent, other than the
issuance of the Meridian Preferred Stock contemplated by (v) above, or authorize
any new class or series of capital stock. Notwithstanding the foregoing,
during the 36-month period following the First Closing Date, the Company may
issue securities in connection with an acquisition, merger or similar
transaction without the Underwriter's prior consent, provided that such
securities are not publicly registered and the acquirer of the securities is not
granted registration rights with respect thereto which may be exercised prior to
the later of twelve (12) months after the issuance of such securities and
thirty-six (36) months after the First Closing Date.
(x) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the thirty-six (36) months following the First
Closing Date without the Underwriter's prior written consent. Furthermore, for
a period of three years after the First Closing Date, the Company shall notify
the Underwriter in writing at least fifteen (15) days before the proposed filing
of any registration statement for any public offering of any equity or debt
securities of the Company or its Subsidiaries (other than securities issued
pursuant to an employee benefit plan or a transaction subject to Rule 145
promulgated under the Act), or at least fifteen (15) days before the private
offering of any debt or equity securities by the Company or its Subsidiaries
through a private financing, in order that the Underwriter or, at its option, a
group of associated investment bankers of which the Underwriter shall be a
co-manager, shall have a right of first refusal to effect such offering on terms
at least as favorable as otherwise offered in writing to the Company. A private
offering of securities shall not include shares given as compensation to
employees of the Company.
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The Underwriter agrees to notify the Company if the Underwriter intends to
exercise its right of first refusal within 15 days of receipt by the Underwriter
of such notice from the Company. A refusal by the Underwriter in respect of any
offering made by the Company shall not prejudice any further rights of first
refusal during the three year period, including without limitation the right of
first refusal of the Underwriter with respect to any revised terms otherwise
offered to the Company.
(y) The Company shall retain Continental Stock transfer & Trust
Company ("Continental Stock") as transfer agent for the Common Stock and as
warrant agent for the Redeemable Warrants. For the five (5) year period
following the First Closing Date, the Company will not change its transfer agent
or warrant agent without the prior written consent of the Underwriter. For a
period of two (2) years from the First Closing Date, the Company, at its own
expense, shall cause Continental Stock (or any successor transfer and warrant
agent) to provide to the Underwriter, no less frequently than weekly, copies of
the Company's daily stock transfer sheets for each of the Common Stock and
Redeemable Warrants. In addition, for a period of two years from the First
Closing Date, the Company, at its own expense, shall cause Depository Trust
Company ("DTC") to provide, by facsimile, to the Underwriter on a daily basis a
copy of a security position listing with respect to each of the Common Stock and
Redeemable Warrants. In addition, the Company will pay for any and all costs
imposed by DTC for tracking after-market trading in the Common Stock and
Redeemable Warrants for a thirty (30) day period following the Effective Date.
(z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or otherwise), business, operations, income, net worth
or properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect the
condition (financial or otherwise), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not have paid or declared
any dividend or other distribution on its Common Stock or its other securities
or redeemed or repurchased any of its Common Stock or other securities. The
Company shall furnish to the Underwriter as early as practicable prior to each
of the date hereof, the First Closing Date and each Option Closing Date, if any,
but no later than two (2) full business days prior thereto, a
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copy of the latest available unaudited interim financial statements of the
Company (which in no event shall be as of a date more than sixty (60) days prior
to the date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Section 9(d) hereof.
(aa) For a period of two (2) years following the First Closing Date,
the Company shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the First Closing Date without obtaining the Underwriter's prior written
consent, which consent shall not be unreasonably withheld. The Underwriter
shall either approve or disapprove such contemplated redemption of securities or
dividend payment or distribution within five (5) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
(bb) On or before the Effective Date, each of Xxxxx X. Maison and Real
X. Xxxxxxxxx will enter into employment agreements with the Company of at least
three years in length and with such other terms and conditions as are acceptable
to the Underwriter. The Company will not, for a period of three (3) years from
the First Closing Date increase or authorize an increase in the compensation of
its five (5) most highly paid employees in any year without the prior written
consent of the Underwriter or unless permitted by the terms of employment
contracts satisfactory to the Underwriter.
(cc) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(dd) For a period of five (5) years from the First Closing Date, the
Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the
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Underwriter more frequently than annually if prepared more frequently by
management, and revised forecasts shall be prepared and provided to the
Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(ee) For a period of three years from the Effective Date, the Company
will retain a financial public relations firm reasonably acceptable to
Underwriter.
(ff) On or prior to the Effective Date, the Company will have a person
employed as Chief Financial Officer who is reasonably acceptable to the
Underwriter. The Underwriter acknowledges that Real X. Xxxxxxxxx is reasonably
acceptable to it as the Company's Chief Financial Officer.
(gg) The Company agrees that for so long as the Common Stock is
registered under the 1934 Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
applicable rules under the 1934 Act and shall be included in an annual report
pursuant to the requirements thereof.
(hh) For a period equal to the lesser of (i) seven (7) years from the
date hereof and (ii) the sale to the public of the Underwriter's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 or Form SB-2 (or other appropriate form) for the
registration under the Act of the Underwriter's Redeemable Warrants, the
Underwriter's Shares or the Underwriter's Warrant Shares.
(ii) The Company hereby appoints, effective as of the First Closing
Date, the Underwriter as the Company's exclusive warrant solicitation agent in
the event of any solicitation of the exercise of the Redeemable Warrants, in
connection with a redemption of the Redeemable Warrants or otherwise, commencing
one year after the Effective Date, and shall pay to the Underwriter a Warrant
Solicitation fee of five (5%) percent of the exercise price of all solicited
Redeemable Warrants, subject to the rules and regulations of the NASD with
regard to such fees.
(jj) The Company shall pay, at the First Closing Date, in an aggregate
amount not to exceed $10,000, for the cost of engaging (i) a firm of the
Underwriter's choice to conduct an investigation of the Company and its
principals and (ii) a
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consultant of the Underwriter's choice to provide a written analysis of the
Company's business and prospects.
(kk) Promptly following the First Closing Date the Board of Directors
shall designate an Audit Committee, at least one of whose members shall be the
director, if any, who is designated by the Underwriter. A majority of the
members of the Audit Committee shall be independent directors.
(ll) The Company shall cause each director, officer and, subject to
Section 2(ll)(iii), securityholder of the Company (including without limitation
the Minority Stockholders and the holders of securities issued in connection
with the Bridge Financing), to enter into an agreement with the Underwriter
pursuant to which he, she or it will agree not to sell or otherwise transfer any
securities of the Company for a period of 24 months following the First Closing
Date without the prior consent of the Underwriter unless the purchaser or
transferee agrees in writing with the Underwriter not to sell or otherwise
transfer such securities for the remainder of such 24 month period without the
consent of the Underwriter; provided, however, that the lock-up period
applicable to Meridian shall be 36 months; and provided, further, that the
foregoing limitations shall be for a twelve month period with respect to the
sale or transfer of Minority Stockholder Warrants and Bridge Warrants. In the
event Meridian or any such director, officer or securityholder proposes to sell
or transfer any securities of the Company publicly at any time during the
three-year period (or four-year period for the sale or transfer of Minority
Stockholder Warrants or Bridge Warrants) commencing immediately after the end of
the applicable lock-up period, such party shall, unless otherwise agreed in
writing by the Underwriter, be required to sell such securities through the
Underwriter so long as the price and terms of execution offered by the
Underwriter are at least as favorable as may be obtained from other brokerage
firms. In any case where a brokerage firm other than the Underwriter is
proposed to be utilized in connection with any such transaction, the Underwriter
shall be provided with a written statement by such other firm setting forth the
price and terms of execution offered by such firm and the Underwriter shall have
the option, during the five day period after receipt of such statement, to match
the terms so offered and, accordingly, the Underwriter shall have the right to
execute such transaction on such terms. In addition, the Company shall cause
Meridian to agree not to distribute or otherwise make available to shareholders
of Meridian or any of Meridian's affiliates or any other person, by way of a
dividend, issuance of a security convertible into the Common Stock owned by
Meridian or otherwise, for a period of 36 months after the First Closing Date
any securities of the Company which Meridian owns on the First Closing Date.
(mm) The Company shall engage the Underwriter's counsel to provide the
Underwriter, on the First Closing Date and
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annually thereafter, until the earlier of (i) such time as the Common Stock is
listed on the New York Stock Exchange or American Stock Exchange or quoted on
NASDAQ/NMS or (ii) the second anniversary of the First Closing Date, with an
opinion, setting forth those states in which the Common Stock may be traded in
non-issuer transactions under the Blue Sky laws of up to 50 states. The Company
shall pay such counsel a one-time fee of $10,000 on the First Closing Date for
such opinion.
(nn) There shall be no agreements between the Company and any
securityholder during the period commencing on the date hereof and ending on the
third anniversary of the First Closing Date except those which are reasonably
acceptable to the Underwriter.
(oo) The Company will arrange to have its securityholders agree to be
bound by such "lock-up" or similar transfer restrictions as may be required by
the NASD or any exchange or similar entity.
(pp) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities pursuant to Regulation S
promulgated under the Act without the prior written consent of the Underwriter.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act against any losses, claims, damages, expenses or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorney's fees), to which the Underwriter or any such controlling
person may become subject, under the Act or otherwise, but only as such losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damages or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. The information set forth on
the cover page concerning the
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Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in the Registration Statement shall be deemed to
have been furnished to the Company by the Underwriter for purposes hereof. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act, against any losses, claims, damages, expenses or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorney's fees), joint or
several, to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, but only as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus or the Prospectus or
such amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Underwriter specifically for
use in the preparation thereof, PROVIDED, HOWEVER, that the obligation of each
Underwriter to indemnify the Company (including any controlling person, director
or officer thereof) shall (i) only relate to any untrue statement or alleged
untrue statement or any omission or alleged omission which applies to such
Underwriter and (ii) be limited in amount to the net proceeds received by the
Company from the Underwriter. This indemnity will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than solely pursuant to this Section 6. In case any such action is brought
against any indemnified party, which notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may choose, jointly with any other indemnifying
-31-
party similarly notified, reasonably assume the defense thereof. Subject to the
provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the consent of
the indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, (ii) the named parties to such
action (including any impleaded parties) include both the indemnified and the
indemnifying party and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party), or (iii) the
professional competence of the counsel to be employed by the indemnifying party
is not reasonably acceptable to the indemnified party. No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld. The indemnifying party shall not be liable to indemnify the
indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which consent
shall not be unreasonably withheld.
7. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which (i) the Underwriter makes a claim for
indemnification pursuant to Section 6 hereof 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 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 Section 6 provide for indemnification in such
case, or (ii) contribution
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under the Act may be required on the part of the Underwriter, then the Company
and the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), in either such case (after contribution
from others) in such proportions such that the Underwriter shall be responsible
in the aggregate for that portion of such losses, claims, damages or liabilities
determined by multiplying the total amount of such losses, claims, damages or
liabilities by the difference between the aggregate public offering prices of
the Shares and Redeemable Warrants and the aggregate purchase prices of the
Shares and Redeemable Warrants to such Underwriter and dividing the product by
the aggregate public offering prices of the Shares and Redeemable Warrants, and
the Company shall be responsible for that portion of such losses, claims,
damages or liabilities determined by multiplying the total amount of such
losses, claims, damages or liabilities by the aggregate purchase prices of the
Shares and Redeemable Warrants to the Underwriter and dividing the product
thereof by the aggregate public offering prices of the Shares and Redeemable
Warrants. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriter. As used in this Section 7, the term "Underwriter" includes
any person who controls the Underwriter within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this Section 7 is not
permitted by law, then the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the fullest
extent permitted by law. 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 Section 7, 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 Section 7, 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. SURVIVAL OF AGREEMENTS, ETC. (a) All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this
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Agreement, all representations, warranties, indemnities, and agreements made by
the parties to this Agreement or pursuant hereto shall remain in full force and
effect and will survive delivery of and the payment for the Offered Securities,
for a period of five years from the date hereof, except that, if a party hereto
has actual knowledge at the time of the Closing Dates of facts which would
constitute a breach of the representations and warranties contained herein, such
breaches shall be waived by such party if such party consummates the
transactions contemplated by this Agreement.
(b) If Xxxxxx Xxxx shall no longer be a controlling shareholder of
the Underwriter, then in that event, the Company's obligations with respect to
Section 5(x) hereof and Section 3(e) of the Consulting Agreement, in favor of
the Underwriter shall thereupon be of no further force and effect; in no event
shall any amounts theretofore paid by the Company be refunded.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter hereunder will be subject to the accuracy of and compliance with (as
of the date of this Agreement and as of the Closing Dates) the representations,
warranties and agreements contained in Sections 2 and 5 hereof and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m., New York City time, on the date of this Agreement, or such later
date as shall be consented to in writing by the Underwriter; and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or be
pending or, to the best knowledge of the Company or the Underwriter,
contemplated or threatened by the Commission; any request by the Commission for
additional information to be included in the Registration Statement or the
Prospectus or otherwise shall have been complied with to the satisfaction of
counsel for the Underwriter; qualification under the securities laws of such
states as the Underwriter may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or contemplated and
containing no provision unacceptable to the Underwriter shall have been secured;
and no stop order shall be in effect denying or suspending effectiveness of such
qualifications, nor shall any stop order proceedings with respect thereto be
instituted or pending or, to the best knowledge of the Company and the
Underwriter, threatened under such laws. If the Company has elected to rely
upon Rule 430A of the Rules and Regulations, the prices of the Shares and
Redeemable Warrants 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
-34-
First Closing Date the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
(b) No amendments to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriter, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(d) The Underwriter shall have received from Ernst & Young LLP, two
certificates or letters, one dated and delivered on the Effective Date and one
dated and delivered on the First Closing Date, in form and substance
satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of a registration statement on Form
S-1 is required insofar as it relates to them;
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
registration statements on Form S-1 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements included in the
Registration Statement;
(iii) on the basis of inquiries and procedures conducted
by them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders and the Board of Directors of the Company and its subsidiaries
since February 28,
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1997, and other specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that causes them
to believe that:
(A) during the period from (and including) February
28, 1997 to a specified date not more than five days prior to the date of such
letter, there has been any change in the Common Stock or other securities of the
Company (except as specifically disclosed in such certificates or letters), any
decreases in shareholders' equity or working capital or any increases in net
current liabilities, net liabilities or long-term debt (except, regarding the
foregoing, for decreases resulting from operating losses continuing at rates
commensurate with those incurred in prior periods) or in any other item
appearing in the Company's financial statements as to which the Underwriter may
request advice, in each case as compared with amounts shown in the audited
balance sheet as of February 28, 1997, as included in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus discloses
have occurred or will or may occur; and
(B) during the period from (and including) February
28, 1997 to such specified date there was any decrease in revenues or in the
total or per share amounts of income before extraordinary items or net income or
loss, or any other material change in such other items appearing in the
Company's financial statements as to which the Underwriter may request advice,
in each case as compared with the corresponding period in the fiscal period
ended February 28, 1997, except in each case for increases, changes or decreases
which the Prospectus discloses have occurred or will or may occur.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
Any changes, increases or decreases in the items set
forth in such letter which, in the sole judgment of the Underwriter, are
materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(e) The Underwriter shall have received from Benesch, Friedlander,
Xxxxxx & Xxxxxxx LLP ("Xxxxxxx Xxxxxxxxxxx"), counsel for the Company, two
opinions, one dated and delivered on
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the Effective Date and one dated and delivered on the First Closing Date, in
form and substance satisfactory to Zimet, Haines, Xxxxxxxx & Xxxxxx, counsel for
the Underwriter.
(f) All corporate proceedings relating to this Agreement, the
Registered Securities, the Registration Statement, each Preliminary Prospectus,
the Prospectus and other related matters shall be satisfactory to, or approved
by, counsel for the Underwriter, and the Underwriter shall have received from
such counsel a signed opinion, in form and substance reasonably satisfactory to
the Underwriter, dated the First Closing Date, with respect to such corporate
proceedings and other legal matters in connection with this Agreement, the
Registered Securities, the Registration Statement, the Prospectus (other than
the financial statements and other financial data contained therein) and related
matters as the Underwriter may reasonably require, and the Company shall have
furnished to such counsel such documents, certificates and opinions as they may
have requested for the purpose of enabling them to pass upon such matters.
(g) The Underwriter shall have received a certificate, dated and
delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company stating that:
(i) The Company and such officers have complied with all
the agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section 5
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not contain any untrue statement
of a material fact, and since the Effective Date there has occurred no event
required to be set forth in the amended or supplemented prospectus which has not
been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 2 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and further certifying as to the matters
referred to in Sections 9(h) and (i).
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(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions and
there has not been any change in the Common Stock or funded debt of the Company
or any adverse change in the condition (financial or otherwise), business,
operations, income, net worth, properties or prospects of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of the
Offered Securities.
(viii) No action, suit or proceeding, at law or in equity,
shall be pending or, to the knowledge of such officers, threatened against the
Company, or affecting any of its properties, before or by any commission, board
or other administrative agency, except as otherwise set forth in the
Registration Statement.
(h) On the First Closing Date, the Company shall not be a party to,
or be involved in, any arbitration, litigation (except as set forth in the
Registration Statement and described in the Company's Form 10-KSB for the year
ended February 28, 1997) or governmental proceeding, which is then pending, or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(i) The Company shall not have sustained, at any time since February
28, 1997, any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter, adversely affects the business of the Company.
(j) All of the Shares and Redeemable Warrants shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.
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(k) The Underwriter shall have received the agreements referred to in
Sections 2(v), 2(aa), 2(ll) and 5(ll) hereof.
(l) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all its obligations due to be performed prior thereto; (ii)
the Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and conform in all
material respects to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the date as of which
information is given, no material adverse change in the condition, business,
operations, properties, business prospects, securities, long-term or short-term
debt or general affairs of the Company from that set forth in the Registration
Statement or the Prospectus, except changes which the Registration Statement and
the Prospectus indicate will occur after the Effective Date and prior to such
Closing Date, and the Company shall not have incurred any material liabilities
or obligations, direct or contingent, or entered into any material transaction,
contract or agreement not in the ordinary course of business other than as
referred to in the Registration Statement and the Prospectus; and (iv) except as
set forth in the Prospectus, no action, suit or proceeding, at law or in equity,
shall be pending or threatened against the Company which might be required to be
set forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might adversely affect the condition, business,
operations, properties, prospects or general affairs of the Company.
(m) Upon exercise of the Over-allotment Option provided for in
Section 3(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Shares and/or the Redeemable Warrants will be subject to the
following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to the knowledge of the Underwriter or the Company, shall
be contemplated by the Commission, and any request on the part of the
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Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of Xxxxxxx Xxxxxxxxxxx, counsel
for the Company, in form and substance reasonably satisfactory to Zimet, Haines,
Xxxxxxxx & Xxxxxx, counsel for the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinions furnished to the
Underwriter by such counsel at the First Closing Date pursuant to Section 9(e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer and
the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriter, substantially the same in
scope and substance as the certificates furnished to the Underwriter at the
First Closing Date pursuant to Section 9(g).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter, in form and substance
satisfactory to the Underwriter, from Ernst & Young LLP, dated the Option
Closing Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 9(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
five business days prior to the Option Closing Date which would require any
change in said certificate or letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Securities shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
counsel for the Underwriter, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(n) The Company shall have executed and delivered the Public Warrant
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement, and
shall have issued the Underwriter's Warrants.
(o) The Company shall have furnished to the Underwriter such other
certificates, documents, and opinions as the Underwriter may have reasonably
requested (including certificates
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of officers of the Company) as to the accuracy, at the Closing Dates, of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to other conditions concurrent
and precedent to the obligations of the Underwriter hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.
Any certificate signed by an officer of the Company delivered to the
Underwriters or to counsel for the Underwriters, will be deemed a representation
and warranty by the Company to the Underwriters as to the statements made
therein.
10. EFFECTIVE DATE. This Agreement will become effective at 9:30 a.m. on
the first business day following the date on which the Registration Statement
becomes effective; provided, however, this Agreement will become effective at
such later time after the Registration Statement becomes effective as the
Underwriter may determine on and by notice to the Company or by release of any
of the Offered Securities for sale to the public or by any other action
constituting a commencement of the Public Offering. For the purposes of this
Section 10, the Offered Securities will be deemed to be so released upon the
release for publication of any newspaper advertisement relating to the Offered
Securities or upon the release by the Underwriter of telegrams offering the
Offered Securities for sale to securities dealers, whichever may occur first.
The term "business day" shall mean a calendar day other than a Saturday, Sunday
or holiday. Notwithstanding anything herein to the contrary, the provisions of
this Section and of Sections 6, 7, 11 and 12 hereof will, however, be effective
upon the execution of this Agreement.
11. TERMINATION. This Agreement may be terminated by the Underwriter by
notice to the Company (i) at any time before this Agreement becomes effective in
accordance with Section 9 hereof; (ii) if, prior to the First Closing Date, the
Company shall have failed or refused to fully comply with any of the provisions
of this Agreement on its part to be performed prior thereto, or if any of the
agreements, conditions, covenants, representations or warranties of the Company
herein contained shall not have been performed or fulfilled within the times
specified; (iii) trading in securities generally on the New York Stock Exchange
or the American Stock Exchange will have been suspended; (iv) limited or minimum
prices will have been established on either such Exchange or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD; (v) a banking moratorium will have been declared either by federal or
New York State authorities; (vi) any other restrictions on transactions in
securities materially affecting the free market for securities or
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the payment for such securities, will be established by either of such
Exchanges, by the Commission by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) the Company will have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; (viii) any action has been taken by the Government of the United
States or any department or agency thereof which, in the sole judgment of the
Underwriter, has had a material adverse effect upon the general market for
securities; (ix) if, prior to the First Closing Date, there shall have occurred
the outbreak of any war or any other event or calamity which, in the sole
judgment of the Underwriter, materially disrupts the financial markets of the
United States; (x) if, prior to the First Closing Date, the general market for
securities or political, legal or financial conditions should deteriorate so
materially from that in effect on the date of this Agreement that, in the sole
judgment of the Underwriter, it becomes impracticable for the Underwriter to
commence or proceed with the Public Offering of the Offered Securities and with
the payment for or acceptance thereof; (xi) if trading of any securities of the
Company shall have been delisted on any exchange or in any over-the-counter
market; or (xii) if, prior to the First Closing Date, the Underwriter
determines, in its sole discretion, that any materially adverse change shall
have occurred, since the date as of which information is given in the
Registration Statement and the Prospectus, in the financial condition, business,
prospects, operations, properties or obligations of the Company.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Section 7, 8 and 12 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.
12. EXPENSES; BLUE SKY FILINGS AND EXPENSES.
(a) Whether or not the Public Offering is consummated, the Company
will pay all costs and expenses incident to the performance of the obligations
of the Company hereunder, including without limiting the generality of the
foregoing, (i) the preparation, printing, filing, and copying of the
Registration Statement, Prospectus, this Agreement, the Selected Dealer
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter and
the costs of mailing Prospectuses to offerees and purchasers of the Offered
Securities; (ii) the out-of-pocket travel expenses of the Underwriter and
counsel to the Underwriter or other professionals designated by the Underwriter
to visit the Company's facilities for purposes of discharging due diligence
responsibilities (and if conferences and discussions are held outside New York,
New York, the Company shall pay such reasonable amount of pre-approved traveling
and lodging
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out-of-pocket expenses as may be incurred by the Underwriter and its counsel,
payable when incurred and billed); (iii) the printing, engraving, issuance and
delivery of certificates representing the Offered Securities, including any
transfer or other taxes payable thereon; (iv) the registration or qualification
of the Offered Securities under state securities or "blue sky" laws (including
attorneys fees of $35,000 ($10,000 of which is payable when the first blue sky
application is made with the balance paid on the First Closing Date) and
disbursements of counsel to the Underwriter (to be paid monthly as incurred,
except that the amount of blue sky filing fees shall be paid by the Company to
the Underwriter's counsel at the time application for qualification of the
offering under blue sky laws is made); (v) all reasonable fees and expenses of
the Company's counsel and accountants; (vi) all costs, expenses and filing fees
in connection with review of the terms of the offering by the NASD (it being
agreed that all reasonable fees and expenses of the Underwriter and
Underwriter's counsel in securing NASD approval, shall be paid by the Company);
(vii) all costs and expenses of any listing of the Offered Securities on NASDAQ
and Boston Stock Exchange; (viii) all costs and expenses of three (3) bound
volumes provided to the Underwriter of all documents, paper exhibits,
correspondence and records forming the materials included in the offering; (ix)
the cost of "tombstone" advertisements to be placed in one or more daily or
weekly periodicals as the Underwriter may request; (x) all expenses incurred in
connection with presentation of two "due diligence" meetings and (xi) all other
costs and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated by this Agreement. The aforementioned $35,000
payment shall not include fees of special counsel if the same is required to be
incurred in a "merit review" state which may require local counsel; the
Underwriter will not retain special counsel in any state without the prior
consent of the Company. The obligations of the Company under this subsection
(a) shall survive any termination or cancellation of this Agreement, except as
provided in paragraph (c) of this Section 12.
(b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of the
offering, including in such amount the proceeds from the exercise of the
Underwriter's over-allotment option. The non-accountable expense allowance due
shall be paid at the First Closing Date and any Option Closing Date, as
applicable. The Underwriter hereby acknowledges prior receipt from the Company
of $25,000, which amount shall be applied to the non-accountable expense
allowance due when and if the offering is closed.
(c) If at any time prior to the First Closing Date, (i) the Company
will not or cannot expeditiously proceed with the sale of the Registered
Securities, including without limitation as
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a result of the Company taking or not taking actions, (ii) any of the
representations, warranties or covenants of the Company contained in this
Agreement or any agreement contemplated hereby are not true and correct or
cannot be complied with, (iii) Meridian fails to supplement the Company's
working capital at levels necessary to maintain the Company's operations or
withdraws or fails to maintain any guarantees made by Meridian in respect of the
Company's indebtedness or any other obligations of the Company and the
Underwriter shall not commence or continue the underwriting, (iv) in the
Underwriter's sole judgment, there occurs a material adverse change in the
Company's financial condition, business, prospects or obligations, and the
Underwriter shall not commence or continue the underwriting, or (v) in the
Underwriter's sole judgment, reasonably exercised, market conditions are
unsuitable for the Public Offering and the Underwriter shall not commence or
continue the underwriting, then the Company shall reimburse the Underwriter in
full for its actual out-of-pocket expenses (including, without limitation, its
legal fees and disbursements), up to $50,000 (in each case inclusive of any
portion of the non-accountable expense allowance paid pursuant to paragraph (b)
above).
(d) If the Company decides not to proceed with the Public Offering
for any reason, and subsequently engages in any public offering, private
placement, merger, acquisition, joint venture or corporate reorganization with
any other business entity within 12 months after the Company notifies the
Underwriter of its decision not to proceed with the Public Offering, the
Underwriter shall be entitled to receive from the Company a fee equal to 5% of
the consideration paid or received in any such transaction, less any payments
previously made to the Underwriter pursuant to paragraph (b); provided that if
the consideration paid or received in the transaction consists, in whole or in
part, of securities or other non-cash items, the fee payable to the Underwriter
shall nonetheless be paid in cash (i.e., check). The Company and the
Underwriter mutually agree that since the amount of monetary damages suffered by
the Underwriter would be difficult to calculate in the event of abandonment of
the Public Offering, the amount of such fee is a fair measure of compensation
due to the Underwriter in such event. The Company and the Underwriter shall
negotiate in good faith the terms of an investment banking finders' fee, if any,
if the Underwriter is instrumental in arranging such transaction.
(e) The Underwriter shall determine in which states or jurisdictions
the Offered Securities shall be registered or qualified for sale, provided that
such states or jurisdictions do not require the Company to qualify as a foreign
business corporation or to file a general consent to service of process.
Immediately prior to the Effective Date, counsel for the Underwriter shall
advise counsel for the Company in writing of all states in which the offering
has been registered or qualified for sale or has been cancelled, withdrawn or
denied and the number of
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Offered Securities registered or qualified for sale in each such state. The
Company shall be responsible for the cost of state registration or
qualification, including the filing fees (which filing fees are payable to
Underwriter's counsel in advance of such filings) and the legal fees and
disbursements of Underwriter's counsel in connection with obtaining such
registration or qualification; provided, however, that the legal fees of
Underwriter's counsel payable by the Company with respect to blue sky filings
shall be $35,000, subject to paragraph (a) above. The disbursements of
Underwriter's counsel shall be paid by the Company monthly as incurred by such
legal counsel. The Underwriter hereby acknowledge that the Company has
previously paid $10,000 to Underwriter's counsel to be applied towards the legal
fees payable pursuant to this paragraph (e) and the Company hereby acknowledges
that any remaining balance with respect to legal fees or blue sky filing fees,
and any unpaid disbursements, shall be due and payable on the First Closing
Date.
13. NOTICES. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, or hand delivered, and confirmed in writing or by telegraph, addressed
as respectively indicated or to such other address as will be indicated by a
written notice similarly given, to the following persons:
(a) If to the Underwriter -- addressed to Duke & Co., Inc., 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxx Xxxxxx, President, with a
copy to Zimet, Haines, Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, Attention: Xxxxx Xxxxxx Xxxxxx, Esq.
(b) If to the Company -- addressed to EPI Technologies, Inc., 000
Xxxxxxx Xxxxxx, Xxxxxx, Xxxx 00000, Attention: President, with a copy to
Benesch, Friedlander, Xxxxxx & Xxxxxxx LLP, 0000 XX Xxxxxxx Xxxxxxxx, 000 Xxxxxx
Xxxxxx, Xxxxxxxxx, Xxxx 00000, Attention: Xxx X. Xxxxxx, Esq.
Notice shall be deemed delivered upon receipt.
14. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
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representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control any of the Underwriter within
the meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the Offered Securities from the
Underwriter will be deemed a successor or assign solely because of such
purchase.
15. FINDERS AND HOLDERS OF FIRST REFUSAL RIGHTS.
(a) The Company hereby represents and warrants to the Underwriter
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions or holds a right of
first refusal or similar right in connection with the proposed offering, and the
Company hereby agrees to indemnify and hold harmless the Underwriter, its
officers, directors, agents and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the Act, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder or alleged holder of a right of first refusal or similar right
in connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of the
Company.
(b) The Underwriter hereby represents and warrants to the Company
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions; and the Underwriter
hereby agrees to indemnify and hold harmless the Company, its officers,
directors and agents, from and against any loss, liability, claim, damage or
expense whatsoever arising out of a claim by an alleged finder in connection
with the proposed offering, insofar as such loss, liability, claim, damage or
expense arises out of any action or alleged action of the Underwriter.
16. APPLICABLE LAW. This Agreement 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 applicable to contracts made and to be
performed entirely within such State. The Company (1) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (2)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (3) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York and the
United States District Court for the Southern District
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of New York in any such suit, action or procedure. Each of the Company and the
Underwriter further agrees to accept and acknowledge service of any and all
process which may be served in any suit, action or proceeding in the New York
State Supreme Court, County of New York and the United States District Court for
the Southern District of New York, and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
17. HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
19. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
20. REPRESENTATION OF THE UNDERWRITER. The Underwriter hereby represents
that it is registered as a broker-dealer with the Commission and is registered
as a broker-dealer in all states in which it of conducts business and it is a
member in good standing of the NASD.
21. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders and the singular shall include the plural, and vice versa.
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If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the space provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
between us.
Very truly yours,
EPI TECHNOLOGIES, INC.
By
------------------------
Name:
Title:
Confirmed and accepted on the
day and year first above written.
DUKE & CO., INC.
By:
-------------------------
Name: Xxxxx Xxxxxx
Title: President
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EPI TECHNOLOGIES, INC.
[SELECTED DEALER AGREEMENT]
-49-
