THE RECOVERY NETWORK, INC.
1,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 1,600,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. _______________, 1997
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
The Recovery Network, Inc., a Colorado corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") an aggregate of one million six hundred thousand (1,600,000)
shares of common stock of the Company, par value $.01 per share (the "Offered
Shares"), which Offered Shares are presently authorized but unissued shares of
the common stock, par value $.01 per share (individually, a "Common Share" and
collectively the "Common Shares"), of the Company, and one million six hundred
thousand (1,600,000) Common Share purchase warrants (the "Offered Warrants"),
entitling the holder of each Offered Warrant to purchase, at any time commencing
________, 1998 (or such earlier date as to which the Underwriter consents) until
__________, 2002, one (1) Common Share, at an exercise price of Five Dollars
Fifty Cents ($5.50) (subject to adjustment in certain circumstances). The
Company shall have the right to call each Offered Warrant for redemption upon
not less than thirty (30) days' written notice at any time commencing twelve
(12) months from the Effective Date (as hereinafter defined) at a redemption
price of Ten Cents ($.10) per Offered Warrant; provided, that the closing bid
quotation of the Common Stock on all twenty (20) of the trading days ending on
the third trading day prior to the day on which the Company gives notice (the
"Call Date") of redemption has been at least 150% (currently $8.25, subject to
adjustment) of the then effective exercise price of the Warrants and the Company
obtains the written consent of the Underwriter with respect to such redemption
prior to the Call Date. In addition, the Underwriter, in order to cover
over-allotments in the sale of the Offered Shares and/or Offered Warrants, may
purchase up to an aggregate of two hundred forty thousand (240,000) Common
Shares (the "Optional
Shares") and/or two hundred forty thousand (240,000) Common Share purchase
warrants (the "Optional Warrants") entitling the holder of each Optional Warrant
to purchase one (1) Common Share on the same terms as the Offered Warrants. The
Offered Shares and the Optional Shares are hereinafter sometimes collectively
referred to as the "Shares"; and the Offered Warrants and the Optional Warrants
are hereinafter sometimes collectively referred to as the "Warrants." The
Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement") to be dated as of the Closing Date (as hereinafter defined) by and
among the Company, the Underwriter and American Stock Transfer & Trust Company,
as warrant agent (the "Warrant Agent").
The Company also proposes to issue and sell to the
Underwriter, for its own account and the accounts of its designees, warrants
(the "Underwriter's Warrants") to purchase up to an aggregate of one hundred
sixty thousand (160,000) Common Share(s) (collectively, the "Underlying Shares")
and/or one hundred sixty thousand (160,000) warrant(s) similar but not identical
to the Warrants (collectively, the "Underlying Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant Agreement filed as an exhibit to the Registration
Statement (as hereinafter defined). The Underlying Shares, the Common Shares
issuable upon exercise of the Warrants and the Common Shares issuable upon
exercise of the Underlying Warrants are hereinafter sometimes referred to as the
"Warrant Shares". The Shares, the Warrants, the Underwriter's Warrants, the
Underlying Warrants and the Warrant Shares (collectively, the "Securities") are
more fully described in the Registration Statement and the Prospectus, as
defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and Offered Warrants to the Underwriter, and the Underwriter
agrees to purchase the Offered Shares and Offered Warrants from the Company, at
a purchase price of $4.50 per Offered Share and $.09 per Offered Warrant. The
Underwriter plans to offer the Offered Shares and Offered Warrants to the public
at a public offering price of $5.00 per Offered Share and $.10 per Offered
Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered
Warrants will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the offices of the Underwriter, Whale Securities Co., L.P., 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, against delivery of the Offered Shares and Offered
Warrants to the
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Underwriter. Such payment and delivery will be made at A.M., New York City time,
on the third business day following the Effective Date (the fourth business day
following the Effective Date in the event that trading of the Offered Shares and
Offered Warrants commences on the day following the Effective Date), the date
and time of such payment and delivery being herein called the "Closing Date."
The certificates representing the Offered Shares and Offered Warrants to be
delivered will be in such denominations and registered in such names as the
Underwriter may request not less than two full business days prior to the
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, American Stock Transfer & Trust Company, 00 Xxxx
Xxxxxx, Xxx Xxxx, Xxx xxxx 00000 not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees,
limited to officers and partners of the Underwriter and/or members of the
selling group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant Agreement
attached as an exhibit to the Registration Statement. The aggregate purchase
price for the Underwriter's Warrants is One Hundred Seventy Six Dollars
($176.00). The Underwriter's Warrants will be restricted from sale, transfer,
assignment or hypothecation for a period of one (1) year from the Effective
Date, except to the Underwriter's Designees. Payment for the Underwriter's
Warrants will be made to the Company by check or checks payable to its order on
the Closing Date against delivery of the certificates representing the
Underwriter's Warrants. The certificates representing the Underwriter's Warrants
will be in such denominations and such names as the Underwriter may request
prior to the Closing Date.
3. Option to Purchase Optional Shares and/or Optional
Warrants.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares and/or Optional
Warrants from the Company. The purchase price to be paid for the Optional Shares
and Optional Warrants will be the same price per Optional Share and Optional
Warrant as the price per Offered Share or Offered Warrant, as the case may be,
set forth in Section 1 hereof. The option granted hereby may be exercised by the
Underwriter as to all or any part of the Optional Shares and/or the Optional
Warrants at any time within 45 days after the Effective Date. The Underwriter
will not be under any obligation to purchase any Optional Shares or Optional
Warrants prior to the exercise of such option.
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(b) The option granted hereby may be exercised by
the Underwriter by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares and
Optional Warrants to be purchased, the date and time for delivery of and payment
for the Optional Shares and Optional Warrants to be purchased and stating that
the Optional Shares and Optional Warrants referred to therein are to be used for
the purpose of covering over-allotments in connection with the distribution and
sale of the Offered Shares and Offered Warrants. If such notice is given prior
to the Closing Date, the date set forth therein for such delivery and payment
will not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option, the Company will become obligated to convey
to the Underwriter, and, subject to the terms and conditions set forth in
Section 3(d) hereof, the Underwriter will become obligated to purchase, the
number of Optional Shares and Optional Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional
Warrants purchased will be made to the Company by wire transfer or certified or
official bank check or checks payable to its order in New York Clearing House
funds, at the office of the Underwriter, against delivery of the Optional Shares
and Optional Warrants purchased to the Underwriter. The certificates
representing the Optional Shares and Optional Warrants to be delivered will be
in such denominations and registered in such names as the Underwriter requests
not less than two full business days prior to the Option Closing Date, and will
be made available to the Underwriter for inspection, checking and packaging at
the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase
and pay for any of the Optional Shares or Optional Warrants is subject to the
accuracy and completeness (as of the date hereof and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy and completeness of the
statements of the Company or its officers made in any certificate or other
document to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions, as of the date
hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and
to the delivery to the Underwriter of opinions, certificates and letters dated
the Option Closing Date substantially similar in scope to those specified in
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Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered
Shares," "Offered Warrants" and "Closing Date" to be, respectively, to the
Optional Shares, Optional Warrants and the Option Closing Date.
4. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Under-
writer that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado,
with full power and authority, corporate and other, to own or lease, as the case
may be, and operate its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement and to execute,
deliver and perform this Agreement, the Warrant Agreement and the Underwriter's
Warrant Agreement and to consummate the transactions contemplated hereby and
thereby. The Company has no subsidiaries other than RecoveryNet Direct, Inc., a
corporation duly organized and validly existing under the laws of Colorado (the
"Subsidiary"), and the Company has no equity interests in any other entity,
other than its membership interest in Recovery Net Interactive, LLC ("RNI"), a
limited liability company duly formed and validly existing under the laws of
Colorado, as described in the Prospectus. Unless the context otherwise requires,
all references to the "Company" in this Agreement shall include the Subsidiary
and RNI. Each of the Company, the Subsidiary and RNI is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and where failure so to qualify could
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company, the Subsidiary and RNI taken
as a whole. Each of the Subsidiary and RNI has full power and authority,
corporate to own or lease, as the case may be, and operate its properties and to
conduct its business as described in the Prospectus.
The Company owns all of the issued and outstanding
shares of capital stock of the Subsidiary and its equity interest in RNI, as
described in the Prospectus, free and clear of any security interests, liens,
encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. 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 Subsidiary or RNI.
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and each of the Warrant Agreement, the Underwriter's Warrant Agreement
and the Consulting Agreement described in Section 5(r) hereof (the "Consulting
Agreement"), when executed and delivered by the Company on the Closing Date,
will be the valid and binding obligations of the Company, enforceable
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against the Company in accordance with their respective terms. The execution,
delivery and performance of this Agreement, the Consulting Agreement, the
Warrant Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Articles of Incorporation or By-Laws,
each as amended, of the Company or the Subsidiary, or the Certificate of
Formation or Operating Agreement of RNI; (ii) result in a breach of or conflict
with any of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company, the Subsidiary or RNI pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company, the Subsidiary or RNI is a party or by which the Company, the
Subsidiary or RNI or any of their respective properties or assets are or may be
bound or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company, the Subsidiary or RNI or any of
their respective properties or business; or (iv) have any effect on any permit,
certification, registration, approval, consent, order, license, franchise or
other authorization (collectively, "Permits") necessary for the Company, the
Subsidiary or RNI to own or lease and operate their respective properties and to
conduct their respective businesses or the ability of the Company to make use
thereof.
(c) No Permits of any court or governmental agency
or body, other than under the Securities Act of 1933, as amended (the "Act"),
the Regulations (as hereinafter defined) and applicable state securities or Blue
Sky laws, are required for (i) the valid authorization, issuance, sale and
delivery of the Shares and Warrants to the Underwriter, or (ii) the consummation
by the Company of the transactions contemplated by this Agreement, the
Consulting Agreement, the Warrant Agreement or the Underwriter's Warrant
Agreement.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333- ) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the
Securities under the Act, including the
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related preliminary prospectus or preliminary prospectuses (each thereof being
herein called a "Preliminary Prospectus") and a proposed final prospectus. Each
Preliminary Prospectus was endorsed with the legend required by Item 501(a)(5)
of Regulation S-B of the Regulations and, if applicable, Rule 430A of the
Regulations. Such registration statement including any documents incorporated by
reference therein and all financial schedules and exhibits thereto, as amended
at the time it becomes effective, and the final prospectus included therein are
herein, respectively, called the "Registration Statement" and the "Prospectus,"
except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b)
of the Regulations differs from the Prospectus, the term "Prospectus" will also
include the prospectus filed pursuant to Rule 424(b), and (ii) if the
Registration Statement is amended or such Prospectus is supplemented after the
date the Registration Statement is declared effective by the Commission (the
"Effective Date") and prior to the Option Closing Date, the terms "Registration
Statement" and "Prospectus" shall include the Registration Statement as amended
or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions 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.
(g) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set forth
in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the
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Effective Date and on the Closing Date, there will be no options to purchase,
warrants or other rights to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of the
Company's capital stock or any such warrants, convertible securities or
obligations. Except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand," "piggyback" or otherwise, to have
such securities registered under the Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) Xxxxxx Xxxxxxxx LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Registration Statement and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited and unaudited financial statements included in the Registration
Statement and the Prospectus.
(j) Each of the Company, the Subsidiary and RNI has
filed with the appropriate federal, state and local governmental agencies, and
all appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due; and the provisions for income taxes payable, if any, shown
on the consolidated financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Underwriter, none of the Company, the Subsidiary nor RNI has
executed or filed with any taxing authority, foreign or domestic, any agreement
extending the period for
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assessment or collection of any income taxes and is not a party to any pending
action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company, the Subsidiary or RNI.
(k) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of the preemptive rights of
any shareholder of the Company. None of the holders of the outstanding Common
Shares is subject to personal liability solely by reason of being such a holder.
The offers and sales of the outstanding Common Shares and outstanding options
and warrants to purchase Common Shares were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky laws or
exempt from such registration requirements. The authorized Common Shares and
outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase, Common
Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, as the case may be, the Shares and the Warrant Shares will be
validly issued, fully paid and nonassessable. The holders of the Securities will
not be subject to personal liability solely by reason of being such holders and
none of the Securities will be subject to preemptive rights of any shareholder
of the Company.
(n) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute
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valid and binding obligations of the Company, enforceable as to the Company in
accordance with their terms. The Warrant Shares have been duly reserved for
issuance upon exercise of the Warrants, the Underwriter's Warrants and the
Underlying Warrants in accordance with the provisions of the Warrant Agreement
and the Underwriter's Warrant Agreement. The Warrants, Underwriter's Warrants
and Underlying Warrants will conform to the descriptions thereof contained in
the Registration Statement and the Prospectus.
(o) None of the Company, the Subsidiary nor RNI is
in violation of, or in default under, (i) any term or provision of its Articles
of Incorporation or By-Laws, each as amended, or Certificate of Formation or
Operating Agreement, as the case may be; (ii) any material term or provision or
any financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company, the
Subsidiary or RNI or any of the Company's, the Subsidiary's or RNI's properties
or business. Each of the Company, Subsidiary or RNI owns, possesses or has
obtained all governmental and other (including those obtainable from third
parties) Permits necessary to own or lease, as the case may be, and to operate
its properties, whether tangible or intangible, and to conduct any of the
business or operations of the Company as presently conducted, and all such
Permits are outstanding and in good standing, and there are no proceedings
pending or, to the best of the Company's knowledge, threatened (nor, to the best
of the Company's knowledge, is there any basis therefor), which seeking to
cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company, the Subsidiary or RNI
or involving the Company's, the Subsidiary's or RNI's properties or business
which, if determined adversely to the Company, the Subsidiary or RNI, would,
individually or in the aggregate, result in any material adverse change in the
financial position, shareholders' equity, results of operations, properties,
business, management or affairs or business prospects of the Company, the
Subsidiary or RNI or which question the validity of the capital stock of the
Company or this Agreement or of any action taken or to be taken by the Company
pursuant to, or in connection with, this Agreement; nor, to the best of the
Company's knowledge, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company, the Subsidiary or RNI and enjoining the Company, the
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Subsidiary or RNI from taking, or requiring the Company, the Subsidiary or RNI
to take, any action, or to which the Company, the Subsidiary or RNI, or the
Company's, the Subsidiary's or RNI's properties or businesses, is bound or
subject.
(q) Neither the Company nor any of its affiliates
has incurred any liability for any finder's fees or similar payments in
connection with the transactions herein contemplated.
(r) Each of the Company, the Subsidiary and RNI owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus (collectively
the "Intangibles"); to the best of the Company's knowledge, none of the Company,
the Subsidiary nor RNI has infringed nor is infringing upon the rights of others
with respect to the Intangibles; and none of the Company, the Subsidiary nor RNI
has received any notice of conflict with the asserted rights of others with
respect to the Intangibles which could, singly or in the aggregate, materially
adversely affect its business as presently conducted or the prospects, financial
condition or results of operations of the Company, the Subsidiary or RNI, and
the Company knows of no basis therefor; and, to the best of the Company's
knowledge, no others have infringed upon the Intangibles of the Company, the
Subsidiary or RNI.
(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, none of the Company, the
Subsidiary nor RNI has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, and has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
there have not been, and prior to the Closing Date referred to below there will
not be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, shareholders' equity, results
of operations or prospects of the Company, the Subsidiary nor RNI, otherwise
than as set forth or contemplated in the Prospectus.
(t) Each of the Company, the Subsidiary and RNI has
good and marketable title in fee simple to all real property and good title to
all personal property (tangible and intangible) owned by it, free and clear of
all security interests, charges,
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mortgages, liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company, the Subsidiary or
RNI. The leases, licenses or other contracts or instruments under which the
Company, the Subsidiary and RNI leases, holds or is entitled to use any
property, real or personal, are valid, subsisting and enforceable only with such
exceptions as are not material and do not interfere with the use of such
property made, or proposed to be made, by the Company, the Subsidiary or RNI,
and all rentals, royalties or other payments accruing thereunder which became
due prior to the date of this Agreement have been duly paid, and none of the
Company, the Subsidiary nor RNI, nor, to the best of the Company's knowledge,
any other party is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the passage of time or the giving
of notice, or both, would constitute a default thereunder. None of the Company,
the Subsidiary nor RNI has received notice of any violation of any applicable
law, ordinance, regulation, order or requirement relating to its owned or leased
properties. Each of the Company, the Subsidiary and RNI has adequately insured
its properties against loss or damage by fire or other casualty and maintains,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in its geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company, the Subsidiary and RNI is a
party or by which its property their properties or businesses is or may be bound
or affected and to which reference is made in the Prospectus has been duly and
validly executed, is in full force and effect in all material respects and is
enforceable against the parties thereto in accordance with its terms, and none
of such contracts or instruments has been assigned by the Company, the
Subsidiary or RNI, and neither the Company, the Subsidiary nor RNI, nor, to the
best of the Company's knowledge, any other party, is in default thereunder and,
to the best of the Company's knowledge, no event has occurred which, with the
lapse of time or the giving of notice, or both, would constitute a default
thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company, the Subsidiary or RNI or any of their respective assets or businesses,
including, without limitation, those promulgated by the Federal Communications
Commission (the "FCC") and comparable state and local regulatory authorities,
including without limitation, the Communications Act of 1934, the Cable
Communications Policy Act of 1984, the Cable Television Consumer Protection and
Competition Act of 1992 and the Telecommunications Act of 1996 (collectively,
the FCC Acts") and the published rules and regulations promulgated thereunder.
-12-
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company (and between the Subsidiary and
RNI and its officers, employees and consultants, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium or other similar
laws or arrangements affecting creditors' rights generally and subject to
principles of equity.
(w) 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.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's, the Subsidiary's or RNI's employees or
is imminent which could adversely affect the Company, the Subsidiary or RNI.
(y) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(z) The Shares and Warrants have been approved for
listing on the Nasdaq SmallCap Market of the National Association of Securities
Dealers, Inc. ("NASDAQ").
(aa) The Company has provided Xxxxxx Xxxxxxxxxx
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated October 29, 1996.
Any certificate signed by an officer of the Company,
the Subsidiary or RNI and delivered to the Underwriter or to Underwriter's
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company
covenants with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the
-13-
Prospectus is required by law to be delivered in connection with the sales of
the Shares and Warrants by the Underwriter or a dealer, file or publish any
amendment or supplement to the Registration Statement or Prospectus of which the
Underwriter has not been previously advised and furnished a copy, or to which
the Underwriter shall object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the RegistrAti lSmd* op(a~s Gq
amendment to the Registration Statement or any supplemented
Prospectus is filed with the Commission; (ii) of the receipt
of any comments from the Commission; (iii) of any request of
the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional
information; and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the
qualification of the Shares and/or the Warrants for offering
or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its
best efforts to prevent the issuance of any such stop order or
of any order preventing or suspending such use and to obtain
as soon as possible the lifting thereof, if any such order is
issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration
-14-
Statement becomes effective, two copies of all exhibits filed therewith and two
signed copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and Offered Warrants, in any
Optional Shares and Optional Warrants which may be issued and sold, and in the
Warrant Shares underlying such Warrants. If, at any time when a prospectus
relating to any of the Securities is required to be delivered under the Act, any
event occurs as a result of which the Registration Statement and Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or if
it shall be necessary to amend or supplement the Registration Statement and
Prospectus to comply with the Act or the regulations thereunder, the Company
will promptly file with the Commission, subject to Section 5(a) hereof, an
amendment or supplement which will correct such statement or omission or which
will effect such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K (or 10-KSB), 10-Q (or 10-QSB) and
10-C and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the " NASD")
on the date each such report or document is so filed or furnished; (ii) as soon
as practicable, copies of any reports or
-15-
communications (financial or other) of the Company mailed to its security
holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G, 14D-1 or
13E-3 received or prepared by the Company from time to time; (iv) monthly
statements setting forth such information regarding the Company's results of
operations and financial position (including balance sheet, profit and loss
statements and data regarding outstanding purchase orders) as is regularly
prepared by management of the Company; and (v) such additional information
concerning the business and financial condition of the Company as the
Underwriter may from time to time reasonably request and which can be prepared
or obtained by the Company without unreasonable effort or expense. The Company
will furnish to its shareholders annual reports containing audited financial
statements and such other periodic reports as it may determine to be appropriate
or as may be required by law.
(h) Neither the Company nor any person that con-
trols, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Common Shares or
Warrants.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50.00 previously
paid to it, and the Company will pay or cause to be paid the following: all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement;
the issuance and delivery of the Shares and Warrants to the Underwriter; all
taxes, if any, on the issuance of the Shares and Warrants; the fees, expenses
and other costs of qualifying the Shares and Warrants for sale under the Blue
Sky or securities laws of those states in which the Shares and Warrants are to
be offered or sold, including the fees and disbursements of Underwriter's
Counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the cost of printing and mailing the
"Blue Sky Survey;" and the filing fees incident to securing any required review
by the NASD and either the Boston Stock Exchange or Pacific Stock Exchange; the
cost of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone advertisements" in any publications which may be selected by
the Underwriter (up to a maximum of $10,000); and all other costs and expenses
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
-16-
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares and Offered Warrants or any Optional Shares and/or
Optional Warrants purchased three percent (3%) of the gross proceeds of the
offering (less the sum of Fifty Thousand Dollars ($50,000) previously paid to
the Underwriter), as payment for the Underwriter's nonaccountable expense
allowance relating to the transactions contemplated hereby, which amount will
include the fees and expenses of Underwriter's Counsel (other than the fees and
expenses of Underwriter's Counsel relating to Blue Sky qualifications and
registrations, which, as provided for above, shall be in addition to the three
percent (3%) nonaccountable expense allowance and shall be payable directly by
the Company to Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto are not consummated because the Company decides not
to proceed with the offering for any reason or because the Underwriter decides
not to proceed with the offering as a result of a breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to the sum of Seventy Five Thousand Dollars ($75,000), inclusive of
Fifty Thousand Dollars ($50,000) previously paid to the Underwriter by the
Company. In all case other than those set forth in the preceding sentence, if
the Company or the Underwriter decide not to proceed with the offering, the
Company will only be obligated to reimburse the Underwriter for its accountable
out-of-pocket expenses up to Fifty Thousand Dollars ($50,000), and inclusive of,
Fifty Thousand Dollars ($50,000) previously paid to the Underwriter by the
Company. In no event, however, will the Underwriter, in the event the offering
is terminated, be entitled to retain or receive more than an amount equal to its
actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares and Warrants for the purposes set forth in the
Prospectus. Except for the repayment of the Financing Notes (as defined in the
Prospectus), no portion of the net proceeds from the sale of the Shares and
Warrants will be used to repay any indebtedness. The Company will file with the
Commission all required reports on Form S-R in accordance with the provisions of
Rule 463 promulgated under the Act and will provide a copy of each such report
to the Underwriter and its counsel.
(l) During the period of twelve (12) months from the
date hereof, neither the Company nor any of the Company's officers, directors or
security holders, will offer for sale or sell or otherwise dispose of, directly
or indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise, and no holder of
registration rights relating to any securities of the Company
-17-
will exercise any such registration rights, in either case, without the prior
written consent of the Underwriter. In addition, for the first year following
the foregoing lock-up period, no officer, director or securityholder
beneficially owning 5% or more of the outstanding Common Stock of the Company
(each, a "Principal") may, without the Underwriter's prior written consent, sell
any of its shares of Common Stock during any three-month period in excess of the
amount that the Principal would be allowed to sell if it were deemed an
"affiliate" of the Company and its shares were deemed "restricted," as those
terms are defined in Rule 144 promulgated under the Act (i.e., in general, no
more than the greater of (a) 1% of the then outstanding shares of Common Stock
and (b) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding such sale).
(m) 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 twelve (12) months
from the Effective Date, without the Underwriter's prior written consent.
(n) 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.
(o) The Company will use its best efforts to main-
tain the listing of the Shares and Warrants on NASDAQ and, if so qualified, list
the Shares and Warrants, and maintain such listing for so long as qualified, on
the NASDAQ National Market System.
(p) The Company will, concurrently with the
Effective Date, register the class of equity securities of which the Shares are
a part under Section 12(g) of the Exchange Act and the Company will maintain
such registration for a minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares and
Offered Warrants, the Underwriter and its successors will have the right to
designate a nominee for election, at its or their option, either as a member of
or a non-voting advisor to the Board of Directors of the Company, and the
Company will use its best efforts to cause such nominee to be elected and
continued in office as a director of the Company or as such advisor until the
expiration of five (5) years from the Effective Date. Each of the Company's
-18-
current officers, directors and shareholders agrees to vote all of the Common
Shares owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to indemnify
and hold such director or advisor harmless, to the maximum extent permitted by
law, against any and all claims, actions, awards and judgments arising out of
his service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured 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 may be alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
(r) The Company agrees to employ the Underwriter or
a designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written consulting agreement between the Company and the Underwriter and/or such
designee (the "Consulting Agreement"), at an annual rate of Thirty Thousand
Dollars ($30,000) (exclusive of any accountable out-of-pocket expenses), payable
in full, in advance on the Closing Date. In addition, the Consulting Agreement
shall provide that the Company will pay the Underwriter a finder's fee in the
event that the Underwriter originates a merger, acquisition, joint venture or
other transaction to which the Company is a party. The Company further agrees to
deliver a duly and validly executed copy of said Consulting Agreement, in form
and substance acceptable to the Underwriter, on the Closing Date.
(s) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of five
percent (5%) of the aggregate exercise price of the Warrants for each Warrant
exercised during the period commencing one year after the Effective Date;
provided, however, that the Underwriter will not be entitled to receive such
compensation in Warrant exercise transactions in which (i) the market price of
the
-19-
Common Shares at the time of exercise is lower than the exercise price of the
Warrants; (ii) the Warrants are held in any discretionary account; (iii)
disclosure of compensation arrangements is not made in the Registration
Statement and in documents provided to holders of Warrants at the time of
exercise; (iv) the holder thereof has not confirmed in writing that the
Underwriter solicited the exercise of the Warrants; or (v) the solicitation or
exercise of the Warrants was in violation of Regulation M promulgated under the
Exchange Act.
(t) The Company shall retain a transfer agent for
the Common Shares and Warrants, reasonably acceptable to the Underwriter, for a
period of five (5) years from the Effective Date. In addition, for a period of
five (5) years from the Effective Date, the Company, at its own expense, shall
cause such transfer agent to provide the Underwriter with copies of the
Company's daily transfer sheets, and, when requested by the Underwriter, a
current list of the Company's securityholders, including a list of the
beneficial owners of securities held by a depository trust company and other
nominees.
(u) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(v) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five (5) years from the Effective Date.
(w) For a period of five (5) years from the
Effective 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 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.
(x) For a period of five (5) years from the
Effective Date, or until such earlier time as the Common Shares and Warrants are
listed on the New York Stock Exchange or the American Stock Exchange, the
Company shall cause its legal counsel to provide the Underwriter with a list, to
be updated at least
-20-
annually, of those states in which the Common Shares and Warrants may be traded
in non-issuer transactions under the Blue Sky laws of the 50 states.
(y) For a period of five (5) years from the
Effective Date, the Company shall continue to retain Xxxxxx Xxxxxxxx LLP (or
such other nationally recognized accounting firm as is acceptable to the
Underwriter) as the Company's independent public accountants.
(z) For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(aa) above, 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 (or 10-QSB) quarterly report (or other
equivalent report) and the mailing of quarterly financial information to
shareholders.
(aa) So long as any Warrants are outstanding,
the Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act as shall
be necessary to enable the sale of the Common Shares underlying the Warrants and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Warrant as they request and as otherwise required by law and, to
furnish to the Underwriter and dealers as many copies of each such Prospectus as
the Underwriter or dealer may reasonably request. In addition, for so long as
any Warrant is outstanding, the Company will promptly notify the Underwriter of
any material change in the financial condition, business, results of operations
or properties of the Company.
(ab) For a period of twenty-five (25) days from
the Effective Date, the Company will not issue press releases or engage in any
other publicity without the Underwriter's prior written consent, other than
normal and customary releases issued in the ordinary course of the Company's
business or those releases required by law.
(ac) The Company will not increase or authorize
an increase in the cash compensation of its (and the Subsidiary's) five (5) most
highly paid employees greater than those increases provided for in their
employment agreements with the Company or the Subsidiary in effect as of the
Effective Date and disclosed in the Prospectus, without the prior written
consent of the Underwriter, for a period of five (5) years from the Effective
Date.
(ad) For a period of five (5) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the Company's
accountants and the Company.
-21-
(ae) 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.
(af) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants or conversion of currently
outstanding convertible securities and (ii) options (and shares issuable upon
exercise of such options) available for future grant pursuant to any stock
option plan in effect on the Effective Date and the issuance of shares of Common
Stock upon the exercise of such options.
(ag) Prior to the Effective Date and for a
period of three (3) years thereafter, the Company will retain a financial public
relations firm reasonably acceptable to the Underwriter.
(ah) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(ai) The Company obtaining directors' and
officers' insurance naming the Underwriter as an additional insured party, in an
amount equal to twenty-five percent (25%) of the gross proceeds of the offering,
and maintaining such insurance for a period of at least three (3) years from the
Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares and Offered Warrants from the Company. The obligation of the
Underwriter to purchase and pay for the Offered Shares and Offered Warrants
which it has agreed to purchase from the Company is subject (as of the date
hereof and the Closing Date) to the accuracy of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become
effective not later than __.M., New York City time, on the day following the
date of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings
-22-
for that purpose will have been initiated or will be pending or, to the best of
the Underwriter's or the Company's knowledge, will be contemplated by the
Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Xxxxxx Xxxxxx Flattau & Klimpl, LLP and Xxxxx Xxxxxxx & Xxxx LLP,
counsels for the Company (together, "Company Counsel"), dated as of the date
hereof or the Closing Date, as the case may be (and any other opinions of
counsel referred to in such opinion of Company Counsel or relied upon by Company
Counsel in rendering their opinion), reasonably satisfactory to Underwriter's
Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado,
with full power and authority, corporate and other, and with all Permits
necessary to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. The Company has no subsidiaries other than the
Subsidiary and the Company has no equity interests in any other entity other
than its equity interest in RNI. The Subsidiary is a corporation duly organized
and validly existing under the laws of Colorado and RNI is a limited liability
company duly formed and validly existing under the laws of Delaware. The Company
owns all of the capital stock of the Subsidiary and the capital stock, as
described in the Prospectus, of RNI, in each case, free and clear of all liens,
security interests and other encumbrances of any nature whatsoever, except as
set forth in the Prospectus. Unless the context otherwise requires, all
references to the "Company" in this opinion shall include the Subsidiary and
RNI. Each of the Company, the Subsidiary and RNI is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and the failure to so qualify could have
a material adverse effect on the financial condition, results of operations,
business or properties of the Company, the Subsidiary and RNI taken as a whole.
Each of the Subsidiary and RNI has full power and authority, corporate and
other, with all Permits necessary to own or lease, as the case may be, and
operate its properties and to conduct its business as described in the
Prospectus.
The Company owns all of the issued and outstanding
shares of capital stock of the Subsidiary and the capital stock of RNI as
described in the Prospectus, in each case, free and clear of any security
interests, liens, encumbrances, claims and charges, and all of such shares have
been duly authorized and validly issued and are fully paid and nonassessable.
-23-
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action, and this
Agreement [for Closing Date opinion add: and each of the Consulting Agreement,
the Warrant Agreement and the Underwriter's Warrant Agreement] has been duly
executed and delivered by the Company. This Agreement is (assuming for the
purposes of this opinion that it is valid and binding upon the other party
thereto), and each of the Warrant Agreement, the Underwriter's Warrant Agreement
and the Consulting Agreement, when executed and delivered by the Company on the
Closing Date, will be, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the rights of creditors generally and the discretion of
courts in granting equitable remedies and except that enforceability of the
indemnification provisions set forth in Section 7 hereof and the contribution
provisions set forth in Section 8 hereof may be limited by the federal
securities laws or public policy underlying such laws.
(iii) The execution, delivery and perfor- xxxxx
of this Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of this Agreement, the Consulting Agreement, the Warrant
Agreement and the Underwriter's Warrant Agreement do not, and will not, with or
without the giving of notice or the lapse of time, or both, (A) result in a
violation of the Articles of Incorporation or By-Laws, each as amended, of the
Company or the Subsidiary, or the Certificate of Formation or Operating
Agreement of RNI, (B) result in a breach of or conflict with any terms or
provisions of, or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company, the Subsidiary or RNI pursuant to any indenture, mortgage, note,
contract, commitment or other material agreement or instrument to which the
Company, the Subsidiary or RNI is a party or by which the Company, the
Subsidiary or RNI or any of the Company's, Subsidiary's or RNI's properties or
assets are or may be bound or affected; (C) violate any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign,
-24-
having jurisdiction over the Company, the Subsidiary or RNI or any of the
Company's, the Subsidiary's or RNI's properties or business; or (D) have any
effect on any Permit necessary for the Company, the Subsidiary or RNI to own or
lease and operate their respective properties or conduct their businesses or the
ability of the Company to make use thereof.
(iv) To the best of Company Counsel's knowledge,
no Permits of any court or governmental agency or body (other than under the
Act, the Regulations and applicable state securities or Blue Sky laws) are
required for the valid authorization, issuance, sale and delivery of the Shares
and Warrants or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by this Agreement,
the Consulting Agreement, the Warrant Agreement or the Underwriter's Warrant
Agreement.
(v) The Registration Statement has become
effective under the Act; to the best of Company Counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the
Prospectus, as of the Effective Date, and each amendment or supplement thereto
as of its effective or issue date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which Company
Counsel need not express an opinion) comply as to form in all material respects
with the requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration
Statement and the Prospectus of statutes, regulations, government
classifications, contracts and other documents (including opinions of such
counsel); and the response to Item 13 for Form SB-2 have been reviewed by
Company Counsel, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and there
are no material statutes, regulations or government classifications, or, to the
best of Company Counsel's knowledge, material contracts or documents, of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement, which are
not so described or filed as required.
None of the material provisions of the contracts
or instruments described above violates any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company, the Subsidiary or RNI or any of their assets or
businesses. To the best of Company Counsel's knowledge, the Company is not in
default
-25-
under any contract or agreement material to its business or under any promissory
note or other evidence of indebtedness for borrowed funds.
(viii) The outstanding Common Shares and
outstanding options and warrants to purchase Common Shares have been duly
authorized and validly issued. The outstanding Common Shares are fully paid and
nonassessable. The outstanding options and warrants to purchase Common Shares
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms. None of the outstanding Common Shares or options or
warrants to purchase Common Shares has been issued in violation of the
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Shares is subject to personal liability solely by reason of
being such a holder. The offers and sales of the outstanding Common Shares and
outstanding options and warrants to purchase Common Shares were at all relevant
times either registered under the Act and the applicable state securities or
Blue Sky laws or exempt from such registration requirements. The authorized
Common Shares and outstanding options and warrants to purchase Common Shares
conform to the descriptions thereof contained in the Registration Statement and
Prospectus. To the best of Company Counsel's knowledge, except as set forth in
the Prospectus, no holders of any of the Company's securities has any rights,
"demand", "piggyback" or otherwise, to have such securities registered under the
Act.
(ix) The issuance and sale of the Shares and the
Warrant Shares have been duly authorized and, when the Shares and the Warrant
Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, as the case may be, the Shares and the Warrant Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. Neither
the Shares nor the Warrant Shares are subject to preemptive rights of any
shareholder of the Company. The certificates representing the Securities are in
proper legal form.
(x) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when paid for, issued and delivered pursuant to the terms of this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement, as the
case may be, the Warrants, the Underwriter's Warrants and the Underlying
Warrants will constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms, to issue and sell the Warrant Shares
and/or Underlying Warrants. The Warrant Shares have been duly reserved for
issuance upon exercise of the Underwriter's Warrants and the Warrants in
accordance with the provisions of the Underwriter's Warrant Agreement and the
Warrant Agreement, as the case may be. The Warrants, Underwriter's Warrants and
Underlying
-26-
Warrants conform to the descriptions thereof contained in the Registration
Statement and Prospectus.
(xi) Upon delivery of the Offered Shares and
Offered Warrants to the Underwriter against payment therefor as provided in this
Agreement, the Underwriter (assuming it is a bona fide purchaser within the
meaning of the Uniform Commercial Code) will acquire good title to the Offered
Shares and Offered Warrants, free and clear of all liens, encumbrances,
equities, security interests and claims.
(xii) Assuming that the Underwriter exer- cises
the over-allotment option to purchase any of the Optional Shares and Offered
Warrants and makes payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares and Optional Warrants so
purchased to the Underwriter hereunder, the Underwriter (assuming it is a bona
fide purchaser within the meaning of the Uniform Commercial Code) will acquire
good title to such Optional Shares and Optional Warrants, free and clear of any
liens, encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's
knowledge, there are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries before any governmental agency, court or tribunal,
foreign or domestic, or before any private arbitration tribunal, pending or
threatened against the Company, the Subsidiary or RNI, or involving the
Company's, the Subsidiary's or RNI's properties or business, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material.
(xiv) Each of the Company, the Subsidiary and
RNI owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsel's knowledge, none of the Company,
the Subsidiary nor RNI has infringed nor is infringing upon the rights of others
with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, none of the Company, the Subsidiary nor RNI has received any notice
that it has or may have infringed, is infringing upon or is conflicting with the
asserted rights of others with respect to the Intangibles which might, singly or
in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any licenses
with respect to the Intangibles which are required to be obtained by the
Company, the Subsidiary or RNI.
-27-
Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as t
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering its opinion pursuant to this Section
6(b), Company Counsel may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that Company Counsel
shall state that they have no reason to believe, and do not believe, that they
are not justified in relying upon such opinions or such certificates of
government officials and officers of the Company as to matters of fact, as the
case may be.
The opinion letters delivered pursuant to this
Section 6(b) shall state that any opinion given therein qualified by the phrase
"to the best of our knowledge" is being given by Company Counsel after due
investigation of the matters therein discussed.
(c) At the time this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Wiley, Rein & Fielding, special communications counsel for the
Company ("Special Counsel") dated as of the date hereof, or the Closing Date, as
the case may be, reasonably satisfactory to Underwriter's Counsel, to the effect
that:
(i) Each of the Company and the Subsidiary has
all Permits required by the FCC and comparable state regulatory authorities to
conduct its business as described in the Memorandum;
(ii) Each of the Company and the Subsidiary is
in compliance, in all material respects with the FCC Acts and the published
rules and regulations promulgated thereunder by the FCC and the rules and
regulations promulgated by comparable state regulatory authorities.
Special Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Special Counsel deemed necessary, no facts came to its
attention which lead it to believe
-28-
that (A) the sections of the Registration Statement entitled "Risks Factors -
Government Regulation" and "Business - Government Regulation", on the Effective
Date, contained any untrue statement of a material fact required to be stated
therein or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that (B) the sections of the Prospectus
entitled "Risk Factors - Government Regulation" and "Business - Government
Regulation" contains any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(d) At the Closing Date, there will have been
delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as
of the Closing Date, to the effect that the opinions delivered pursuant to
Sections 6(b) and (c) hereof appear on their face to be appropriately responsive
to the requirements of this Agreement, except to the extent waived by the
Underwriter, specifying the same, and with respect to such related matters as
the Underwriter may require.
(e) At the Closing Date (i) the Registration State-
ment and the Prospectus and any amendments or supplements thereto will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations and will conform in all material respects to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or
-29-
finding would materially adversely affect the business, property, financial
condition or results of operations of the Company, other than as set forth in
the Registration Statement and the Prospectus. At the Closing Date, there will
be delivered to the Underwriter a certificate signed by the Chairman of the
Board or the President or a Vice President of the Company, dated the Closing
Date, evidencing compliance with the provisions of this Section 6(e) and stating
that the representations and warranties of the Company set forth in Section 4
hereof were accurate and complete in all material respects when made on the date
hereof and are accurate and complete in all material respects on the Closing
Date as if then made; that the Company has performed all covenants and complied
with all conditions required by this Agreement to be performed or complied with
by the Company prior to or as of the Closing Date; and that, as of the Closing
Date, no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or, to
the best of his knowledge, are contemplated or threatened. In addition, the
Underwriter will have received such other and further certificates of officers
of the Company as the Underwriter or Underwriter's Counsel may reasonably
request.
(f) At the time that this Agreement is executed and
at the Closing Date, the Underwriter will have received a signed letter from
Xxxxxx Xxxxxxxx LLP, dated the date such letter is to be received by the
Underwriter and addressed to it, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by them, in their opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to their attention which, in their judgment,
would indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with
-30-
the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(g) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares and the Offered
Warrants to be sold on the Closing Date.
(h) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
and Warrants by the Underwriter.
(i) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Shares or Warrants, and no proceedings for the purpose of taking such
action shall have been instituted or shall be pending, or, to the best of the
Underwriter's or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(j) The Company meets the current and any existing
and proposed criteria for inclusion of the Shares and Warrants in Nasdaq.
(k) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in
-31-
connection with the authorization, issuance and sale of the Shares or Warrants
shall be reasonably satisfactory in form and substance to the Underwriter and to
Underwriter's Counsel, and such counsel shall have been furnished with all such
documents, certificates and opinions as they may request for the purpose of
enabling them to pass upon the matters referred to in Section 6(c) hereof and in
order to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company, the performance of any covenants of the
Company, or the compliance by the Company with any of the conditions herein
contained.
(l) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings of its officers, directors
and security holders and/or registration rights holders, as the case may be, to
the effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6
have not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent of
the Underwriter, and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares and
Warrants under the securities laws thereof (hereinafter "application"), 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 in order to make the
-32-
statements therein not misleading, in light of the circumstances under which
they were made, unless such untrue statement or omission was made in such
Registration Statement, Preliminary Prospectus, Prospectus or application in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter or any such person through
the Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares and/or Warrants which are the subject thereof
from the Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares and/or
Warrants to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares and
Warrants under state securities or Blue Sky laws), 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 in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
-33-
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to be represented by separate counsel, the indemnified party or parties
shall have the right to employ a single counsel to represent the indemnified
parties who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof equal to the
percentage which the underwriting discount per Share and per Warrant set forth
on the cover page of the Prospectus represents of the initial public offering
price per Share and per Warrant set
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forth on the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
such allocation, then, if applicable law permits, other relevant equitable
considerations such as the relative fault of the Company and the Underwriter in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses shall also be considered. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information supplied by the
Company or by the Underwriter, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement,
alleged statement, omission or alleged omission. The Company and the Underwriter
agree that it would be unjust and inequitable if the respective obligations of
the Company and the Underwriter for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages and
expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 8. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of the Under-writer will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares and the Warrants.
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10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered Shares and Offered Warrants
for public offering" for the purposes of this Section 10 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and Offered Warrants, or
the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus and an offering letter or an offering telegram
relating to the Offered Shares and Offered Warrants, whichever will first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and Optional Warrants, as the case may
be, if, prior to such time, any of the following shall have occurred: (i) the
Company withdraws the Registration Statement from the Commission or the Company
does not or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
cannot be complied with; (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;
(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 the payment for such
securities, including the Offered Shares and Offered Warrants or the Optional
Shares and Optional Warrants, 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) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities
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in general; or (xi) the market for securities in general or political, financial
or economic conditions will have so materially adversely changed that, in the
judgment of the Underwriter, it will be impracticable to offer for sale, or to
enforce contracts made by the Underwriter for the resale of, the Offered Shares
and Offered Warrants or the Optional Shares and Offered Warrants, as the case
may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares and Warrants, the
information in the __ paragraph on page __ with respect to concessions and
reallowances, and the information in the ___ paragraph on page ___ with respect
to the determination of the public offering price, as such information appears
in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P., 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 with a copy to Xxxxxx Xxxxxxxxxx LLP,
Attention: Xxxxxx X. Xxxxxxx, Esq., 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000; if to the Company, addressed to it at 0000 0xx Xxxxxx, Xxxxx 000, Xxxxx
Xxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxxx X. Xxxxx, President and Chief
Executive Officer, with a copy to Xxxxxx Xxxxxx Flattau & Klimpl, LLP, 0000
Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxx X. Xxxxxxx,
Esq.
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by
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the internal laws of the State of New York. 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 of New York in any
such suit, action or proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in 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.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from the Underwriter, as such purchaser.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement
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between the Company and the Underwriter in accordance with its terms.
Very truly yours,
THE RECOVERY NETWORK, INC.
By:_______________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:________________________
Name:
Title:
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