XXXXXX ELECTRONICS, INC.
950,000 Shares of Common Stock
and
1,450,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
___________, 1998
The Thornwater Company, L.P.
000X Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
Xxxxxx Electronics, Inc., a corporation organized under the laws of
the State of New York (the "Company"), hereby confirms its agreement with The
Thornwater Company, L.P. ("Thornwater"), as representative (the
"Representative") of the several underwriters listed on Schedule 1 annexed
hereto (the "Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters an
aggregate of (i) 950,000 shares (the "Firm Shares") of the Company's common
stock, no par value (the "Common Stock"), and (ii) 1,450,000 redeemable
warrants to purchase Common Stock (the "Firm Warrants"). In addition, for the
sole purpose of covering over-allotments from the sale of the Firm Shares and
the Firm Warrants, (A) the Company proposes to grant to the Underwriters an
option to purchase (i) an additional 42,500 shares of Common Stock (the
"Company Option Shares") and/or (ii) an additional 217,500 redeemable warrants
to purchase Common Stock (the "Option Warrants", and together with the Company
Option Shares, the "Company Option Securities") and (B) Xxxxxx Acquisition
Company , LLC (the "Selling Shareholder") proposes to grant to the
Underwriters an option to purchase 100,000 shares of Common Stock (the
"Selling Shareholder Option Shares," and together with the Company Option
Shares, the "Option Shares"), all as provided in section 2(c) of this
agreement (the "Agreement"). The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." The Firm Warrants and the
Option Warrants are collectively referred to herein as the "Warrants." Any
shares of Common Stock issuable upon the exercise of any Warrants are referred
to herein as "Warrant Shares." The Firm Shares and the Firm Warrants are
collectively referred to herein as the "Firm Securities;" the Option Shares
and the Option Warrants are collectively referred to herein as the "Option
Securities;" and the Firm Securities, the Option Securities and the Warrant
Shares are collectively referred to herein as the "Securities."
Pursuant to an agreement to be entered into among the Company, the
Underwriter and Registrar and Transfer Company (the "Warrant Agreement"), each
Warrant will be exercisable during the period commencing on the second
anniversary of the effective date of the Registration
Statement (as hereinafter defined) (the "Effective Date") and expiring on the
fifth anniversary thereof, subject to redemption by the Company (as described
below), at an initial exercise price (subject to adjustment as set forth in
the Warrant Agreement) of $_____ per share (110% of public offering price per
share). The Warrants will be redeemable at a price of $.10 per Warrant,
commencing on the second anniversary of the Effective Date (or earlier with
the consent of the Representative) and prior to their expiration, upon not
less than 30 days prior written notice to the holders of the Warrants,
provided that the closing bid price of the Common Stock as reported on the
Nasdaq SmallCap Market if traded thereon, or if not traded thereon, the
closing sale price if listed on the Nasdaq National Market or a national or
regional securities exchange (or other reporting system that provides last
sales prices), shall have been at least $_____ per share (150% of public
offering price per shares), subject to adjustment, for 20 consecutive trading
days ending three days prior to the date on which the Company gives notice of
redemption, subject to the right of the holder to exercise such Warrants prior
to redemption.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No.
333-42121), with respect to the Securities and the Representative's Warrant
Securities (as hereinafter defined), including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Act "), and one or more amendments to that registration statement may
have been so filed. Copies of such registration statement and of each
amendment heretofore filed by the Company with the Commission have been
delivered to the Underwriters. After the execution of this Agreement, the
Company will file with the Commission either (i) if the registration
statement, as it may have been amended, has been declared by the Commission to
be effective under the Act, a prospectus in the form most recently included in
that registration statement (or, if an amendment thereto shall have been
filed, in such amendment), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters prior to the execution of
this Agreement, or (ii) if that registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to that registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Underwriters prior to the execution of this Agreement. The Company also
may file a related registration statement with the Commission pursuant to Rule
462(b) under the Act for purposes of registering certain additional
Securities, which registration statement shall become effective upon filing
with the Commission (the "Rule 462(b) Registration Statement"). As used in
this Agreement, the term "Registration Statement" means that registration
statement, as amended at the time it was or is declared effective, and any
amendment thereto that was or is thereafter declared effective, including all
financial schedules and exhibits thereto and any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined), together with any Rule 462(b) Registration Statement;
the term "Preliminary Prospectus" means each prospectus subject to completion
filed with the Registration Statement (including the prospectus subject to
completion, if any, included in the Registration Statement at the time it was
or is declared effective); and the term "Prospectus" means the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act or, if
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no prospectus is so filed pursuant to Rule 424(b), the prospectus included in
the Registration Statement. The Company has caused to be delivered to the
Underwriters copies of each Preliminary Prospectus and has consented to the
use of those copies for the purposes permitted by the Act. If the Company has
elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement has
not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act
or the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When each Preliminary
Prospectus and each amendment and each supplement thereto was filed with the
Commission it (i) contained all statements required to be stated therein, in
accordance with, and complied with the requirements of, the Act and the rules
and regulations of the Commission thereunder and (ii) did not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement was or is declared effective, it (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus
and each amendment or supplement thereto is filed with the Commission pursuant
to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required so to be filed, when the Registration Statement containing such
Prospectus or amendment or supplement thereto was or is declared effective)
and on the Firm Closing Date and any Option Closing Date (as each such term is
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and
(ii) did not or will not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (b) do not apply to
statements or omissions made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by
the Underwriters specifically for use therein.
(c) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of New
York, and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership
or leasing of its property or the conduct of its business requires such
qualification or authorization.
(d) The Company has full corporate power and authority, and
all necessary material authorizations, approvals, orders, licenses,
certificates and permits of and from all
3
governmental regulatory authorities, to own or lease its property and conduct
its business as now being conducted and as proposed to be conducted as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an
interest in any corporation, partnership, limited liability company, joint
venture, trust or other business entity.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus). All of the issued
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights. There
are no outstanding options, warrants or other rights granted by the Company to
purchase shares of its Common Stock or other securities, other than as
described in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). The Shares and the Warrant Shares have
been duly authorized, and the Warrant Shares have been duly reserved for
issuance, by all necessary corporate action on the part of the Company and,
when the Shares are issued and delivered to and paid for by the Underwriter
pursuant to this Agreement and the Warrant Shares are issued and delivered to
and paid for by the holders of Warrants upon exercise of the Warrants in
accordance with the terms thereof, the Shares and the Warrant Shares will be
validly issued, fully paid, nonassessable and free of preemptive rights and
will conform to the description thereof in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Securities, and no
person is entitled to have securities registered by the Company under the
Registration Statement or otherwise under the Act other than as described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(g) The capital stock of the Company conforms to the
description thereof contained in the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been
effected pursuant to an exemption from the registration requirements of the
Act. Except as previously disclosed in writing to the Representative, no
compensation was paid to or on behalf of any member of the National
Association of Securities Dealers, Inc. ("NASD"), or any affiliate or employee
thereof, in connection with any such issuance.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the
financial position of the Company as of the dates indicated and the results of
operations of the Company for the periods specified. Such financial statements
have been prepared in accordance with accounting principles generally accepted
in effect in the United States of America, consistently applied, except to the
extent that certain footnote disclosures regarding unaudited interim periods
may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as
4
amended (the "1934 Act"). The financial data set forth under the caption
"Summary Financial Information" in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) fairly present, on
the basis stated in the Prospectus (or such Preliminary Prospectus), the
information included therein.
(j) Ernst & Young LLP, who have audited certain financial
statements of the Company and delivered their report with respect to the
financial statements included in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), are independent public accountants with respect to the Company as
required by the Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (and, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (i) except as
otherwise contemplated therein, there has been no material adverse change in
the business, operations, condition (financial or otherwise), earnings or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company and no commitments made by the
Company that, individually or in the aggregate, are material with respect to
the Company, (iii) there has not been any change in the capital stock or
indebtedness of the Company, and (iv) there has been no dividend or
distribution of any kind declared, paid or made by the Company in respect of
any class of its capital stock.
(l) The Company has full corporate power and authority to
enter into and perform its obligations under this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement (as hereinafter defined).
The execution and delivery of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement have each been duly
executed and delivered by the Company and each is a valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other
similar laws affecting creditors' rights generally and by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and except as rights to indemnity and contribution under
this Agreement may be limited by applicable law. The issuance, offering and
sale by the Company to the Underwriters of the Securities pursuant to this
Agreement or the Representative's Securities pursuant to the Representative's
Warrant Agreement, the compliance by the Company with the provisions of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement,
and the consummation of the other transactions contemplated by this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement do not (i)
require the consent, approval, authorization, registration or qualification of
or with any court or governmental or regulatory authority, except such as have
been obtained or may be required under state securities or blue sky laws and,
if the registration statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution hereof,
such as may be required (and shall be obtained as provided in this Agreement)
under the Act, or (ii) conflict with or result in a breach or violation of, or
constitute a default under, any material contract, indenture, mortgage, deed of
5
trust, loan agreement, note, lease or other material agreement or instrument
to which the Company is a party or by which the Company or any of its property
is bound or subject, or the certificate of incorporation or by-laws of the
Company, or any statute or any rule, regulation, judgment, decree or order of
any court or other governmental or regulatory authority or any arbitrator
applicable to the Company.
(m) No legal or governmental proceedings are pending to
which the Company is a party or to which the property of the Company is
subject, and no such proceedings have been threatened against the Company or
with respect to any of its property, except such as are described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (and, if
the Prospectus is not in existence, in the most recent Preliminary Prospectus)
or filed as required.
(n) The Company is not in (i) violation of its certificate
of incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) default in any material respect in the performance
or observance of any obligation, agreement, covenant or condition contained in
any material contract, indenture, mortgage, deed of trust, loan agreement,
note, lease or other material agreement or instrument to which it is a party
or by which it or any of its property may be bound or subject, and no event
has occurred which with notice or lapse of time or both would constitute such
a default.
(o) The Company currently own or possess adequate rights to
use all intellectual property, including all trademarks, service marks, trade
names, copyrights, inventions, know-how, trade secrets, proprietary
technologies, processes and substances, or applications or licenses therefor,
that are described in the Prospectus (and if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and any other rights or
interests in items of intellectual property as are necessary for the conduct
of the business now conducted or proposed to be conducted by them as described
in the Prospectus (or, such Preliminary Prospectus), and, except as disclosed
in the Prospectus (and such Preliminary Prospectus), the Company is not aware
of the granting of any patent rights to, or the filing of applications
therefor by, others, nor is the Company aware of, nor has the Company received
notice of, infringement of or conflict with asserted rights of others with
respect to any of the foregoing. All such intellectual property rights and
interests are (i) valid and enforceable and (ii) to the best knowledge of the
Company, not being infringed by any third parties.
(p) The Company possesses adequate licenses, orders,
authorizations, approvals, certificates or permits issued by the appropriate
federal, state or foreign regulatory agencies or bodies necessary to conduct
its business as described in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and, except as disclosed in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), there
are no pending or, to the best knowledge of the
6
Company, threatened, proceedings relating to the revocation or modification of
any such license, order, authorization, approval, certificate or permit.
(q) The Company has good and marketable title to all of the
properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind,
except those reflected in such financial statements or as described in the
Registration Statement and the Prospectus (and such Preliminary Prospectus).
Except as disclosed in the Prospectus, the Company occupies its leased
properties under valid and enforceable leases conforming to the description
thereof set forth in the Registration Statement and the Prospectus (and such
Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its
business in a manner in which it would be an "investment company" as defined
in Section 3(a) of the Investment Company Act of 1940 (the "Investment Company
Act").
(s) The Company has obtained and delivered to the
Representative the agreements (the "Lock-up Agreements") with the officers,
directors and other security holders owning or having rights to acquire shares
of Common Stock or preferred stock to the effect that, among other things,
each such person (i) will not, commencing on the Effective Date and continuing
for the period set forth in Schedule 2, directly or indirectly, publicly sell,
offer or contract to sell or grant any option to purchase, transfer, assign or
pledge, or otherwise encumber, or dispose of any shares of Common Stock or
preferred stock or any securities convertible into or exercisable for Common
Stock or preferred stock now or hereafter owned by such person without the
prior written consent of the Representative and that the purchaser or
transferee in any private sale agrees to be bound by the Lock Up Agreement,
and (ii) will comply with any additional restriction or condition on the
disposition of such Common Stock or preferred stock which may be required to
qualify the offering of the Securities in any state in accordance with the
blue sky or securities laws of such state.
(t) No labor dispute with the employees of the Company
exists, is threatened or, to the best of the Company's knowledge, is imminent
that could result in a material adverse change in the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business, prospects, net worth or results
of operations of the Company, except as described in or contemplated by the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
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(v) The Representative's Warrant (as hereinafter defined)
will conform to the description thereof in the Registration Statement and in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and, when sold to and paid for by the Representative
in accordance with the Representative's Warrant Agreement, will have been duly
authorized and validly issued and will constitute valid and binding
obligations of the Company entitled to the benefits of the Representative's
Warrant Agreement. The shares of Common Stock issuable upon exercise of the
Representative's Warrant and the Warrants issuable upon exercise thereof (the
"Representative's Warrant Shares") have been duly authorized and reserved for
issuance upon exercise of the Representative's Warrant and the Warrants
issuable upon exercise thereof by all necessary corporate action on the part
of the Company and, when issued and delivered and paid for upon such exercise
in accordance with the terms of the Representative's Warrant Agreement, the
Representative's Warrant, and the Warrants issuable upon exercise thereof,
respectively, will be validly issued, fully paid, nonassessable and free of
preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or
is entitled to any commission, fee or other compensation or payment for
services as a finder for or for originating, or introducing the parties to,
the transactions contemplated herein and the Company will indemnify the
Underwriter with respect to any claim for finder's fees in connection
herewith. Except as set forth in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), the Company has no management or financial consulting agreement
with anyone. No promoter, officer, director or stockholder of the Company is,
directly or indirectly, affiliated or associated with an NASD member and no
securities of the Company have been acquired by an NASD member, except as
previously disclosed in writing to the Representative.
(x) The Company has filed all federal, state, local and
foreign tax returns which are required to be filed through the date hereof, or
has received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material
and have become due.
(y) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
has, directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment. No transaction has
occurred between or among the Company and any of its officers or directors or
any affiliates of any such officer or director, that is required to be
described in and is not described in the Registration Statement and the
Prospectus.
(z) Neither the Company nor any of its officers, directors
or affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the completion
8
of the Offering, any action designed to stabilize or manipulate the price of
any security of the Company, or which has caused or resulted in, or which
might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the Company, to
facilitate the sale or resale of any of the Securities or the Option
Securities.
2. Purchase, Sale and Delivery of the Securities and the
Underwriter's Warrants.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to each
Underwriter, and each Underwriter agrees to purchase from the Company,
severally and not jointly, the number of Firm Shares as set forth opposite its
name on Schedule 1 annexed hereto, at a purchase price of $4.50 per share
and the Firm Warrants at a purchase price of $.09 per Warrant.
(b) Certificates in definitive form for the Firm Securities
that the Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Underwriters request upon notice to the Company at least 48 hours prior to the
Firm Closing Date, shall be delivered by or on behalf of the Company to the
Underwriters, against payment by or on behalf of the Underwriters of the
purchase prices therefor by certified or official bank check or checks drawn
upon or by a New York Clearing House bank and payable in next-day funds to the
order of the Company. Such delivery of and payment for the Firm Securities
shall be made at the offices of Counsel for the Underwriters, 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx at 9:30 A.M., New York City time on ___________,
1998, or at such other place, time or date as the Underwriters and the Company
may agree upon, such time and date of delivery against payment being herein
referred to as the "Firm Closing Date. The Company will make such certificates
for the Firm Securities available for checking and packaging by the
Underwriters, at such offices as may be designated by the Representative, at
least 24 hours prior to the Firm Closing Date. In lieu of physical delivery,
the closing may occur by "DTC" delivery.
(c) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the Underwriter
an option to purchase any or all of the Company Option Securities and the
Selling Shareholder hereby grants the Underwriters an option to purchase the
Selling Shareholder Option Shares, which options are exercisable by the
Representative on behalf of and for the account of the Underwriters. The
purchase price to be paid for any of the Option Securities shall be the same
price per share or Warrant as the price per share or Warrant for the Firm
Securities set forth above in paragraph (a) of this section 2. The option
granted hereby may be exercised as to all or any part of the Option Securities
from time to time within 45 calendar days after the Firm Closing Date. The
Underwriters shall not be under any obligation to purchase any of the Option
Securities prior to the exercise of such option. The Representative may from
time to time exercise the option granted hereby on behalf of the Underwriters
by giving notice in writing or by telephone (confirmed in writing) to the
Company and the Selling Shareholder (in the case of the Selling Shareholder
Option Shares) setting forth the aggregate number of Option Securities as to
which the Underwriters are then exercising the option and the date and time
for delivery of and payment for such Option Securities. Any such date of
delivery
9
shall be determined by the Underwriters but shall not be earlier than two
business days or later than three business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date. The
time and date set forth in such notice, or such other time on such other date
as the Representative and the Company may agree upon, is herein called the
"Option Closing Date" with respect to such Option Securities. Upon exercise of
the option as provided herein, the Company and/or the Selling Shareholder
shall become obligated to sell to the Underwriters, and, subject to the terms
and conditions herein set forth, each Underwriter shall become obligated to
purchase from the Company and the Selling Shareholder, the Option Securities
as to which the Underwriter is then exercising its option. If the option is
exercised as to all or any portion of the Option Securities, certificates in
definitive form for such Option Securities, and payment therefor, shall be
delivered on the related Option Closing Date in the manner, and upon the terms
and conditions, set forth in paragraph (b) of this section 2, except that
reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph (c), to refer to such Option Securities
and Option Closing Date, respectively. To the extent such option is exercised
as to the Option Shares, it is understood and agreed that the first 27,500
shares as to which it is exercised shall be sold by the Company and any
additional shares as to which it is exercised will be sold by the Selling
Shareholder.
(d) On the Firm Closing Date, the Company will further issue
and sell to the Representative or, at the direction of the Representative, to
bona fide officers of the Underwriters, for an aggregate purchase price of
$10, warrants to purchase Common Stock and redeemable warrants to purchase
Common Stock (the "Representative's Warrant") entitling the holders thereof to
purchase an aggregate of 95,000 shares of Common Stock and/or 145,000
redeemable warrants to purchase Common Stock for a period of four years, such
period to commence on the first anniversary of the Effective Date. The
Representative's Warrant shall be exercisable at a price equal to 135% of
the initial public offering price of the Common Stock and Warrants,
respectively, and shall contain terms and provisions more fully described
herein below and as set forth more particularly in the warrant agreement
relating to the Representative's Warrant to be executed by the Company on the
Effective Date (the "Representative's Warrant Agreement"), including, but not
limited to, (i) customary anti-dilution provisions in the event of stock
dividends, split mergers, sales of all or substantially all of the Company's
assets, sales of stock below then prevailing market or exercise prices and
other events, and (ii) prohibitions of mergers, consolidations or other
reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless
adequate provision is made to preserve, in substance, the rights and powers
incidental to the Representative's Warrant. As provided in the
Representative's Warrant Agreement, the Representative may designate that the
Representative's Warrant be issued in varying amounts directly to bona fide
officers of the Underwriters. As further provided, no sale, transfer,
assignment, pledge or hypothecation of the Representative's Warrant shall be
made for a period of 12 months from the Effective Date, except (i) by
operation of law or reorganization of the Company, or (ii) to the Underwriters
and bona fide partners, officers of the Underwriters and selling group
members. The shares of Common Stock issuable upon exercise of the
Representative's Warrant and the warrants issuable upon exercise thereof are
referred to herein as the "Representative's Warrant Shares"; and the
Representative's Warrant, the warrants issuable upon exercise thereof, and the
Representative's Warrant Shares are collectively referred to herein as the
"Representative's Securities."
10
3. Offering by the Underwriters. The Underwriters propose to offer
the Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. Covenants of the Company. The Company covenants and agrees with
the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, to become effective as promptly as possible. If required, the
Company will file the Prospectus and any amendment or supplement thereto with
the Commission in the manner and within the time period required by Rule
424(b) under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission any prospectus or amendment referred to
in the first sentence of section (a) (i) hereof, any amendment or supplement
to such prospectus or any amendment to the Registration Statement as to which
the Underwriters shall not previously have been advised and furnished with a
copy for a reasonable period of time prior to the proposed filing and as to
which filing the Underwriters shall not have given their consent. The Company
will prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, promptly upon request by the Underwriters or
counsel to the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or advisable
in connection with the distribution of the Securities by the Underwriters, and
will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective by the Commission as promptly as possible.
The Company will advise the Underwriters, promptly after receiving notice
thereof, of the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed and will provide evidence satisfactory to
the Underwriters of each such filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of any Securities for offering or sale in any
jurisdiction, (iii) the institution, threat or contemplation of any proceeding
for any such purpose or (iv) any request made by the Commission for amending
the Registration Statement, for amending or supplementing the Prospectus or
for additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriters, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriters may designate and will continue such
11
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities.
(d) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs as a
result of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act or the rules or regulations of the Commission thereunder,
the Company will promptly notify the Underwriters thereof and, subject to
section 4(a) hereof, will prepare and file with the Commission, at the
Company's expense, an amendment to the Registration Statement or an amendment
or supplement to the Prospectus that corrects such statement or omission or
effects such compliance.
(e) So long as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to the
Underwriters and any dealer as many copies of each such Prospectus as the
Underwriters or dealer may reasonably request. The Company shall not call for
redemption of the Warrants unless a registration statement covering the
securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
In addition, for so long as any Warrant is outstanding, the Company will
promptly notify the Underwriters of any material change in the business,
financial condition or prospects of the Company. So long as any of the
Warrants remain outstanding, the Company will timely deliver and supply to its
Warrant Agent sufficient copies of the Company's current Prospectus, as will
enable such Warrant agent to deliver a copy of such Prospectus to any Warrant
or other holder where such Prospectus delivery is by law required to be made.
(f) The Company will, without charge, provide to the
Underwriters and to counsel for the Underwriters (i) as many signed copies of
the registration statement originally filed with respect to the Securities and
each amendment thereto (in each case including exhibits thereto) as the
Underwriters may reasonably request, (ii) as many conformed copies of such
registration statement and each amendment thereto (in each case without
exhibits thereto) as the Underwriters may reasonably request and (iii) so long
as a prospectus relating to the Securities is required to be delivered under
the Act, as many copies of each Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto as the Underwriters may reasonably
request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters an earnings
statement of the Company that satisfies the provisions of section 11 (a) of
the Act and Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance
that maximum number of authorized but unissued shares of Common Stock which
are issuable upon exercise of
12
the Warrants and the Representative's Warrant (including the underlying
securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, without the prior written consent
of the Representative, directly or indirectly offer, agree to sell, sell,
grant any option to purchase or otherwise dispose (or announce any offer,
agreement to sell, sales grant of any option to purchase or other disposition)
of any shares of Common Stock, preferred stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock or preferred
stock for a period of 36 months after the Effective Date, except (i) the
Shares and Warrants issued pursuant to this Agreement, (ii) the Warrant Shares
issuable upon exercise of the Warrants, (iii) the Warrants, (iv) the
Representative's Warrant Shares and Warrants issuable upon the exercise of the
Representative's Warrant, and (v) shares of Common Stock issuable upon the
exercise of options granted and to be granted under the Company's Stock Option
Plan as in effect as of the date hereof. The Company also will not for a
period of 36 months following the Effective Date, without the prior written
consent of the Representative, (i) issue or sell any of its securities
pursuant to Regulation S promulgated under the Act or (ii) file a registration
on Form S-8 for the sale of securities by a person other than an employee of
the Company or a Subsidiary.
(k) Prior to the Closing Date or the Option Closing Date (if
any), the Company will not, directly or indirectly, without prior written
consent of the Representative, issue any press release or other public
announcement or hold any press conference with respect to the Company or its
activities with respect to the Offering (other than trade releases issued in
the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations).
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies
of the Prospectus including the information omitted in reliance on Rule 430A,
or, if required by such Rule 430A, a post-effective amendment to the
Registration Statement (including an amended Prospectus), containing all
information so omitted.
(m) The Company will cause the Securities to be included in
The Nasdaq Small Cap Market and the Boston Stock Exchange on the Effective
Date and to maintain such listings thereafter. The Company will file with The
Nasdaq Small Cap Market and the Boston Stock Exchange all documents and
notices that are required by companies with securities that are traded on The
Nasdaq Small Cap Market and the Boston Stock Exchange.
(n) During the period of five years from the Firm Closing
Date, the Company will, as promptly as possible, not to exceed 135 days, after
each annual fiscal period render and distribute reports to its stockholders
which will include audited statements of its operations and changes of
financial position during such period and its audited balance sheet as of the
end of
13
such period, as to which statements the Company's independent certified public
accountants shall have rendered an opinion and shall timely file all reports
required to be filed under the securities laws, including Form SR.
(o) During a period of three years commencing with the Firm
Closing Date, the Company will furnish to the Representative, at the Company's
expense, copies of all periodic and special reports furnished to stockholders
of the Company and of all information, documents and reports filed with the
Commission.
(p) The Company has appointed Registrar and Transfer Company
as transfer agent for the Common Stock and warrant agent for the Warrants,
subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without
first obtaining the written consent of the Representative. For a period of
three years after the Effective Date, the Company shall cause the transfer
agent and warrant agent to deliver promptly to the Underwriters a duplicate
copy of the daily transfer sheets relating to trading of the Securities. The
Company shall also provide to the Representative, on a weekly basis, copies of
the DTC special securities positions listing report.
(q) During the period of 180 days after the date of this
Agreement, the Company will not at any time, directly or indirectly, take any
action designed to or that will constitute, or that might reasonably be
expected to cause or result in, the stabilization of the price of the Common
Stock or the Warrants to facilitate the sale or resale of any of the
Securities.
(r) The Company will not take any action to facilitate the
sale of any shares of Common Stock pursuant to Rule 144 under the Act if any
such sale would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the
Company will provide the Underwriters and their designees with six bound
volumes of the transaction documents relating to the Registration Statement
and the closing(s) hereunder, in form and substance reasonably satisfactory to
the Representative.
(t) The Company shall consult with the Representative prior
to the distribution to third parties of any financial information news
releases or other publicity regarding the Company, its business, or any terms
of this offering and the Underwriters will consult with the Company prior to
the issuance of any research report or recommendation concerning the Company's
securities. Copies of all documents that the Company or its public relations
firm intend to distribute will be provided to the Representative for review
prior to such distribution.
(u) The Company and the Underwriters will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent the Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriters will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
14
(v) The Company will, for a period of no less than three
years commencing immediately after the Effective Date, engage one designee of
the Representative as an advisor (the "Advisor") to the Company's Board of
Directors, who shall attend meetings of the Board, receive all notices and
other correspondence and communications sent by the Company to its Board of
Directors and receive compensation equal to that of other non-officer
directors; provided, that in lieu of the Representative's right to designate
the Advisor, the Representative shall have the right during such three-year
period, in its sole discretion, to designate one person for election as a
director of the Company and the Company, and Selling Shareholder will utilize
their respective best efforts (including in the case of Selling Shareholder,
voting all shares owned by it in favor thereof) to obtain the election of such
person, who shall be entitled to receive the same compensation, expense
reimbursements and other benefits as set forth above. In addition, such
Advisor shall be entitled to receive reimbursement for all costs incurred in
attending such meetings including, but not limited to, food, lodging and
transportation. The Company, during said three-year period, shall schedule no
less than four formal meetings (at least one of which shall be "in person" and
the others may be held telephonically) of its Board of Directors in each such
year at which meetings such Advisor shall be permitted to attend (in person,
for each meeting held "in person") as set forth herein; said meetings shall be
held quarterly each year and advance notice of such meetings identical to the
notice given to directors shall be given to the Advisor. The Company and its
principal stockholders shall, during such three year period, give the
Representative timely prior written notice of any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Company shall
indemnify and hold the Representative and such Advisor or director harmless
against any and all claims, actions, damages, costs and expenses, and
judgments arising solely out of the attendance and participation of such
Advisor or director at any such meeting described herein, and, if the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it shall, if possible, include such Advisor or
director as an insured under such policy.
(w) The Company shall first submit to the Representative
certificates representing the Securities for approval prior to printing, and
shall, as promptly as possible, after filing the Registration Statement with
the Commission, obtain CUSIP numbers for the Securities.
(x) The Company shall engage the Underwriters' counsel to
provide the Underwriters, at the closing of any sale of Securities hereunder
and thereafter on request, with an opinion, setting forth those states in
which the Common Stock and Warrants may be traded in non-issuer transactions
under the blue sky or securities laws of the 50 states. The Company shall pay
such counsel a one-time fee of $12,500 for such opinions at the closing of the
sale of the Firm Securities.
(y) The Company will prepare and file a registration
statement with the Commission pursuant to section 12 of the 1934 Act, and will
use its best efforts to have such registration statement declared effective by
the Commission on an accelerated basis on the day after the Effective Date.
For this purpose the Company shall prepare and file with the Commission a
General Form of Registration of Securities (Form 8-A or Form 10).
15
(z) For so long as the Securities are registered under the
1934 Act, the Company will hold an annual meeting of stockholders for the
election of directors within 180 days after the end of each of the Company's
fiscal years and within 135 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed
prior thereto. Such financial statements shall be those required by Rule 14a-3
under the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(aa) Prior to the Effective Date, the Company shall obtain
key-man life insurance in the minimum amount of $3,000,000 on Xxxxxxxx Xxxx on
such terms and conditions as are reasonably satisfactory to the
Representative, assuming such coverage is available on commercially reasonable
terms.
(bb) The Company shall retain the Representative as a
financial advisors at an annual fee of $______ [2% of the gross proceeds] for
a 36-month period commencing on the Closing Date. The entire fee of shall be
payable on the Closing Date.
(cc) The Company will engage a financial public relations
firm reasonably satisfactory to the Representative on or before the Firm
Closing Date, and continuously engage such firm, or a substitute firm
reasonably acceptable to the Representative, for a period of twelve (12)
months following the Firm Closing Date.
(dd) The Company will take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions or
other equivalent manual and to maintain its listing therein for a period of
five (5) years from the Effective Date.
(ee) On or prior to the Effective Date, the Company will
give written instructions to the transfer agent for the Common Stock directing
said transfer agent to place stop-order restrictions against, and appropriate
legends advising of the Lock-up Agreements on, the certificates representing
the securities of the Company owned by the persons who have entered into the
Lock-up Agreements.
4A. Representations, Warranties and Agreements of the Selling
Shareholder. The Selling Shareholder represents and warrants to, and agrees
with, the Underwriters as follows:
(a) On the Effective Date, and at all times subsequent
thereto up to and on each Option Closing Date (i) all information with respect
to Selling Shareholder contained in the Registration Statement does not and
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading, and (ii) all information with respect to Selling Shareholder
contained in the Prospectus, as amended or supplemented, does not and will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties contained in this subsection 4A (a)
only apply to statements or omissions made in reliance upon and in conformity
with information furnished to the Company
16
or the Underwriters, by or on behalf of Selling Shareholder, specifically for
inclusion in Registration Statement or the Prospectus.
(b) Selling Shareholder has duly authorized, executed and
delivered on ___________, 1998 the Irrevocable Power of Attorney, Custody
Agreement (the "Custody Agreement") with the Company, as custodian (the
"Custodian"), __________, as attorneys-in-fact (the "Attorneys-in-Fact"), and,
such Custody Agreement constitutes the valid, legal and binding agreement of
Selling Shareholder, enforceable in accordance with its terms; Selling
Shareholder has pursuant to the Custody Agreement, duly authorized each and
all of the Attorneys-in-Fact to execute and deliver this Agreement on behalf
of Selling Shareholder, and otherwise to act, and to execute documents and
instruments, on behalf of Selling Shareholder in connection with the
transactions contemplated by this Agreement, and the Attorneys-in-Fact and the
Custodian are each duly authorized by Selling Shareholder under the Custody
Agreement to deliver the Shares to be sold by Selling Shareholder pursuant to
the Agreement, and to accept payment therefor. When executed and delivered by
one or more of the Attorneys-in-Fact on behalf of Selling Shareholder in
accordance with the Custody Agreement and this Agreement will have been duly
authorized, executed and delivered on behalf of Selling Shareholder.
(c) No consent, approval, authorization or order of any
court, government, governmental agency or body or financial institution,
domestic or foreign (other than under the Securities Act and state securities
or blue sky laws), is required for the consummation by Selling Shareholder of
the transactions contemplated in this Agreement or the Custody Agreement,
including, without limitation, the sale of the Shares to the Underwriters, as
contemplated herein or therein (other than those that have been obtained and
are in full force and effect).
(d) The execution and delivery of this Agreement and the
Custody Agreement, and the consummation of the transactions contemplated
herein and therein, including, without limitation, the sale of the Shares by
the Underwriters, as contemplated herein or therein, will not (i) result in a
breach by Selling Shareholder of, or constitute a default by Selling
Shareholder under, any agreement or instrument or any decree, judgement or
order to which Selling Shareholder is a party or by which Selling Shareholder
is bound or the properties of Selling Shareholder are subject or (ii) violate
any provision of the certificate of organization, operating agreemetn, or
comparable governing documents of Selling Shareholder or any law, rule or
regulation, domestic or foreign, applicable to Selling Shareholder or to which
its properties are subject.
(e) Selling Shareholder has, and will on each Option Closing
Date have, good and marketable title to the Shares to be sold by Selling
Shareholder pursuant to this Agreement, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind, or
restriction on voting or other rights as a shareholder of any nature, other
than pursuant to this Agreement and the Custody Agreement; Selling Shareholder
has full right, power and authority to sell, transfer and deliver the Shares,
pursuant to this Agreement; upon delivery of such Shares and payment of the
purchase price therefor as contemplated in this Agreement each Underwriter
will receive good and marketable title to the Shares purchased by it from
Selling Shareholder, free and clear of any pledge, lien, security interest,
charge, claim, equity or
17
encumbrance of any kind or of any restriction on transfer or voting or other
rights as a shareholder of any nature.
(f) Certificates for the Shares to be sold by Selling
Shareholder pursuant to this Agreement in suitable form for transfer by
delivery or accompanied by duly executed instruments of transfer or
assignment, executed in blank, have been placed in custody with the Custodian
pursuant to the Custody Agreement for purpose of effecting delivery, in
accordance with the Custody Agreement and this Agreement.
(g) Selling Shareholder hereby agrees that for the period of
specified below from the Effective Date (the "Lock-Up-Period"), Selling
Shareholder will not, without prior written consent of the Representative
directly or indirectly, offer, sell or grant any option to purchase, transfer
or otherwise dispose of or contract to dispose of (or announce any offer,
sale, grant of any option to purchase, or other disposition of), for value or
otherwise, any shares of Common Stock, options or warrants to purchase Common
Stock, or any securities convertible into or exchangeable for Common Stock,
owned directly by such person or with respect to which such person has the
power of disposition, other than the sale of the Shares under this Agreement.
As to 25% of such Securities, the Lock-Up Period shall be 12 months with
respect to an additional 25% of such securities, the Lock-Up Period should be
18 months and with respect to 50% of such securities this Lock-Up Period
should be 24 months.
(h) Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or that might be reasonably
expected to, violate Regulation M under the 1934 Act, or cause or result in
stabilization or manipulation of the price of the Common Stock; and Selling
Shareholder has not distributed and will not distribute any prospectus or
other offering material in connection with the offering and sale of the
Shares.
(i) Selling Shareholder is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, with
all necessary power and authority to execute, deliver and perform the Custody
Agreement and this Agreement and to sell and deliver the Shares to the
Underwriters in accordance with this Agreement, and upon execution and
delivery thereof by one or more of the Attorneys-in-Fact, such agreements will
be duly executed and delivered and enforceable against Selling Shareholder in
accordance with their respective terms.
5. Expenses
(a) The Company shall pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to section 10 hereof, including all costs and expenses
incident to (i) the preparation, printing and filing or other production of
documents with respect to the transactions, including any costs of printing
the registration statement originally filed with respect to the Securities and
any amendment thereto, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the selected dealer agreement
and the other agreements and documents governing the underwriting arrangements
and any blue sky memoranda, (ii) all reasonable and necessary arrangements
18
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants
and any other experts or advisors retained by the Company, (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's, warrant agent's and
registrar's fees or any transfer or other taxes payable thereon, (v) the
qualification of the Securities under state blue sky or securities laws,
including filing fees and fees and disbursements of counsel for the
Underwriters relating thereto (such counsel fees shall be $35,000, of which
$12,500 shall be due and payable upon the commencement of blue sky filing,
together with the related filing fees) and any fees and disbursements of local
counsel, if any, retained for such purpose, (vi) the filing fees of the
Commission and the NASD relating to the Securities, (vii) the inclusion of the
Securities on The Nasdaq SmallCap Market, the Boston Stock Exchange and in the
Standard and Poor's Corporation Descriptions Manual, (viii) any "road shows"
or other meetings with prospective investors in the Securities, including
transportation, accommodation, meal, conference room, audio-visual
presentation and similar expenses of the Underwriters or their representatives
or designees (other than as shall have been specifically approved by the
Underwriters to be paid for by the Underwriters) and (ix) the publication of
"tombstone advertisements" in newspapers or other publications selected by the
Representative, and the manufacture of prospectus memorabilia. In addition to
the foregoing, the Company shall reimburse the Representative for its expenses
on the basis of a non-accountable expense allowance in the amount of 3.00% of
the gross offering proceeds to be received by the Company, $25,000 of which
has been paid by the Company to the Representative. The Representative hereby
acknowledges receipt of such $25,000, which shall be credited against the
non-accountable expense allowance to be paid by the Company. The unpaid
portion of the expense allowance, based on the gross proceeds from the sale of
the Firm Securities, shall be deducted from the funds to be paid by the
Representative in payment for the Firm Securities, pursuant to section 2 of
this Agreement, on the Firm Closing Date. To the extent any Option Securities
are sold, any remaining non-accountable expense allowance based on the gross
proceeds from the sale of the Option Securities shall be deducted from the
funds to be paid by the Representative in payment for the Option Securities,
pursuant to section 2 of this Agreement, on the Option Closing Date. The
Company warrants, represents and agrees that all such payments and
reimbursements will be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement,
if the offering of the Securities contemplated hereby is terminated for any
reason, the Company agrees that, in addition to the Company paying its own
expenses as described in subparagraph (a) above, (i) the Company shall
reimburse the Representative only for its actual accountable out-of-pocket
expenses (in addition to blue sky legal fees and expenses referred to in
subparagraph (a) above), and (ii) the Representative shall be entitled to
retain the non-accountable expense allowance paid by the Company pursuant to
subparagraph (a) above; provided, however, that the amount retained pursuant
to this clause (ii) shall not exceed the Representative's expenses on an
accountable basis to the date of such cancellation and that all unaccounted
for amounts shall be refunded to the Company. Such expenses shall include, but
are not to be limited to, fees for the services and time of counsel for the
Underwriters to the extent not covered by clause (i) above, plus any
additional expenses and fees, including, but not limited to, travel expenses,
postage expenses, duplication expenses, long-distance telephone expenses, and
other expenses incurred by the Representative in connection with the proposed
offering. If the amount of the Representative's actual accountable
out-of-pocket expenses is less than $25,000, then the
19
Representative shall promptly repay the Company the difference between the
$25,000 advanced by the Company and the Representative's actual accountable
out-of-pocket expenses.
6. Warrant Solicitation Fee. The Company agrees to pay any
Underwriter a fee of five percent (5%) of the aggregate exercise price of the
Warrants if (i) the market price of the Common Stock is not less than the
exercise price of the Warrants on the date of exercise; (ii) the exercise of
the Warrants is solicited by such Underwriter at such time as it is a member
of the NASD and such Underwriter is designated in writing by the holder of the
Warrants as the NASD member soliciting the exercise; (iii) the Warrants are
not held in a discretionary account; (iv) the disclosure of compensation
arrangements is made both at the time of the Offering and at the time of the
exercise; and (v) the solicitation of the Warrant exercise is not in violation
of Regulation M promulgated under the 1934 Act. The Company agrees not to
solicit the exercise of any Warrant other than through the Representative
and/or other Underwriter and will not authorize any other dealer to engage in
such solicitation without the prior written consent of the Representative
which will not be unreasonably withheld. The Warrant solicitation fee will not
be paid in a non-solicited transaction. Any request for exercise will be
presumed to be unsolicited unless the customer states in writing that a
transaction was solicited and designates in writing that the Underwriter
solicited the exercise. No Warrant solicitation by the Representative will
occur for a period of 12 months after the Effective Date.
7. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters to purchase and pay for the Firm Shares shall be subject, in
the Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company and the Selling Shareholder contained herein as of
the date hereof and as of the Firm Closing Date as if made on and as of the
Firm Closing Date, to the accuracy of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company of
its covenants and agreements hereunder and to the following additional
conditions:
(a) If the registration statement, as heretofore amended,
has not been declared effective as of the time of execution hereof, the
registration statement, as heretofore amended or as amended by an amendment
thereto to be filed prior to the Firm Closing Date, shall have been declared
effective not later than 5:30 P.M., New York City time, on the date on which
the amendment to such registration statement containing information regarding
the initial public offering price of the Securities has been filed with the
Commission, or such later time and date as shall have been consented to by the
Underwriters; if required, the Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 424(b) under the Act, no stop order suspending
the effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Underwriters, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Underwriters shall have received an opinion, dated
the Firm Closing Date, of Ruskin, Moscow, Xxxxx & Faltishek, P.C., counsel to
the Company, to the effect that:
20
(1) the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization and is duly qualified to transact business as
a foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of any properties or the
conduct of its business requires such qualification, except where the failure
to so qualify would not have a materially adverse effect upon the Company;
(2) the Company has full corporate power and
authority to own or lease its property and conduct its business as now being
conducted and as proposed to be conducted, as described in the Registration
Statement and the Prospectus, and the Company has full corporate power and
authority to enter into this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and to carry out all the terms and
provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no
outstanding options, warrants or other rights granted by the Company to
purchase shares of its Common Stock, preferred stock or other securities other
than as described in the Prospectus; the Shares have been duly authorized and
the Warrant Shares and the Representative's Warrant Shares have been duly
reserved for issuance by all necessary corporate action on the part of the
Company and, the Shares when issued and delivered to and paid for by the
Underwriters, pursuant to this Agreement, the Warrant Shares when issued upon
payment of the exercise price specified in the Warrants, the Representative's
Warrant when issued and delivered and paid for in accordance with this
Agreement and the Representative's Warrant Agreement by the Underwriters and
the Warrant Shares when issued upon payment of the exercise price specified in
the Representative's Warrant, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus; to the knowledge of such counsel, no
holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares, the Warrant
Shares or the Representative's Warrant Shares; and to the knowledge of such
counsel, no person is entitled to have securities registered by the Company
under the Registration Statement or otherwise under the Act other than as
described in the Prospectus;
(4) the execution and delivery of this Agreement,
the Warrant Agreement, the Representative's Warrant Agreement and the
Financial Advisory and Investment Banking Agreement have been duly authorized
by all necessary corporate action on the part of the Company and this
Agreement, the Warrant Agreement, the Representative's Warrant Agreement and
the Financial Advisory and Investment Banking Agreement have been duly
executed and delivered by the Company, and each is a valid and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law) and except as rights to indemnity and contribution under this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement
may be limited by applicable securities laws and the public policy underlying
such laws;
21
(5) the Representative's Warrant conform to the
description thereof in the Registration Statement and in the Prospectus and
are duly authorized and upon payment of the purchase price therefore specified
in Section 2(d) of this Agreement are validly issued and constitute valid and
binding obligations of the Company entitled to the benefits of the
Representative's Warrant Agreement; and the certificates representing the
Securities are in due and proper form under law;
(6) the statements set forth in the Prospectus
under the caption "Description of Securities" insofar as those statements
purport to summarize the terms of the capital stock and warrants of the
Company, provide a fair summary of such terms; the statements set forth in the
Prospectus describing statutes and regulations and the descriptions of the
consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all
material respects; the statements in the Prospectus, insofar as those
statements constitute summaries of the contracts, instruments, leases or
licenses referred to therein, constitute a fair summary of those contracts,
instruments, leases or licenses and include all material terms thereof, as
applicable;
(7) none of (A) the execution and delivery of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement,
(B) the issuance, offering and sale by the Company to the Underwriters of the
Securities pursuant to this Agreement and the Representative's Warrant
Securities pursuant to the Representative's Warrant Agreement, nor (C) the
compliance by the Company with the other provisions of this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement and the
consummation of the transactions contemplated hereby and thereby, (1) requires
the consent, approval, authorization, registration or qualification of or with
any court or governmental authority known to us, except such as have been
obtained and such as may be required under state blue sky or securities laws,
(2) conflicts with or results in a breach or violation of, or constitutes a
default under, any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument known to such
counsel to which the Company is a party or by which the Company or any of its
property is bound or subject, or the certificate of incorporation or by-laws
of the Company, or any material statute or any judgment, decree, order, rule
or regulation of any court or other governmental or regulatory authority known
to us applicable to the Company, or (3) subjects the Company or investors in
the Securities to any tax imposed by Canada or any political subdivision
thereof.
(8) to the knowledge of such counsel, (A) no legal
or governmental proceedings are pending to which the Company is a party or to
which the property of the Company is subject except those arising on the
ordinary course of business and fully covered by insurance and (B) no contract
or other document is required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
is not described therein or filed as required;
(9) the Company possesses adequate licenses,
orders, authorizations, approvals, certificates or permits issued by the
appropriate federal, state or local regulatory agencies or bodies necessary to
conduct its business as described in the Registration Statement and the
Prospectus, and, to the knowledge of such counsel, there are no pending or
threatened
22
proceedings relating to the revocation or modification of any such license,
order, authorization, approval, certificate or permit, except as disclosed in
the Registration Statement and the Prospectus;
(10) The Company is not in violation or breach of,
or in default with respect to, any term of its certificate of incorporation or
by-laws, and to the knowledge of such counsel, the Company is not in (i)
violation in any material respect of any law, statute, regulation, ordinance,
rule, order, judgment or decree of any court or any governmental or regulatory
authority applicable to it, or (ii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which it
is a party or by which it or any of its property may be bound or subject, and
no event has occurred which with notice, lapse of time or both would
constitute such a default;
(11) the Shares have been approved for inclusion on
The Nasdaq SmallCap Market and the Boston Stock Exchange;
(12) to the knowledge of such counsel, neither the
Company is not in default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material contract, indenture, mortgage, deed of trust, loan agreement,
note, lease or other material agreement or instrument to which it is a party
or by which it or any of its property may be bound or subject, and no event
has occurred which with notice, lapse of time or both would constitute such a
default;
(13) the statements in the Prospectus under the
caption "Description of Securities" in the Prospectus, insofar as such
statements purport to summarize the terms of the capital stock and warrants of
the Company, provide a fair summary of such terms; and the statements in the
Prospectus, insofar as those statements constitute matters of law or legal
conclusions, or summaries of the contracts, agreement instruments, leases or
licenses referred to therein, constitute a fair summary of those matters,
legal conclusions, contracts, agreement instruments, leases or licenses and
include all material terms thereof as applicable;
(14) the Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b);
and no stop order suspending the effectiveness of the Registration Statement
or any amendment thereto has been issued, and no proceedings for that purpose
have been instituted or threatened or, to the best knowledge of such counsel,
are contemplated by the Commission;
(15) the registration statement originally filed
with respect to the Securities and each amendment thereto and the Prospectus
(in each case, other than the financial statements and schedules and other
financial and statistical information contained therein, as to which such
counsel need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules and regulations of
the Commission thereunder; and
23
(16) the Company is not an "investment company" as
defined in Section 3(a) of the Investment Company Act and, if the Company
conducts its business as set forth in the Prospectus, it will not become an
"investment company" and will not be required to register under the Investment
Company Act; and
(d) On each Option Closing Date on which the Selling
Shareholder is selling Shares of Common Stock, the Underwriters shall have
received the opinion, dated the Option Closing Date, of [insert name of
counsel for the Selling Shareholder] in its capacity as counsel for the
Selling Shareholder, to the effect set forth below:
(i) Selling Shareholder has full legal right power
and authority to enter into this Agreement and to sell, assign, transfer
and deliver in the manner provided herein the Option Shares sold by Selling
Shareholder; this Agreement has been duly executed and delivered by Selling
Shareholder; and this Agreement, assuming due authorization, execution and
delivery by each other party thereto and further assuming it is a valid and
binding agreement of each of the Underwriters, is a valid and binding
agreement of Selling Shareholder, enforceable against Selling Shareholder in
accordance with the terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in
effect relating to or affecting creditors' rights generally and by general
principles of equity relating to the availability of remedies and except as
rights to indemnity and contribution may be limited by applicable securities
laws and the public policy underlying such laws);
(ii) None of the execution, delivery or performance
of this Agreement, the Power of Attorney and the Custody Agreement by
Selling Shareholder and the consummation by Selling Shareholder of the
transactions herein and therein contemplated, conflict with or result in a
breach of, or default under, any indenture, mortgage, deed of trust, voting
trust agreement, shareholders agreement, note agreement or other agreement or
other instrument known to such counsel to which Selling Shareholder is a party
or by which Selling Shareholder is bound or to which any of the property of
any of the Selling Shareholder is subject, or the charter or by-laws of any of
the Selling Shareholder and nothing has come to such counsel's attention which
causes such counsel to believe that such actions will result in any violation
of any law, rule, administrative regulation or court decree applicable to
Selling Shareholder (other than state or provincial securities or blue sky
laws or regulations, as to which such counsel need not express any opinion);
(iii) A Power of Attorney and the Custody Agreement
have been duly executed and delivered by Selling Shareholder and, assuming
the due authorization, execution and delivery of the Custody Agreement by the
other parties thereto, each constitutes the valid and binding agreement of
Selling Shareholder enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general principles of equity relating to the
availability of remedies and except rights to indemnity or contribution may be
limited by applicable securities laws and the public policy underlying such
laws;
24
(iv) Upon the delivery of the Option Shares to be
sold hereunder by the Selling Shareholder and payment therefor in accordance
with the terms of this Agreement and assuming that each of the Underwriters
which has severally purchased such Option Shares acquires such Option Shares
without notice of any adverse claim (within the meaning of the Uniform
Commercial Code) such Underwriters will have acquired all of the rights of
Selling Shareholder to the Option Shares sold by Selling Shareholder
hereunder, and in addition will have acquired title to such Option Shares free
and clear of any adverse claim; and
Each such counsel also shall state in its opinion that it
has participated in the preparation of the Registration Statement and the
Prospectus and that nothing has come to its attention that has caused it to
believe that the Registration Statement, at the time it became effective
(including the information deemed to be a part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b), if applicable),
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date or as
of the Firm Closing Date, contained an untrue statement of material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering any such opinion, such counsel may rely, as to matters
of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials, copies of which
certificates will be provided to the Underwriters, and, as to matters of the
laws of certain jurisdictions, on the opinions of other counsel to the
Company, which opinions shall also be delivered to the Underwriters, in form
and substance acceptable to the Underwriters, if such other counsel expressly
authorize such reliance and counsel to the Company expressly states in their
opinion that such counsel's and the Underwriters' reliance upon such opinion
is justified.
(e). A. At the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
in all respects to the Representative and Representative's counsel, from Ernst
& Young LLP:
i. confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
ii. stating that it is their opinion that the
financial statements of the Company included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations thereunder and that the
Representative may rely upon the opinion of Ernst & Young LLP with respect to
the financial statements included in the Registration Statement;
iii. stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards
of directors of the Company, consultations with officers and other employees
of the
25
Company responsible for financial and accounting matters and other specified
procedures and inquiries (which, as to the interim financial statements
included in the Registration Statement, shall constitute a review as described
in SAS No. 71, Interim Financial Statements), nothing has come to their
attention which would lead them to believe that (A) the unaudited financial
statements of the Company included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the Effective Date, there
has been any change in the capital stock or long-term debt of the Company, or
any decrease in the stockholders' equity or net current assets or net assets
of the Company as compared with amounts shown in the November 1, 1997 balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C) during
the period from November 2, 1997 to a specified date not more than five (5)
days prior to the Effective Date, there was any decrease (increase) in net
revenues, net income (loss) or in net earnings (loss) per common share of the
Company, in each case as compared with the corresponding period beginning,
_________, 1996, other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease, setting forth the
amount of such decrease (increase);
iv. setting forth, at a date not later than five
(5) days prior to the Effective Date, the amount of liabilities of the
Company;
v. stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and 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;
vi. statements as to such other matters incident to
the transaction contemplated hereby as the Representative may request.
B. At the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Ernst & Young LLP a
letter, dated as of the Closing Date or the Option Closing Date, as the case
may be, to the effect that they reaffirm that statements made in the letter
furnished pursuant to subsection A. of this Section 7(e), except that the
specified date referred to shall be a date not more than five (5) days prior
to the Closing Date or the Option Closing Date, as the case may be, and, if
the Company has elected to rely on Rule 430A of the Rules and Regulations, to
the further effect that they have carried out procedures as specified in
clause (v) of subsection A of this Section 7(e) with respect to certain
amounts, percentages and financial information as specified by the
Representative and deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
26
(f) The representations and warranties of the Company
contained in this Agreement shall be true and correct as if made on and as of
the Firm Closing Date; the Registration Statement shall not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein necessary to make the statements therein not misleading, and
the Prospectus, as amended or supplemented as of the Firm Closing Date, shall
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and the
Company shall have performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Firm
Closing Date.
(g) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or
contemplated by the Commission.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have been any material adverse change, or any development involving
a prospective material adverse change, in the business, operations, condition
(financial or otherwise), earnings or prospects of the Company, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(i) The Underwriters shall have received a certificate,
dated the Firm Closing Date, of the Chief Executive Officer and the Secretary
of the Company to the effect set forth in subparagraphs (f) through (h) above.
(j) The Common Stock and Warrants shall be qualified in such
jurisdictions as the Underwriters may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Firm Closing Date.
(k) The Company shall have executed and delivered to the
Underwriters the Representative's Warrant Agreement and a certificate or
certificates evidencing the Representative's Warrant, in each case in a form
acceptable to the Underwriters.
(l) The Underwriters shall have received Lock-up Agreements
executed by the persons listed on Schedule 3 annexed hereto.
(m) The Underwriters shall have received on each Closing
Date a certificate from Selling Shareholder on such Closing Date to the affect
that, and the Underwriters shall be satisfied that, the representations and
warranties of Selling Shareholder contained in this Agreement are true and
correct as if made on and as of such Closing Date, and that Selling
Shareholder has complied with all agreements and satisfied all conditions on
its part to be complied with or satisfied at or prior to such Closing Date.
27
(n) The Selling Shareholder shall have delivered to the
Underwriters on or prior to the date hereof a fully executed Custody
Agreement. Selling Shareholder shall also agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of shares held by Selling Shareholder, except in compliance with the
Custody Agreement and this Agreement.
(o) On or before the Firm Closing Date, the Underwriters and
counsel for the Underwriters shall have received such further certificates,
documents, letters or other information as they may have reasonably requested
from the Company, the Selling Shareholder, and other security holders of the
Company.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and
counsel for the Underwriters. The Company shall furnish to the Underwriters
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Underwriters and counsel for the Underwriters shall
reasonably request.
The obligation of the Underwriters to purchase and pay for any Option
Securities shall be subject, in its discretion, to each of the foregoing
conditions to purchase the Firm Securities, except that all references to the
Firm Securities and the Firm Closing Date shall be deemed to refer to such
Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriters, Selling Shareholder and each person, if any, who controls the
Underwriters or Selling Shareholder within the meaning of section 15 of the
Act or section 20 of the 1934 Act against any losses, claims, damages, or
liabilities, joint or several, to which the Underwriters, Selling Shareholder
or such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other document, or
any amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the Blue Sky or
securities laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"), or
(2) the omission or alleged omission to state in
such Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, the
Underwriters and such controlling person for any legal or other expenses
reasonably incurred by the Underwriters or such controlling person in
connection with
28
investigating, defending against or appearing as a third-party witness in
connection with any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Application in reliance upon
and in conformity with written information furnished to the Company by the
Underwriters or Selling Shareholder, as the case may be, specifically for use
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have. The Company will not, without the prior
written consent of the Underwriters, Selling Shareholder or controlling
person, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Underwriters or
any person who controls the Underwriters or Selling Shareholder within the
meaning of section 15 of the Act or section 20 of the 1934 Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Underwriters or Selling
Shareholder and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(b) Selling Shareholder agrees to indemnify and hold
harmless the Company, each director of the Company and each officer of the
Company who signed the Registration Statement, the Underwriters and each
person, if any, who controls the Company or the Underwriters within the
meaning of section 15 of the Act or section 20 of the 1934 Act against any
losses, claims, damages, liabilities, joint or several, to which the Company,
such director or officer of the Company, the Underwriters or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(1) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other document, or
any amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the Blue Sky or
securities laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"), or
(2) the omission or alleged omission to state in
such Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, the
Underwriters and such controlling person for any legal or other expenses
reasonably incurred by the Underwriters or such controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any loss, claim, damage, liability, action,
investigation, litigation or proceeding, in each case to the extent, but only
to the extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission
29
was made in reliance upon and in conformity with written information furnished
to the Company or the Underwriters by the Selling Shareholder specifically for
use therein. This indemnity agreement will be in addition to any liability
which the Selling Shareholder may otherwise have. The Selling Shareholder will
not, without the prior written consent of the Company and the Underwriters,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Company or the
Underwriters or any person who controls the Company or the Underwriters within
the meaning of section 15 of the Act or section 20 of the 1934 Act is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of the Company, the Underwriters
and each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(c) The Underwriters will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, Selling Shareholder, and each person, if any, who
controls the Company or Selling Shareholder within the meaning of section 15
of the Act or section 20 of the Exchange Act against, any losses, claims,
damages or liabilities to which the Company or any such director, officer,
Selling Shareholder or controlling person may become subject under the Act or
otherwise, but only insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by the Underwriters specifically for use therein; and, subject
to the limitation set forth immediately preceding this clause, will reimburse,
as incurred, any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under
this section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this section 8, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified
30
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
or (ii) the indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the indemnifying
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the consent of the
indemnifying party.
(e) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this section 8 is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and the
other equitable considerations appropriate in the circumstances. The Company
and the Underwriters agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Securities purchased by the
Underwriters under this Agreement, less the aggregate amount of
31
any damages that the Underwriters has otherwise been required to pay in
respect of the same or any substantially similar claim, and no person guilty
of fraudulent misrepresentation (within the meaning of section 11 (f) of the
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this paragraph (d), each
person, if any, who controls an Underwriters within the meaning of section 15
of the Act or section 20 of the 1934 Act shall have the same rights to
contribution as the Underwriters, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of section 15 of the Act
or section 20 of the 1934 Act, shall have the same rights to contribution as
the Company.
9. Substitution of Underwriters.
If any Underwriter shall for any reason not permitted hereunder
cancel its obligations to purchase the Firm Securities hereunder, or shall
fail to take up and pay for the number of Firm Securities set forth opposite
names in Schedule 1 hereto upon tender of such Firm Securities in accordance
with the terms hereof, then:
(a) If the aggregate number of Firm Securities which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the total number of Firm Securities, the other Underwriter shall be
obligated to purchase the Firm Securities which such defaulting Underwriter
agreed but failed to purchase.
(b) If any Underwriter so defaults and the agreed number of
Firm Securities with respect to which such default or defaults occurs is more
than 10% of the total number of Firm Securities, the remaining Underwriter
shall have the right to take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase. If such remaining
Underwriter does not, at the Firm Closing Date, take up and pay for the Firm
Securities which the defaulting Underwriter agreed but failed to purchase, the
time for delivery of the Firm Securities shall be extended to the next
business day to allow the remaining Underwriter the privilege of substituting
within twenty-four hours (including nonbusiness hours) another underwriter or
underwriters satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid, within such twenty-four
hour period, the time of delivery of the Firm Securities may, at the option of
the Company, be again extended to the next following business day, if
necessary, to allow the Company the privilege of finding within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters to
purchase the Firm Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriter or substituted Underwriters to take up the Firm Securities of the
defaulting Underwriter as provided in this section, (i) the Company or the
underwriter shall have the right to postpone the time of delivery for a period
of not more than seven business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other document or arrangements, and the Company agrees promptly to file
any amendments to the Registration Statement or supplements to the Prospectus
which may thereby be made necessary, and (ii) the respective numbers of Firm
Securities to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of the underwriting obligation for
all purposes of this agreement.
32
If in the event of a default by any Underwriter and the remaining
Underwriter shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to
seek another underwriter or underwriters for such Firm Securities as
aforesaid, then this Agreement shall terminate.
If, following exercise of the option provided in Section 3(c) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which it became obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Units of the defaulting Underwriters in the manner provided in Section
9(b) hereof. If the remaining Underwriters or substituted Underwriters shall
not take up and pay for all such Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise
thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 9
shall not in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its
officers or directors and the Underwriter set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall remain
in full force and effect, regardless of (i) any investigation made by or on
behalf of the Company, any of its officers or directors, the Underwriter or
any controlling person referred to in section 8 hereof and (ii) delivery of
and payment for the Securities. The respective agreements, covenants,
indemnities and other statements set forth in sections 5 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Underwriter by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and
satisfy all conditions on its part to be performed or satisfied under Section
7 hereunder at or prior thereto or if at or prior to the Firm Closing Date or
such Option Closing Date, respectively:
(1) the Company sustains a loss by reason of
explosion, fire, flood, accident or other calamity, which, in the opinion of
the Underwriter, substantially affects the
33
value of the properties of the Company or which materially interferes with the
operation of the business of the Company regardless of whether such loss shall
have been insured; there shall have been any material adverse change, or any
development involving a prospective material adverse change (including,
without limitation, a change in management or control of the Company), in the
business, operations, condition (financial or otherwise), earnings or
prospects of the Company, except in each case as described in or contemplated
by the Prospectus (exclusive of any amendment or supplement thereto);
(2) any action, suit or proceeding shall be
threatened, instituted or pending, at law or in equity, against the Company,
by any person or by any federal, state, foreign or other governmental or
regulatory commission, board or agency wherein any unfavorable result or
decision could materially adversely affect the business, operations, condition
(financial or otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants shall
have been suspended by the Commission, the NASD or on Nasdaq, or trading in
securities generally on the New York Stock Exchange shall have been suspended
or minimum or maximum prices shall have been established on either such
exchange or quotation system;
(4) a banking moratorium shall have been declared
by New York or United States authorities;
(5) there shall have been (A) an outbreak of
hostilities between the United States and any foreign power (or, in the case
of any ongoing hostilities, a material escalation thereof), (B) an outbreak of
any other insurrection or armed conflict involving the United States or (C)
any other calamity or crisis or material change in financial, political or
economic conditions, having an effect on the financial markets that, in any
case referred to in this clause (5), in the sole judgment of the Underwriter
makes it impracticable or inadvisable to proceed with the public offering or
the delivery of the Securities as contemplated by the Registration Statement;
(6) termination of this Agreement pursuant to this
section 10 shall be without liability of any party to any other party, except
as provided in section 5(b) and section 8 hereof.
12. Information Supplied by the Underwriter. The statements set forth
in the first paragraph on page __ , in the first (as to the underwriting
commitment of each Underwriter) and ________ paragraphs under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriter) constitute the only information
furnished by the Underwriter to the Company for the purposes of section 8(b)
hereof. The Underwriter confirms that such statements (to such extent) are
correct.
13. Notices. All notice hereunder to or upon either party hereto
shall be deemed to have been duly given for all purposes if in writing and (i)
delivered in person or by messenger or an overnight courier service against
receipt, or (ii) send by certified or registered mail, postage paid, return
receipt requested, or (iii) sent by telegram, facsimile, telex or similar
means,
34
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Xxxxxx Electronics, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxxx Xxxx
Fax: (000) 000-0000
To the Representative: The Thornwater Company, L.P. and
000X Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Managing Director - Corporate Finance Department
Fax: (000) 000-0000
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this
section. The date of giving of any such notice shall be, in the case of clause
(i), the date of the receipt; in the case of clause (ii), five business days
after such notice or demand is sent; and, in the case of clause (iii), the
business day next following the date such notice is sent.
14. Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
15. Waiver. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any
provision hereof shall be effective, unless in writing and signed by or on
behalf of the party to be charged therewith. No waiver shall be deemed a
continuing waiver or waiver in respect of any other or subsequent breach or
default, unless expressly so stated in writing.
16. Applicable Law. This agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
17. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York and the United States District Court for the Southern
District of New York in connection with any suit, action or other proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, waives any objection to venue in the County of New York, State of New
York, or such District and agrees that service of any summons, complaint,
notice or other process relating to such suit, action or other proceeding may
be effected in the manner provided by clause (ii) of Section 12.
35
18. Remedies. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and
specific performance. All remedies hereunder are cumulative and not exclusive,
and nothing herein shall be deemed to prohibit or limit either party from
pursuing any other remedy or relief available at law or in equity for such
actual or prospective breach or default, including the recovery of damages.
19. Attorneys' Fees. The prevailing party in any suit, action or
other proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, shall be entitled to recover its costs and
reasonable attorneys' fees.
20. Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid
or unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions hereof shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect, and any invalid or
unenforceable provision shall be deemed, without further action on the part of
the parties hereto, amended and limited to the extent necessary to render the
same valid and enforceable.
21. Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
22. Successors. This agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons
and for the benefit of no other person except that (i) the indemnities of the
Company contained in section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
section 15 of the Act or section 20 of the Exchange Act and (ii) the
indemnities of the Underwriter contained in section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of section 15 of the Act or section
20 of the Exchange Act. No purchaser of Securities from the Underwriter shall
be deemed a successor because of such purchase.
23. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
24. Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
36
25. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
26. Entire Agreement. This Agreement embodies the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes
any prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
the Underwriter.
Very truly yours,
XXXXXX ELECTRONICS, INC.
By:
Name: Xxxxxxx Xxxxx
Title: Chariman
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
THE THORNWATER COMPANY, L.P.
as representative of the several underwriters listed
on Schedule l annexed hereto
By:
Name: Xxxxxx X. X'Xxxxxx
Title: Chief Executive Officer
37
Schedule 1
Number of
Underwriter Number of Shares Redeemable Warrants
----------- ---------------- -------------------
The Thornwater Company, L.P.
---------
Total 950,000 1,450,000
38
SCHEDULE 2
SHAREHOLDER LOCK UP PERIOD
Xxxxxx Acquisition Company LLC 12 months as to 25%, 18 months as to an additional 25%
and 24 months as to balance
Officers and directors 24 months
Preferred stock holders, including warrants and Two years or one year from conversion,
stock underlying warrants and preferred stock whichever is longer, subject to suspension if
common stock trades at or above $7.50 for 45
consecutive trading days.
Paragon Capital 24 months
InterEquity Partners 12 months
Ruskin, Moscou, Xxxxx & Falitschek 24 months
39
