UNDERWRITING AGREEMENT
______,
2006
|
US
EURO Securities, Inc.
|
Brookstreet
Securities Corporation
|
|
00000
Xxxxxxx Xxx Xx., Xxxxx PH-1
|
0000
Xxxxxx Xxxxx, Xxxxxx Floor
|
|
Pensacola,
FL 32507
|
Irvine,
CA 92612
|
Ladies
and Gentlemen:
Xxxx’x
Inc., a Delaware corporation (the “Company”), hereby confirms its agreement with
you as follows:
SECTION
1
DESCRIPTION
OF SECURITIES
1.1 Introduction.
On
November 12, 2004, the
Company filed
a
registration statement (the “Registration Statement”) on Form SB-2 (File No.
333-120451)
under the Securities Act of 1933 (the “Securities Act”) with respect to an
initial public offering of its securities (the “Offering”). The Registration
Statement was declared effective by the United States Securities and Exchange
Commission (the “Commission”) on or about August 3, 2005. The Company filed six
post-effective amendments to the Registration Statement through March 7, 2006.
The Registration Statement, as amended, for the Offering contemplates a plan
of
distribution of up to 2,000,000 shares of the Company’s common stock, at an
offering price of $4.00 per share, to be offered on a “best efforts, no minimum”
basis by the Company through an underwriter and other participating
broker-dealers.
During
the period from approximately October 14, 2005 through April 12, 2006, the
Company issued, to approximately 175 persons, a total of 333,156 shares of
common stock resulting in aggregate gross proceeds to the Company of
$1,332,624.
None of
these shares may have been issued pursuant to an effective registration
statement or an applicable exemption from the registration requirements under
the Securities Act or from the registration or qualification requirements under
applicable state securities laws. Accordingly, the Company intends to make
a
rescission offer (the “Rescission Offer”) to rescind all of these purchases for
an amount equal to the price paid for the shares, plus interest at the
applicable legal rate required by state law. The Company intends to file a
separate registration statement to be filed under the Securities Act relating
to
the proposed Rescission Offer.
The
Company also intends to conduct the Offering through the current Registration
Statement on the same general terms and conditions as set forth in the
Registration Statement, although the Company intends to reset the distribution
period to an extended period following the effective date of the next
post-effective amendment to be filed in connection with the Registration
Statement. The number of shares (1,666,844 shares) to be offered prospectively
would be the difference between the maximum number of shares (2,000,000) which
have been registered and the number of shares (333,156) which have been sold
to
date in the Registration Statement and are subject to the Rescission Offer
being
conducted by the Company.
1
On
or
about August 23, 2005, the Company and Brookstreet Securities Corporation
(“Brookstreet”) signed an Underwriting Agreement pursuant to which the 333,156
shares were sold (the “Brookstreet Underwriting Agreement”). While the
Brookstreet Underwriting Agreement remains effective for the sale of the 333,156
shares which were sold through April 12, 2006, the Brookstreet Underwriting
Agreement was terminated on April 18, 2006 and this Agreement is effective
for
the sale of the remainder of the Offering (1,666,844 shares).
The
Company hereby engages US EURO Securities, Inc. (“US EURO”) to serve as the new
lead underwriter for the Offering. The Company hereby engages Brookstreet to
serve as a co-underwriter in
the
Offering. US EURO and Brookstreet may be referred to collectively herein as
the
“Underwriters.”
|
1.12
|
The
Offering.
The Company now proposes to issue and sell up to 1,666,844 shares
in the
Offering.
|
The
Shares are allocated between the Underwriters as follows:
|
US
EURO
|
1,400,844
|
|
Brookstreet
|
600,000
|
The
Company hereby appoints the Underwriters its agents to sell the Shares, subject
to the terms and provisions of this Agreement, on a “best efforts, no minimum”
basis.
SECTION
2
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
In
order
to induce the Underwriters to enter into this Agreement, the Company hereby
represents and warrants to and agrees with the Underwriters that:
2.1. Registration
Statement and Prospectus.
The
Registration Statement has been prepared by the Company in conformity with
the
requirements of the Securities Act and the rules and regulations of the
Commission thereunder, and the Registration Statement has been filed with the
Commission. Copies of the Registration Statement and any amendments, and all
forms of the related prospectuses contained therein, have been delivered to
the
Underwriters. The Registration Statement, includes the prospectus, Part II,
and
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, and the prospectus included as part of the Registration
Statement on file with the Commission when it shall become effective or, if
the
procedure in Rule 430A of the Rules and Regulations (as defined below) under
the
Securities Act is followed, the prospectus that discloses all the information
that was omitted from the prospectus on the effective date pursuant to such
Rule, and in either case, together with any changes contained in any prospectus
filed with the Commission by the Company with your consent after the effective
date of the Registration Statement, is herein referred to as the “Final
Prospectus.” If the procedure in Rule 430A is followed, the prospectus included
as part of the Registration Statement on the date when the Registration
Statement became effective is referred to herein as the “Effective Prospectus.”
Any prospectus included in the Registration Statement and in any amendments
thereto prior to the effective date of the Registration Statement is referred
to
herein as a “Preliminary Prospectus.” For purposes of this Agreement, “Rules and
Regulations” mean the rules and regulations adopted by the Commission under the
Securities Act.
2
Included
in the Registration Statement are the 333,156 shares subject to the Rescission
Offer, 1,666,844 shares proposed to be sold in the Offering (the “Shares”), and
the shares of Common Stock reserved against exercise of the Underwriters’
Warrants (as defined below) (the “Warrant Shares”). As used in this Agreement,
the term “Effective Date” refers to the date the Commission declares the
Registration Statement effective pursuant to Section 8 of the Securities Act.
2.2. Accuracy
of Registration Statement and Prospectus.
The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with respect to the Shares, and each Preliminary
Prospectus has conformed in all material respects with the requirements of
the
Securities Act and the applicable Rules and Regulations and to the the Company’s
knowledge has not included at the time of filing any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by the Underwriters, or from any Underwriters through
the Underwriters, specifically for use in the preparation thereof.
When
the
Registration Statement becomes effective and on the final closing of the
Offering (the “Closing Date”) , the Registration Statement, the Effective
Prospectus (and on the Closing Date, the Final Prospectus) will contain all
statements which are required to be stated therein in accordance with the
Securities Act and the Rules and Regulations. No such document will contain
any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
except that the foregoing does not apply to information contained in or omitted
from the Registration Statement or the Effective Prospectus or Final Prospectus
in reliance upon written information furnished by the Underwriters, or by any
Underwriter through the Underwriters, specifically for use in the preparation
thereof. The Company will not at any time hereafter file any amendments to
the
Registration Statement or in accordance with Rule 424(b) of the Rules and
Regulations of which the Underwriters shall not have been previously advised
in
advance of filing or to which any Underwriter shall reasonably object in
writing.
2.3. Financial
Statements.
Xxxxxxxx & Company, P.A., whose reports appear in the Effective Prospectus
and the Final Prospectus, are, and during, the periods covered by their reports
were, independent accountants as required by the Securities Act and the
applicable Rules and Regulations. The financial statements and schedules
(including the related notes) included in the Registration Statement, any
Preliminary Prospectus or the Effective Prospectus or the Final Prospectus,
present fairly the financial position, the results of operations, and changes
in
financial position of the entities purported to be shown thereby at the dates
and for the periods indicated; and such financial statements have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods indicated.
3
2.4. No
Material Adverse Change.
Except
as may be reflected in or contemplated by the Effective Prospectus or the Final
Prospectus, subsequent to the dates as of which information is given in the
Effective Prospectus or the Final Prospectus, and prior to the Closing Dates,
(a) there shall not have been any material adverse change in the condition,
financial or otherwise, of the Company or in its business taken as a whole;
(b)
there shall not have been any material transaction entered into by the Company
other than transactions in the ordinary course of business; (c) the Company
shall not have incurred any material liabilities, obligations or claims,
contingent or otherwise, which are not disclosed in the Effective Prospectus
or
the Final Prospectus; (d) except in the ordinary course of business and with
the
consent of the Underwriter, there shall not have been nor will there be any
change in the capital stock or long-term debt (except current payments) of
the
Company; and (e) the Company has not and will not have paid or declared any
dividends or other distributions on its capital stock.
2.5. No
Defaults.
Other
than as disclosed in the Effective Prospectus or the Final Prospectus, the
Company is not in any default (which has not been waived) in the performance
of
any obligation, agreement or condition contained in any debenture, note or
other
evidence of indebtedness or any indenture or loan agreement. The execution
and
delivery of this Agreement and the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement will not conflict
with or result in a breach of any of the terms, conditions or provisions of,
or
constitute a default under, the articles of incorporation, as amended, or
by-laws of the Company; any note, indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which
it
or any of its property is bound, other than for which the Company has received
a
consent or waiver of such conduct, breach or default or except where such
default would not have a material adverse effect on the business of the Company;
or any existing law, order, rule, regulation, writ, injunction, or decree of
any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Securities Act or under the securities laws of any state
or
jurisdiction.
2.6. Incorporation
and Standing.
The
Company is, and at the Closing Date will be, duly incorporated and validly
existing in good standing as a corporation under the laws of the jurisdiction
of
its organization, with full power and authority (corporate and other) to own
its
property and conduct its business, present and proposed, as described in the
Effective Prospectus and the Final Prospectus; the Company has full power and
authority to enter into this Agreement; is duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the character or location
of its properties (owned or leased) or the nature of its business makes such
qualification necessary except where the failure to be so qualified would not
have a material adverse effect on the Company; and each of the Company and
its
Subsidiaries holds all material licenses, certificates, and permits from
governmental authorities necessary for the conduct of its business as described
in the Effective Prospectus and Final Prospectus.
4
2.7. Capitalization.
The
Company’s authorized and outstanding capitalization on the Effective Date and on
the Closing Date are and will be as set forth under the caption “Capitalization”
in the Effective Prospectus and the Final Prospectus. The Company’s securities
conform to the description thereof contained under the captions “Description of
Securities” in the Effective Prospectus and the Final Prospectus. The
outstanding shares of Common Stock have been, and the Warrant Shares, upon
issuance and delivery against payment therefor in the manner described herein,
will be, duly authorized and validly issued, fully paid and nonassessable.
To
the knowledge of the Company, no sales of securities have been made by the
Company in violation of the registration or anti-fraud provisions of the
Securities Act or in violation of any other federal law or laws of any state
or
jurisdiction, except as disclosed in the Registration Statement.
2.8. Legality
of Shares.
The
Shares, and the Warrant Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided in this Agreement,
will be validly issued, fully paid and nonassessable. There are no preemptive
rights or other rights to subscribe for or to purchase, or any restriction
upon
the voting or transfer of, any shares of Common Stock pursuant to the Company’s
articles of incorporation, by-laws or other governing documents or any agreement
or other instrument to which the Company is a party or by which any of them
may
be bound. Neither the filing of the Registration Statement nor the offering
or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock. The Underwriters’ Warrants, when
sold and delivered, will constitute valid and binding obligations of the Company
enforceable in accordance with the terms thereof. A sufficient number of shares
of Common Stock of the Company have been reserved for issuance upon exercise
of
the Underwriters’ Warrants.
2.9. Prior
Sales.
No
unregistered securities of the Company, of an affiliate or of a predecessor
of
the Company have been sold within three years prior to the date hereof, except
as disclosed in the Registration Statement.
2.10. Litigation.
Except
as set forth in the Effective Prospectus and the Final Prospectus, there is,
and
at the Closing Date there will be, no action, suit or proceeding before any
court, arbitration tribunal or governmental agency pending, or to the knowledge
of the Company, threatened, which might result in judgments against the Company
not adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), the business
or the prospects of the Company, or which would materially affect the properties
or assets of the Company.
2.11. Underwriters’
Warrants.
Upon
issuance of the Underwriters’ Warrants pursuant to Section 3.4 of this
Agreement, the Underwriters and designees of the Underwriters will receive
good
and marketable title thereto, free and clear of all liens, encumbrances, charges
and claims whatsoever; and the Company will have on the Effective Date and
at
the time of delivery of such Underwriters’ Warrants the requisite power and
authority to sell, transfer and deliver such Underwriters’ Warrants in the
manner provided hereunder.
2.12. Finder.
The
Company knows of no outstanding claims against it for compensation for services
in the nature of a finder’s fee, origination fee or financial consulting fee
with respect to the offer and sale of the Shares hereunder except as previously
disclosed in writing to the Underwriters.
5
2.13 Exhibits;
Contracts; Agreements.
There
are no contracts or other documents which are required to be filed as exhibits
to the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been so filed and each contract to which the Company
is a party and to which reference is made in the Effective Prospectus and the
Final Prospectus has been duly and validly executed by the Company and, to
the
best of the Company’s knowledge, is in full force and effect in all material
respects in accordance with its terms, and none of such contracts have been
assigned by the Company; and the Company knows of no present situation or
condition or fact which would prevent compliance with the terms of such
contracts, as amended as of the date of the Effective Prospectus and the Final
Prospectus. Except for amendments or modifications of such contracts in the
ordinary course of business, the Company has no intention of exercising any
right which it may have to cancel any of its obligations under any of such
contracts, and has no knowledge that any other party to any of such contracts
has any intention not to render full performance under such contracts. All
material terms of each contract, agreement, plan, arrangement or understanding
to which the Company is a party, or to which it may reasonably be expected
to
become a party, have been fully disclosed in the Effective Prospectus and Final
Prospectus.
2.14. Tax
Returns.
The
Company has filed all federal and state tax returns that are required to be
filed by it and has paid all taxes shown on such returns and on all assessments
received by it to the extent such taxes have become due. All taxes with respect
to which the Company is obligated have been paid or adequate accruals have
been
set up to cover any such unpaid taxes.
2.15. Property.
Except
as otherwise set forth in or contemplated by the Effective Prospectus and the
Final Prospectus, the Company has good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
it, in each case free and clear of all liens, encumbrances and defects, except
such as are described in the Effective Prospectus and the Final Prospectus
or
such as do not materially effect the value of such property and do not interfere
with the use made or proposed to be made of such property by the Company and
any
real property and buildings held under lease by the Company are held by it
under
valid, existing, and enforceable leases with such exceptions as are not material
and do not interfere with the use made or proposed to be made of such property
and buildings by the Company.
2.16. Authority.
The
execution and delivery by the Company of this Agreement has been duly authorized
by all necessary corporate action and this Agreement is the valid, binding
and
legally enforceable obligation of the Company, except as rights to indemnity
hereunder may be limited by federal or state securities laws or public policy
and except as enforceability may be limited by bankruptcy, insolvency, or
similar laws affecting creditors rights generally and by general equitable
principles.
2.17. Lock-Up.
The
Company has obtained from each of its officers, directors, and 5% or greater
stockholders, his or her written agreement placing restrictions on each such
person from selling any of the shares of the Company's common stock, warrants,
options, convertible securities or rights which may be converted into or
exercised to purchase shares of the Company’s common stock, or promotional
shares, which they own or possess during the 24-month period following the
Closing Date, subject to the terms and conditions of such
agreements.
6
2.18. Use
of Form SB-2.
The
Company is eligible to use Form SB-2 for the offer and sale of the Shares.
2.19. Governmental
Compliance.
The
Company is not in violation of any law, ordinance, governmental rule or
regulation or court decree to which it may be subject which violation might
reasonably be expected to have a material adverse effect on the condition
(financial or other), properties, prospective results of operations or net
worth
of the Company, except as disclosed in the Registration Statement.
2.20. Stabilization.
The
Company has not taken and may not take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
2.21. CUSIP
Number.
The
Company has obtained a CUSIP number for its Common Stock.
2.22. Subsidiaries.
The
Company has no subsidiaries and it has no present intention of acquiring or
forming any subsidiaries, except as disclosed in the Effective Prospectus and
the Final Prospectus.
2.23. Books
and Accounts.
The
books, records and accounts of the Company accurately and fairly reflect, in
reasonable detail, the transactions in and dispositions of the assets of the
Company. The systems of internal accounting controls maintained by the Company
are sufficient to provide reasonable assurances that (w) transactions are
executed in accordance with management’s general or specific authorization; (x)
transactions are recorded as necessary (A) to permit preparation of financial
statements in conformity with generally accepted accounting principles and
(B)
to maintain accountability for assets; and (z) the recorded accountability
for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
2.24. Employees.
No
labor disturbance by the employees of the Company exists or is imminent; and
the
Company is not aware of any existing or imminent labor disturbance by the
employees of any principal suppliers, contract manufacturing organizations,
manufacturers, authorized dealers or distributors that might be expected to
result in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or prospects of the Company, considered as a
whole. No collective-bargaining agreement exists with any of the Company’s
employees and, to the best knowledge of the Company, no such agreement is
imminent.
2.25. Political
Contributions.
The
Company has not, directly or indirectly, at any time (x) made any contributions
to any candidate for political office, or failed to disclose fully any such
contribution, in violation of law; (y) made any payment to any state, federal
or
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed by all
applicable laws; or (z) violated nor is it in violation of any provision of
the
Foreign Corrupt Practices Act of 1977, as amended.
7
2.26. Environmental
Liabilities.
The
Company has no liability, known or unknown, matured or not matured, absolute
or
contingent, assessed or unassessed, imposed or based upon any provision of,
or
has received notice of any potential liability under, any foreign, federal,
state or local law, rule or regulation or the common law, or any tort, nuisance
or absolute liability theory, or under any code, order, decree, judgment or
injunction applicable to the Company relating to public health or safety, worker
health or safety or pollution, damage to or protection of the environment,
including, without limitation, laws relating to damage to natural resources,
emissions, discharges, releases or threatened releases of hazardous materials
into the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), or otherwise relating to
the
manufacture, processing, use treatment, storage, generation, disposal, transport
or handling of hazardous materials. As used herein, “hazardous material”
includes chemical substances, wastes, pollutants, contaminants, hazardous or
toxic substances, constituents, materials or wastes, whether solid, gaseous
or
liquid in nature.
2.27. Investment
Company Act.
The
Company is familiar with the Investment Company Act of 1940, as amended (the
“1940 Act”), and the rules and regulations thereunder, and has in the past
conducted, and intends in the future to conduct, its affairs in such a manner
as
to ensure that it will not become an “investment company” within the meaning of
the 1940 Act and such rules and regulations.
2.28. Patents.
The
Company owns or possesses adequate rights to use all material patents, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names and copyrights described or referred to in the Final Prospectus as owned
by or used by any of them, or which are necessary for the conduct of its
business as described in the Final Prospectus; and the Company has not received
any notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the business, properties, condition (financial
or otherwise), prospects or results of operations of the Company.
SECTION
3
PURCHASE
AND SALE OF THE SECURITIES
3.1. Sale
of Shares.
Subject
to the terms and conditions and upon the basis of the representations and
warranties herein set forth, the Company hereby appoints the Underwriters as
its
exclusive agents commencing on the Effective Date for the purpose of offering
the Shares as provided in this agreement on a “best efforts” basis. The
Underwriters agree to use their best efforts to sell the Shares as the Company’s
agents. It is understood and agreed that there is no firm commitment on the
Underwriters’ part to purchase any of the Shares. The Underwriters may, in their
discretion, offer a part of the Shares for sale by dealers who are members
of
the National Association of Securities Dealers, Inc., selected by the
Underwriters, and the Underwriters may form and manage a selling group of such
selected dealers. The Underwriters may allow such concessions upon sales by
selected dealers as may be determined from time to time by the Underwriters.
8
3.2. Public
Offering Price.
After
the Commission notifies the Company that the Registration Statement has become
effective, the Underwriters will offer the Shares hereunder at a price of $4.00
per Share. The Underwriters will be entitled to a fee of 7% on each Share sold
by them (broken
down into a 6% sales commission and 1% underwriters’ concession) plus
a
non-accountable expense allowance of 3% on each Share. Any commissions and
fees
payable to the Underwriters under this paragraph shall be payable on the Closing
Date or as otherwise provided herein.
3.3. Inspection
of Certificates.
For the
purpose of expediting the checking and packaging of the certificates for the
Shares, if requested by any of the Underwriters, the Company agrees to make
the
certificates available for inspection by any Underwriter at the main office
of
any Underwriter at least two full business days prior to the proposed delivery
date.
3.4. Issuance
of Underwriter’s Warrants.
On the
Closing Date of the Offering, at a price of $0.001 per warrant, the Company
will
issue to the Underwriters and their designees, warrants (the “Underwriters’
Warrants”) substantially in the form filed as an Exhibit to the Registration
Statement with such changes therein, if any, as may be agreed upon by the
Company and the Underwriters, to purchase the number of shares of Common Stock
equal to 10% of at the Shares sold in the Offering for a term of five years
at
an exercise price of per share equal to 165% of the offering price per share
of
Shares sold in the Offering. The Warrant Shares shall be registered on the
Registration Statement for the Offering.
The
Underwriters’ Warrants shall also contain anti-dilution provisions for stock
splits, recombinations, and reorganizations and shall otherwise be in form
and
substance satisfactory to the Underwriters.
3.5. Underwriters’
Counsel Expenses.
(a) The
Company shall reimburse US EURO for reasonable fees and disbursements of US
EURO’s counsel incurred in connection with the Offering including all fees and
disbursements of US EURO’s counsel that may be in connection with the
qualification of the Offering under blue sky laws.
(b) The
Company shall reimburse Brookstreet for fees and disbursements of Brookstreet’s
counsel incurred in connection with the Offering for up
to
$50,000
for work
not covering the qualification of the Offering under blue sky laws, provided
however that, if at least $2,000,000 gross proceeds is not raised in the
Offering, the Company's responsibility for fees of Brookstreet’s counsel shall
be limited to $25,000.
Additionally, the Company shall reimburse Brookstreet for all fees and
disbursements of Brookstreet’s counsel that may be in connection with the
qualification of the Offering under blue sky laws.
3.6. Representations
of the Parties.
The
parties hereto respectively represent that as of the the Effective Date and
continuing through the Closing Date, the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this Agreement, shall in all
material respects be true and correct.
9
3.7. Post-Closing
Information.
The
Underwriters covenant that, reasonably promptly after the Closing Date, they
will supply the Company with all information required from the Underwriters
which must be supplied to the Commission, if any, and such additional
information as the Company may reasonably request to be supplied to the
securities authorities for such states in which the Shares have been qualified
for sale.
3.8. Re-Offers
by Selected Dealers.
The
Underwriters shall require any selected dealer selling the Shares to agree
to
sell the Shares on the terms and conditions of the Offering set forth in the
Prospectus.
SECTION
4
REGISTRATION
STATEMENT AND PROSPECTUS
4.1. Delivery
of Registration Statements.
The
Company shall deliver to each Underwriter without charge one manually signed
copy of the Registration Statement, including all financial statements and
exhibits filed therewith and any amendments or supplements thereto. The signed
copies of the Registration Statement so furnished to the Underwriters will
include manually signed copies of any and all consents and certificates of
the
independent public accountant certifying to the financial statements included
in
the Registration Statement and signed copies of any and all opinions, consents
and certificates of any other persons whose profession gives authority to
statements made by them and who are named in the Registration Statement as
having prepared, certified, or reviewed any part thereof.
4.2. Delivery
of Pre-Effective Prospectus.
The
Company will cause to be delivered to the Underwriters and to other
broker-dealers, without charge, prior to the Effective Date, as many copies
of
each Preliminary Prospectus filed with the Commission bearing in red ink the
statement required by Item 501(c)(8) of Regulation S-K (Reg. 229.501(c)(8))
as
may be required by the Underwriters. The Company consents to the use of such
documents by the Underwriters and by selected dealers prior to the Effective
Date of the Registration Statement.
4.3. Delivery
of Prospectus.
The
Company will deliver, without charge, copies of the Effective Prospectus and
the
Final Prospectus at such addresses and in such quantities as may be required
by
the Underwriters for the purposes contemplated by this Agreement and shall
deliver said printed copies of the Effective Prospectus and the Final Prospectus
to the Underwriters and to selected dealers within one business day after the
Effective Date.
4.4. Further
Amendments and Supplements.
If
during such period of time as in the opinion of the Underwriters or their
counsel the Final Prospectus is required to be delivered under the Securities
Act, any event occurs or any event known to the Company relating to or affecting
the Company shall occur as a result of which the Final Prospectus as then
amended or supplemented would include an untrue statement of a material fact,
or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if
it
is necessary at any time after the Effective Date to amend or supplement the
Final Prospectus to comply with the Securities Act, the Company will forthwith
notify the Underwriters thereof and prepare and file with the Commission such
further amendment to the Registration Statement or supplement the Final
Prospectus (at the expense of the Company) so as to correct such statement
or
omission or effect such compliance. The Company shall furnish and deliver to
the
Underwriters and to others whose names and addresses are designated by the
Underwriters, all at the cost of the Company, a reasonable number of copies
of
the amended or supplemented Prospectus which as so amended or supplemented
will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the Prospectus not misleading in the
light of the circumstances as of the date of such Prospectus, amendment, or
supplement, and which will comply in all respects with the Securities Act.
In
the event the Underwriters are required to deliver a Prospectus beyond
completion of their participation in the Offering, upon request the Company
will
prepare promptly such Prospectus or Prospectuses as may be necessary to permit
continued compliance with the requirements of Section 10 of the Securities
Act.
10
4.5. Use
of Prospectus.
The
Company authorizes the Underwriters and all selected dealers to whom any of
the
Shares may be sold to use the Effective Prospectus and the Final Prospectus,
as
from time to time amended or supplemented, in connection with the offer and
sale
of the Shares and in accordance with the applicable provisions of the Securities
Act, the Rules and Regulations and state Blue Sky or securities laws.
SECTION
5
COVENANTS
OF THE COMPANY
The
Company covenants and agrees with the Underwriters that:
5.1. Objection
of Underwriter to Amendments or Supplements.
The
Company will not at any time, whether before or after the Effective Date, file
any amendment or supplement to the Registration Statement or Prospectus unless
and until a copy of such amendment or supplement has been furnished to the
Underwriters a reasonable period of time prior to the proposed filing thereof;
or to which the Underwriters or counsel for the Underwriters have reasonably
objected, in writing, on the ground that such amendment or supplement is not
in
compliance with the Securities Act or the Rules and Regulations.
5.2. Company’s
Best-Efforts to Cause Registration Statement to Become
Effective.
The
Company will use its best efforts to cause the Registration Statement to become
effective or, if the procedure in Rule 430A of the Rules and Regulations is
followed, comply with the provisions of and make all requisite filings with
the
Commission pursuant to such Rule and to notify the Underwriters promptly (in
writing, if requested) of all such filings. The Company shall promptly advise
the Underwriters, and will confirm such advice in writing (a) when the
Registration Statement shall become effective and when any amendment thereto
shall have become effective and when any amendment of or supplement to the
Effective Prospectus or the Final Prospectus shall be filed with the Commission;
(b) when the Commission makes a request or suggestion for any amendment to
the
Registration Statement or the Effective Prospectus or the Final Prospectus
or
for additional information and the nature and substance thereof; and (c) of
the
happening of any event which in the judgment of the Company makes any material
statement in the Registration Statement or Effective Prospectus or the Final
Prospectus untrue or which requires the making of any changes in the
Registration Statement or the Effective Prospectus or Final Prospectus in order
to make the statements therein not misleading. The Company shall also promptly
notify the Underwriters, and confirm such notice in writing, when the Company
has knowledge of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the
Securities Act, suspending or preventing the use of any Preliminary Prospectus
or the Effective Prospectus or Final Prospectus or suspending the qualification
of the Shares for offering or sale in any jurisdiction, or of the institution
of
any proceedings for any such purpose. The Company will use every reasonable
effort to prevent the issuance of any order suspending the effectiveness of
the
Registration Statement or refusing or suspending the qualification of the
Shares, and to obtain as soon as possible a lifting of any such suspension
order, the reversal of any such refusal to qualify, and the termination of
any
such suspension.
11
5.3 Preparation
and Filing of Amendments and Supplements.
The
Company agrees to prepare and file promptly with the Commission, upon request
of
the Underwriters, such amendments or supplements to the Registration Statement
or Final Prospectus, in form satisfactory to counsel to the Company, as may
be
reasonably necessary, in the opinion of counsel to the Underwriters and of
counsel to the Company; and it shall use its best efforts to cause the same
to
become effective as promptly as possible.
5.4. Blue
Sky Qualification.
The
Company will cooperate with the Underwriters in qualifying or registering the
Shares and underlying securities for sale under the blue sky laws of such
jurisdictions as the Underwriters designate, and will continue such
qualifications in effect so long as is reasonably required for the distribution
of the Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not currently qualified or where it would be subject
to
taxation as a foreign corporation.
5.5. Financial
Statements.
The
Company at its own expense will prepare and give such financial statements
and
other information to the Commission, or the proper public bodies of the states
in which the Shares and underlying securities may be registered or qualified,
as
may be required by them.
5.6. Reports
and Financial Statements to the Underwriter.
During
the period ending three years from the Closing Date, the Company will deliver
to
the Underwriters copies of each annual report of the Company, and will deliver
to the Underwriters, within 90 days after the close of each fiscal year of
the
Company, a financial report of the Company. All such reports will include a
balance sheet as of the end of the preceding fiscal year, a statement of
operations, a statement of cash flows and an analysis of shareholders’ equity
covering such fiscal year, and all will be in reasonable detail and certified
by
independent public accountants for the Company. These requirements will be
satisfied if the Company provides to the Underwriters copies of its Forms 10-K,
Forms 10-Q and Forms 8-K (or other appropriate forms) when they are filed with
the Commission.
12
If
the
Company shall fail to furnish the Underwriters with financial statements as
herein provided, within the times specified herein, an Underwriter, after giving
reasonable notice of not less than 30 days (and if the financial statements
are
not provided within such 30 day period), shall have the right to have such
financial statements prepared by independent public accountants of its own
choosing and the Company agrees to furnish such independent public accountants
such data and assistance and access to such records as they may reasonably
require to enable them to prepare such statements and to pay their reasonable
fees and expenses in preparing the same.
During
the period ending three years from the Closing Date, the Company shall also
provide to the Underwriters copies of all other statements, documents, or other
information which the Company shall mail or otherwise make available to any
class of its security holders, or which it shall file with the Commission;
and,
upon request in writing from the Underwriter, the Company shall furnish to
the
Underwriters such other information as may reasonably be requested and which
may
be properly disclosed to the Underwriters with reference to the property,
business and affairs of the Company provided such written request includes
an
agreement to keep confidential any information which should not be disclosed
to
the public.
5.7. Expenses
Paid by the Company.
The
Company will pay or cause to be paid, whether or not the transactions
contemplated hereunder are consummated or the Registration Statement is
prevented from becoming effective or this Agreement is terminated, (a) all
fees
and expenses (including, without limitation, fees and expenses of the Company’s
accountants and counsel, and fees and expenses of counsel for the Underwriters
subject to the limitations set forth in Section 3.5(b)) in connection with
the
preparation, printing, filing, delivery and shipping of the Registration
Statement (including financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus, the Effective Prospectus and
the
Final Prospectus as amended or supplemented, and the printing, delivery and
shipping of this Agreement and other underwriting documents, including Blue
Sky
Memoranda and Selected Dealer Agreements; (b) the filing fee of the National
Association of Securities Dealers, Inc.; (c) any applicable listing fees; (d)
the cost of printing certificates representing the Shares; (e) the cost and
charges of any transfer agent or registrar; (f) the fees and expenses of
qualifying the Shares under the blue sky laws of various jurisdictions; (g)
all
expenses for due diligence, including meetings associated with this Offering,
which are reimbursable weekly or prior to being incurred, as may be requested
by
an Underwriter and as approved in advance in writing by the Company; (h) the
costs of any luncheons, functions, special expenses and all road show and travel
expenses and the Company shall provide arrangements for the payment of these
expenses prior to being incurred, as may be requested by an Underwriter and
approved in writing by the Company; and (i) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
provided for in this Section.
5.8. Reports
to Shareholders.
During
the period ending five years from the Closing Date, the Company will, as
promptly as possible, but not later than 180 days after the end of its annual
fiscal year, render and distribute reports to its shareholders which will
include audited statements of its operations and cash flows during such period
and its balance sheet as of the end of such period, as to which statements
the
Company’s independent certified public accountants shall have rendered an
opinion.
13
5.9. Section
11(a) Financials.
The
Company will make generally available to its security holders and will deliver
to the Underwriters, as soon as practicable, an earnings statement (as to which
no opinion need be rendered but which will satisfy the provisions of Section
11(a) of the Securities Act) covering a period of at least 12 months beginning
after the Effective Date. Compliance by the Company with Rule 158 promulgated
under the Securities Act shall satisfy the requirements of this Section 5.9.
5.10. Post-Effective
Availability of Prospectus.
The
Company will comply, at its own expense, with all requirements imposed upon
it
by the Securities Act, as now or hereafter amended, by the Rules and
Regulations, as from time to time may be in force, and by any order of the
Commission, so far as necessary to permit the continuance of sales or dealings
in the Shares and the Underwriters’ Warrants and the exercise of the
Underwriters’ Warrants.
5.11. Application
of Proceeds.
The
Company will apply the net proceeds from the sale of the Shares substantially
in
the manner specifically set forth in the Final Prospectus. Any deviation from
such application must be in accordance with the Final Prospectus and may occur
only after approval by the board of directors of the Company and then only
after
the board of directors has obtained the written opinion as to the propriety
of
any such deviation provided by recognized legal counsel well versed in the
federal and state securities laws.
5.12. Agreements
of Certain Shareholders.
The
Company will deliver to the Underwriters, prior to the execution of this
Agreement, the agreement of each officer, director, and 5% or greater
shareholder, referred to in Section 2.17.
5.13. Delivery
of Documents.
At or
prior to the Closing, the Company will deliver to the Underwriters true and
correct copies of the articles of incorporation of the Company and all
amendments thereto; true and correct copies of the by-laws of the Company and
of
the minutes of all meetings of the directors and shareholders of the Company
held prior to the Closing Date which in any way relate to the subject matter
of
this Agreement. All such copies shall be certified by the Secretary of the
Company.
5.14. Cooperation
with Underwriter’s Due Diligence.
At all
times prior to the Closing Date, the Company will cooperate with the
Underwriters in such investigation as the Underwriter may make or cause to
be
made of all the properties, management, business and operations of the Company,
and the Company will make available to the Underwriters in connection therewith
such information in its possession as the Underwriter may reasonably request.
5.15. Appointment
of Transfer Agent.
The
Company has appointed Transfer Online, Inc. as Transfer Agent for the Common
Stock, subject to the closing of the Offering. The Company will not change
or
terminate such appointment for a period of three years from the Effective Date
without first obtaining the written consent of the Underwriters, which consent
shall not be unreasonably withheld.
14
5.16. Compliance
with Conditions Precedent.
The
Company will use all reasonable efforts to comply or cause to be complied with
the conditions precedent to the several obligations of the Underwriters in
Section 8 hereof.
5.17. Filing
of Form SR.
If
required under the Securities Act, the Company agrees to file with the
Commission all required reports on Form SR in accordance with the provisions
of
Rule 463 promulgated under the Securities Act and to provide a copy of such
reports to the Underwriters and their counsel.
5.18. National
Exchange.
The
Company will use its best efforts to have the Shares listed for trading on
the
Nasdaq Capital Market or the American Stock Exchange following the completion
of
the Offering if the Company is able to qualify for such markets, and if not,
to
cooperate with a market maker which is reasonably acceptable to the Company
in
applying for quotation of the Shares on the Over-the-Counter Bulletin Board
(“OTCBB”). The Company hereby agrees that both US EURO and Brookstreet are
reasonably acceptable market makers for the purpose of applying for quotation
of
the Shares on the OTCBB.
5.19. Right
of Inspection.
For a
period of three years after the Effective Date, the Underwriters, at their
expense, will have the right to have a person or persons selected by each
Underwriter review the books and records of the Company upon seven days’ written
notice and at reasonable times. Such person or persons will be required to
execute a confidentiality agreement which will, in part, prohibit disclosure
of
information to any party except the Underwriters, which information shall be
held in confidence unless otherwise specifically agreed to by the Company in
writing.
5.20. Outside
Directors, Committees, Executive Compensation.
The
Company shall use its best efforts to have at least two members elected to
its
board of directors who are not officers or employees of the Company (“outside
directors”) on the Effective Date of the Registration Statement, and to cause
two such outside directors to be nominated as directors for two additional
one-year terms. The Company will form independent audit and compensation
committees which shall be comprised of at least three of the Company’s
directors, at least a majority of whom shall be outside directors.
5.21. Registration
under the Exchange Act.
The
Company has filed a Registration Statement under Section 12(g) of the Exchange
Act with respect to the Common Stock. The Company has delivered a copy of such
filing to the Underwriters and to legal counsel for the Underwriters. The
Company shall use its best efforts to cause the registration statement under
the
Exchange Act to become effective not later than the Effective Date, or as soon
thereafter as possible.
5.22.
Financial
Statements and Share Issuances.
The
Company has prepared and delivered to the Underwriters its most recent financial
statements and projections constituting its best estimate of revenues, earnings
and cash flow and shall update such estimates on a monthly basis during the
registration period. Except in connection with acquisitions or pursuant to
the
exercise of warrants and options outstanding prior to the completion of the
Offering, and the Company’s right to adopt a stock option plan (the “Plan”)
reserving no more than 15% of the issued and outstanding shares of Common Stock
of the Company as of the date hereof and the grant of options to its officers
and employees under such Plan at an exercise price equal to the Offering price,
the Company will not, without the Underwriters’ prior written consent, sell any
shares of capital stock of the Company or issue warrants or options to purchase
any shares of capital stock of the Company during the twelve month period
following the Offering if $7,000,000 gross proceeds or more is raised in the
Offering, or during the six month period following the Closing Date if
$5,000,000 to $6,999,999 in gross proceeds are raised in the Offering. This
provision shall not apply if less than $5,000,000 gross proceeds are raised
in
the Offering.
15
5.23. Observer
Rights.
US
EURO
shall
have the right for a period of five years commencing on the Closing Date to
designate an observer to the Board of Directors of the Company, which observer
receives notice of all Board and Board committee meetings concurrent with the
Company’s directors and shall have the right to attend all Board and Board
committee meetings at the Company’s expense.
5.24 Exclusive
Rights. From
the
date of this Agreement through the earlier of the Closing Date or the
termination of the Offering (the “Exclusive Period”), US EURO shall be the
Company’s exclusive investment banker for any and all financings of the Company.
The Company shall refrain from negotiating with any other underwriter or
investment banker or other person regarding a possible private or public
offering of any of the Company's securities without the prior consent of the
Underwriter. If the Company, with the consent of US EURO, secures financing
other than the Offering during the Exclusive Period, the Company shall pay
to US
EURO a cash
commission on the gross proceeds of any financing equal to 8% of all amounts
up
to $1,000,000, plus 7% of all amounts from $1,000,001 through $2,000,000, plus
6% of all amounts over $2,000,000.
SECTION
6
INDEMNIFICATION
AND CONTRIBUTION
6.1. Indemnification
by Company.
The
Company shall indemnify and hold harmless each Underwriter and each
participating dealer against any and all loss, claim, damage or liability,
joint
or several, to which such Underwriter or participating dealer may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, or liability (or action with respect thereto) arises out of or is based
upon (a) any violation of any registration requirements; (b) any improper use
of
sales literature by the Company; (c) any untrue statement or alleged untrue
statement made by the Company in Section 2 hereof; (d) any untrue statement
or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus, or the Final
Prospectus or any amendment or supplement thereto, or (ii) in any application
or
other document, executed by the Company specifically for such application or
based upon written information furnished by the Company, filed in order to
qualify the Shares under the securities laws of the states where filings were
made (any such application, document, or information being hereinafter called
“Blue Sky Application”); or (e) the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective Prospectus,
or
the Final Prospectus or any amendment or supplement thereto or in any Blue
Sky
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading; and shall reimburse each Underwriter
and
each participating dealer for any legal or other reasonable expenses incurred
by
such Underwriter and participating dealer in connection with investigating
or
defending against or appearing as a third-party witness in connection with
any
such loss, claim, damage, liability or action, notwithstanding the possibility
that payments for such expenses might later be held to be improper, in which
case the person receiving them shall promptly refund them; except that the
Company shall not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company through the Underwriter or participating
dealer by or on behalf of any Underwriter or participating dealer specifically
for use in the preparation of the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus or any amendment
or supplement thereto, or any Blue Sky Application.
16
6.2. Indemnification
by Underwriters.
Each
Underwriter severally, but not jointly, shall indemnify and hold harmless the
Company against any and all loss, claim, damage or liability, joint or several,
to which the Company may become subject under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability (or action in respect thereto)
arises out of or are based upon (a) any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or the Final Prospectus or
any
amendment or supplement thereto or (ii) in any Blue Sky Application; or (b)
the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospective, the Effective Prospectus or the Final Prospectus or
any
amendment or supplement thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading; except that such indemnification shall be available in each such
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 information and in conformity with written information furnished to the
Company through the Underwriter or on behalf of such Underwriter specifically
for use in the preparation thereof; and shall reimburse any legal or other
expenses reasonably incurred by the Company in connection with the investigation
or defending against any such loss, claim, damage, liability or
action.
6.3. Right
to Provide Defense.
Promptly after receipt by an indemnified party under Section 6.1 or 6.2 above
of
written notice of the commencement of any action, the indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party
under
such section, notify the indemnifying party in writing of the claim or the
commencement of that action; the failure to notify the indemnifying party shall
not relieve it of any liability which it may have to an indemnified party,
except to the extent that the indemnifying party did not otherwise have
knowledge of the commencement of the action and the indemnifying party’s ability
to defend against the action was prejudiced by such failure. Such failure shall
not relieve the indemnifying party from any other liability which it may have
to
the indemnified party or any person identified in Section 6.4 below. If any
such
claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any
other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from
the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable
to
the indemnified party under such section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; except that the
Underwriter or participating dealer shall have the right to employ counsel
to
represent the Underwriter or participating dealer and those other Underwriters
or participating dealers who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters or
participating dealer against the Company under such section if, in the
reasonable judgment of the Underwriter or participating dealer, it is advisable
for the Underwriter or participating dealer and those Underwriters or
participating dealers to be represented by separate counsel, and in that event
the fees and expenses of such separate counsel shall be paid by the Company.
The
indemnified party may, but shall not be obligated to, participate in the defense
at its own expense with its own counsel.
17
6.4. Contribution.
If the
indemnification provided for in Sections 6.1 and 6.2 of this Agreement is
unavailable or insufficient to hold harmless an indemnified party, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages, or liabilities
referred to in Sections 6.1 or 6.2 above (a) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one
hand and the Underwriters or participating dealers on the other from the
offering of the Shares; or (b) if the allocation provided by clause (a) above
is
not permitted by applicable law, in such proportion as is appropriate to reflect
the relative benefits referred to in clause (a) above but also the relative
fault of the Company on the one hand and the Underwriters or participating
dealers on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters or participating dealers shall be deemed to be in the
same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and
un-itemized expenses received by the Underwriters or participating dealers,
in
each case as set forth in the table on the cover page of the Final Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue statement of a material fact or the omission to state a material
fact
relates to information supplied by the Company, the Underwriter, or the
participating dealers and the parties’ relative intent, knowledge, access to
information, and opportunity to correct or prevent such untrue statement or
omission. For purposes of this Section 6.4, the term “damages” shall include
reasonable counsel fees or other expenses reasonably incurred by the Company,
the Underwriters, or participating dealers in connection with investigating
or
defending any action or claim which is the subject of the contribution
provisions of this Section 6.4. Notwithstanding the provisions of this Section
6.4, no Underwriter or participatinig dealer shall be required to contribute
any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter or participating dealer
has otherwise been required to pay by reason of any such untrue statements
or
omissions. No person adjudged guilty of fraudulent misrepresentation (within
the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Under this Section 6.4, each Underwriter’s obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. Each party entitled to contribution agrees that
upon
the service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it shall
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may
be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 6.4 hereof).
18
6.5. Extension
of Obligations.
The
obligations of the Company under this Section 6 shall be in addition to any
other liability which the Company may otherwise have, and shall extend, upon
the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Securities Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability that
the
respective Underwriters may otherwise have, and shall extend, upon the same
terms and conditions, to each director of the Company (including any person
who,
with his consent, is named in the Registration Statement as about to become
a
director of the Company), to each officer of the Company who has signed the
Registration Statement, and to each person, if any, who controls the Company
within the meaning of the Securities Act.
SECTION
7
EFFECTIVENESS
OF AGREEMENT
Once
fully executed, this Agreement shall become effective at 10:00 a.m., Los Angeles
time, on the first full business day after the Effective Date.
SECTION
8
CONDITIONS
OF THE UNDERWRITERS’ OBLIGATIONS
The
obligations of the several Underwriters hereunder to sell the Shares on a “best
efforts” basis shall be subject to the accuracy, of each of the representations
and warranties on the part of the Company herein contained, to the performance
by the Company of all its agreements herein contained, to the fulfillment of
or
compliance by the Company with all covenants and conditions hereof, and to
the
following additional conditions:
8.1. Effectiveness
of Registration Statement.
The
Registration Statement and all post-effective amendments thereto filed with
the
Commission prior to the Closing Date shall have become effective and any and
all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made; no stop order suspending the effectiveness of the Registration
Statement or any amendment or supplement thereto shall have been issued; no
proceeding for that purpose shall have been initiated or threatened by the
Commission or be pending; any request for additional information on the part
of
the Commission (to be included in the Registration Statement or Final Prospectus
or otherwise) shall have been complied with to the satisfaction of the
Commission; and neither the Registration Statement, the Effective Prospectus
or
Final Prospectus, nor any amendment thereto shall have been filed to which
counsel to the Underwriter shall have reasonably objected in writing or have
not
given their consent.
8.2. Accuracy
of Registration Statement.
Either
of the Underwriters shall not have advised the Company that the Registration
Statement or the Effective Prospectus or Final Prospectus or any amendment
thereof or supplement thereto contains an untrue statement of a fact which,
in
the opinion of counsel to an Underwriter, is material, or omits to state a
fact
which, in the opinion of such counsel, is material and is required to be stated
therein, or is necessary to make the statements therein not misleading.
19
8.3. Casualty
and Other Calamity.
Since
the Effective Date, the Company shall not have sustained any loss on account
of
fire, explosion, flood, accident, calamity or any other cause, of such character
as materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance, and no officer or
director of the Company shall have suffered any injury, sickness or disability
of a nature which would materially adversely affect his or her ability to
properly function as an officer or director of the Company.
8.4. Litigation
and Other Proceedings.
Other
than as disclosed in the Registration Statement or Prospectus, there shall
be no
litigation instituted or threatened against the Company and there shall be
no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, management, licenses,
operations or financial condition or income of the Company considered as an
entity.
8.5. Lack
of Material Change.
Except
as contemplated herein or as set forth in the Registration Statement and Final
Prospectus, during the period subsequent to the date of the last audited balance
sheet included in the Registration Statement, the Company (a) shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the last audited balance sheet included in the
Registration Statement, and (b) except in the ordinary course of its business,
the Company shall not have incurred any liabilities, claims or obligations
(direct or contingent) or disposed of any of its assets, or entered into any
material transaction or suffered or experienced any substantially adverse change
in its condition, financial or otherwise. The capital stock and surplus accounts
of the Company shall be substantially the same as at the date of the last
audited balance sheet included in the Registration Statement, without
considering the proceeds from the sale of the Shares, other than as may be
set
forth in the Final Prospectus, and except as the surplus reflects the result
of
continued profits or losses from operations consistent with prior periods.
8.6. Review
by Underwriter’s Counsel.
The
authorization of the Shares, the Underwriters’ Warrants, and the Warrant Shares
issuable upon the exercise of the Underwriters’ Warrants, the Registration
Statement, the Effective Prospectus and the Final Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement
shall
be reasonably satisfactory in all respects to counsel to the Underwriters.
8.7. Opinion
of Counsel.
The
Company shall have furnished to the Underwriters opinions as of the Effective
Date and the Closing Date, addressed to the Underwriters, from counsel to the
Company expressing such opinions as are set forth in Exhibit __ hereto in the
form attached hereto.
20
8.8. Accountant’s
Letter.
The
Underwriters shall have each received letters addressed to each of them dated
the Effective Date, and the Closing Date, respectively, and a draft of such
letter at least five days prior to the Effective Date, and the Closing Date,
from Xxxxxxxx & Company, P.A., confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
published Rules and Regulations. In the letter dated the date of this Agreement,
they shall state their conclusions and findings with respect to such financial,
accounting, and statistical information and other matters contained in the
Registration Statement as have been approved by the Underwriters prior to the
execution of this Agreement. In the letter dated the Closing Date, they shall
state as of such date (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Final Prospectus, as of a date not more than five
days prior to the date of such letter) their conclusions and findings with
respect to the financial information and other matters covered by their letter
dated the date of this Agreement, the purpose of the letter to be delivered
on
the Closing Date being to update in all respects the conclusions and findings
set forth in the prior letter or letters. The Underwriters shall be furnished
without charge, in addition to the original signed copies, such number of signed
or photostatic or conformed copies of such letters as an Underwriter shall
reasonably request.
8.9. Officer’s
Certificate.
The
Company shall furnish to the Underwriters certificates, each signed by the
President and Chief Financial Officer of the Company, dated as of the Effective
Date and as of each Closing Date, to the effect that:
| (a) |
The
representations and warranties of the Company in this Agreement are
true
and correct at and as of the date of the certificate, and the Company
has
complied with all the agreements and has satisfied all the conditions
on
its part to be performed or satisfied at or prior to the date of
the
certificate.
|
| (b) |
The
Registration Statement has become effective and to the best of the
knowledge of the respective signers no order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for
that
purpose has been initiated or is threatened by the Commission.
|
| (c) |
The
respective signers have each examined the Registration Statement
and the
Final Prospectus and any amendments and supplements thereto, and
to the
best of their knowledge the Registration Statement and the Final
Prospectus and any amendments and supplements thereto contain all
statements required to be stated therein, do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein
not
misleading and, since the Effective Date, there has occurred no event
required to be set forth in an amended or a supplemented Prospectus
which
has not been so set forth.
|
8.10. Tender
of Delivery of Shares.
All of
the Shares being offered by the Company and being sold by the Underwriters,
and
the Underwriters’ Warrants being purchased from the Company by the Underwriters,
shall be tendered for delivery in accordance with the terms and provisions
of
this Agreement.
21
8.11. Blue-Sky
Registration or Qualification.
The
Shares shall be registered or qualified in such states as the Underwriters
and
the Company may agree pursuant to Section 5.4, and each such registration or
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Dates. On the Effective Date and the Closing Date,
the
Underwriters’ counsel shall provide written information which contains the
following:
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(a)
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|
the
names of the states in which applications to register or qualify
the
Shares have been filed;
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(b)
|
|
the
status of such registrations or qualifications in such states as
of the
date of such letter;
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(c)
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|
a
list containing the name of each such state in which the Shares may
be
legally offered and sold by a dealer licensed in such state and the
number
of each which may be legally offered and sold in the Offering in
each such
state as of the date of such letter;
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(d)
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with
respect to the written information provided on the Effective Date,
a
representation that such counsel will promptly update such written
information if counsel receives actual notice of any material changes
in
the information provided therein between the Effective Date and the
Closing Date;
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(e)
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the
names of the states in which the offer and sale of the Shares in
the
Offering is exempt from registration or qualification; and
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(f)
|
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a
statement that the Underwriters and selected dealers in the Offering
may
rely upon the information contained therein.
|
8.12. Approval
of Underwriters’ Counsel.
All
opinions, letters, certificates and evidence mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance satisfactory to counsel to the
Underwriters, whose approval shall not be unreasonably withheld. The suggested
form of such documents shall be provided to the counsel for the Underwriters
at
least three business days before the dates they are to be provided, that is,
the
Effective Date and the Closing Dates.
8.13. Officers’
Certificate as a Company Representation.
Any
certificate signed by an officer of the Company and delivered to the
Underwriters or counsel for the Underwriters shall be deemed a representation
and warranty by the Company to the Underwriters as to the statements made
therein.
22
SECTION
9
TERMINATION
9.1. Termination
Because of Noncompliance.
This
Agreement may be terminated in its entirety by the Underwriters by notice to
the
Company prior to its effectiveness in the event that the Company shall have
failed or been unable to comply with any of the terms, conditions or provisions
of this Agreement which the Company is required by this Agreement to be
performed, complied with or fulfilled (including but not limited to those
specified in Sections 2, 3, 4, 5, and 8 hereof) within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Underwriters in writing.
9.2. Market-out
Termination.
This
Agreement may be terminated by the Underwriters by notice to the Company at
any
time if, in the sole judgment of the Underwriters, payment for and delivery
of
the Shares is rendered impracticable or inadvisable because of:
|
(a)
|
Material
adverse changes in the Company’s business, business prospects, management,
earnings, properties or conditions, financial or
otherwise;
|
|
(b)
|
Any
action, suit, or proceedings, at law or in equity, hereafter threatened
or
filed against the Company by any person or entity, or by any federal,
state or other commission, board or agency wherein any unfavorable
result
or decision could materially adversely affect the business, business
prospects, properties, financial condition or income or earnings
of the
Company;
|
|
(c)
|
Additional
material governmental restrictions not in force and effect on the
date
hereof shall have been imposed upon the trading in securities generally,
or new offering or trading restrictions shall have been generally
established by a registered securities exchange, the Commission,
the
National Association of Securities Dealers, Inc. or other applicable
regulatory authority, or trading in securities generally on any such
exchange, the Nasdaq Stock Market, or otherwise, shall have been
suspended, or a general moratorium shall have been established by
federal
or state authorities;
|
|
(d)
|
Substantial
and material changes in the condition of the market beyond normal
fluctuations such that it would be undesirable, impracticable or
inadvisable in the judgment of the Underwriters to proceed with this
Agreement or with the public offering of the
Shares;
|
|
(e)
|
Any
outbreak or escalation of major hostilities in which the United States
is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment
of the
Underwriter, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed
with
completion of the sale of and payment for the Shares;
or
|
23
|
(f)
|
Any
suspension of trading in the securities of the Company or the interruption
or termination of listing of any security of the Company on any exchange
or over-the-counter markets.
|
9.3 Termination
Upon Expiration of Prospectus.
The
Company may terminate the Offering when the term of the Offering period under
the Final Prospectus expires, unless the term is extended by mutual agreement
of
the parties.
9.4. Effect
of Termination Hereunder.
Any
termination of this Agreement pursuant to this Section 9 shall be without
liability of any character (including, but not limited to, loss of anticipated
profits or consequential damages) on the part of any party hereto, except that
the Company shall remain obligated to pay the costs and expenses provided to
be
paid by it specified in Sections 3.5 and 5.7; and the Company and the
Underwriters shall be obligated to pay, respectively, all losses, claims,
damages or liabilities, joint or several, under Sections 6.1 or 6.4 in the
case
of the Company and Sections 6.2 or 6.4 in the case of an Underwriter.
SECTION
10
UNDERWRITER’S
REPRESENTATIONS AND WARRANTIES
The
Underwriters represent and warrant to and agree with the Company that:
10.1. Registration
as Broker-Dealer and Member of NASD.
Each of
the Underwriters is registered as a broker-dealer with the Commission and is
registered as a securities broker-dealer in all states in which it will sell
Shares and is a member in good standing of the National Association of
Securities Dealers, Inc.
10.2. No
Pending Proceedings.
There
is not now pending or threatened against either of the Underwriters any action
or proceeding of which it has been advised, either in any court of competent
jurisdiction, before the Commission or any state securities regulatory authority
concerning activities as a broker or dealer which are foreseen as affecting
the
Underwriter’s capacity to complete the terms of this Agreement.
10.3. Company’s
Right to Terminate.
In the
event any action or proceeding of the type referred to in Section 10.2 above
shall be instituted or threatened against an Underwriter at any time prior
to
the Effective Date hereunder, or in the event there shall be filed by or against
an Underwriter in any court pursuant to any federal, state, local or municipal
statute, a petition in bankruptcy or insolvency or for reorganization or for
the
appointment of a receiver or trustee of its assets or if it makes an assignment
for the benefit of creditors, the Company shall have the right on three days’
written notice to the Underwriters to terminate this Agreement without any
liability to the Underwriters or the Company of any kind except for the payment
of all expenses as provided herein.
10.4. Underwriters’
Covenants. Each
of
the Underwriters covenants and agrees with the Company that (a) it will not
offer or sell the Shares in any state or other jurisdiction where it has not
been advised in writing by its legal counsel or counsel for the Company that
the
Shares are qualified for the offer and sale therein or exempt from such
requirements; (b) it will not make any representation to any person in
connection with the offer and sale of the Shares covered hereby except as set
forth in the Registration Statement or as authorized in writing by the Company
and the Underwriter; (c) it will comply in good faith with all laws, rules
and
regulations applicable to the distribution of the securities, including the
Rules of Fair Practice of NASD Regulation, Inc.; (d) the Underwriter has the
authority to execute this Agreement; and (e) the Underwriter will not deal
with
or engage any finder who is not a registered broker/dealer or a foreign finder
as allowed by NASD rules in connection with the proposed
Offering.
24
SECTION
11
NOTICE
Except
as
otherwise expressly provided in this Agreement:
11.1 Notice
to the Company. Whenever
notice is required by the provisions of this Underwriting Agreement to be given
to the Company, such notice shall be in writing addressed to the Company as
follows:
Xxxx’x,
Inc.
00000
Xxxxx Xxxxxx Xxxxxx
Los
Angeles, CA 90061
Attn:
Xxxxxxxxxxx X. Xxxx
with
a
copy to:
Xxxxxxx
& Xxxxxxxxx, LLP
00000
Xxxxxxxx Xxxx., 00xx
Floor
Los
Angeles, CA 90025
Attn:
Xxxxxxx X. Xxxx, Esq.
11.2 Notice
to the Underwriters. Whenever
notice is required by the provisions of this Agreement to be given to the
Underwriters, such notice shall be given in writing addressed to the
Underwriters as follows:
|
US
EURO Securities, Inc.
|
Brookstreet
Securities Corporation
|
|
13661
Perdido Key Dr., Ste. PH-1
|
0000
Xxxxxx Xxxxx, Xxxxxx Floor
|
|
Pensacola,
FL 32507
|
Irvine,
CA 92612
|
|
Attn:
Xxxxxxx Xxx Xxxxxx
|
Attn:
Xxxxxxxx X. XxXxxxxxx
|
with
a copy to:
Xxxxxx
& Xxx, APC
16148
Sand Canyon
Irvine,
CA 92618
Attn:
Xxxxx Xxxxxx, Esq.
25
11.3 Effective
Date of Notices. Such
notices shall be effective on the date of delivery set forth on the receipt
if
the notice is sent by registered or certified mail or any expedited delivery,
or, if sent regular mail, three days from the day of mailing.
SECTION
12
MISCELLANEOUS
12.1. Benefit. This
Agreement is made solely for the benefit of the Underwriters, the Company,
their
respective officers, directors and controlling persons referred to in Section
15
of the Securities Act and such other persons as are identified in this
Agreement, and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
“successor” or the term “successors and assigns” as used in this Agreement shall
not include any purchasers, as such, of any of the Shares.
12.2. Survival. The
respective indemnities, agreements, representations, warranties, and covenants
of the Company or its officers and the Underwriters as set forth in or made
pursuant to this Agreement and the indemnity and contribution agreements
contained in Section 6 hereof of the Company and the Underwriters (as defined
in
Section 6) shall survive and remain in full force and effect, regardless of
(a)
any investigation made by or on behalf of the Company or the Underwriters or
any
such officer or director thereof or any controlling person of the Company or
of
the Underwriters, (b) delivery of or payment for the Shares, and (c) the Closing
Date, and any successor of the Company or the Underwriters or any controlling
person, officer or director thereof, as the case may be, shall be entitled
to
the benefits hereof.
12.3. Governing
Law. This
Agreement and the rights of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of California including
all
matters of construction, validity, performance, and enforcement and without
giving effect to the principles of conflict of laws.
12.4 Jurisdiction.
The
parties submit to the jurisdiction of the Courts of the County of Orange, State
of California or a Federal Court empaneled in the Central District of the State
of California for the resolution of all legal disputes arising under the terms
of this Agreement.
12.5 Attorneys’
Fees.
In the
event any Party hereto shall commence legal proceedings against the other to
enforce the terms hereof, or to declare rights hereunder, as the result of
a
breach of any covenant or condition of this Agreement, the prevailing party
in
any such proceeding shall be entitled to recover from the losing party its
costs
of suit, including reasonable attorneys' fees, as may be fixed by the
court.
12.6 Assignment.
This
Agreement shall be binding upon the parties hereto, their successors and
assigns, and prior to the Closing Date shall not be assignable without the
express written consent of all parties hereto.
12.7. Entire
Agreement. Other
than as set forth in Section 1.1, this Agreement contains the entire agreement
and understanding between the parties hereto, and supersedes any and all prior
agreements and understandings.
26
12.8. Underwriters’
Information. The
statements with respect to the public offering of the Shares on the inside
and
outside of both the front and back cover pages of the Prospectus and under
the
caption “Underwriting” in the Final Prospectus constitute the written
information furnished by or on behalf of the Underwriter referred to in Section
2.2 hereof, in Section 6.1 hereof and Section 6.2 hereof.
12.9. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original and all of which together will constitute one and the same
instrument.
12.10 Facsimile
Signatures. The
parties hereto agree that this Agreement may be executed by facsimile signatures
and such signatures shall be deemed originals. The parties further agree that
within ten days following the execution of this Agreement, they shall exchange
original signature pages.
12.11 Amendments. This
Agreement may be amended only by a written agreement executed by all of the
parties hereto.
12.12. Definition
of “Business Day. For
purposes of this Agreement,“business day” means any day on which the New York
Stock Exchange, Inc. is open for trading.
Please
confirm that the foregoing correctly sets forth the Agreement between you and
the Company.
|
Very
truly yours,
XXXX’X,
INC.,
A
Delaware corporation
|
|
|
By:
Xxxxxxxxxxx X. Xxxx,
Its:
Chairman, President and Chief Executive
Officer
|
The
foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date
first above written.
|
US
EURO Securities, Inc.,
|
Brookstreet
Securities Corporation,
|
|
|
A
California corporation
|
A
California Corporation
|
|
|
By:
Xxxxxxx Xxx Xxxxxx
|
By:
Xxxxxxxx X. XxXxxxxxx
|
|
|
Its:
Chairman
|
Its:
Executive Vice President
|
27
