XXXX XXXXXX GOLF, INC.
1,600,000 Shares of Common Stock
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
----------------------
Whale Securities Co., L.P New York, New York
000 Xxxxx Xxxxxx ___________, 0000
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Xxxx Xxxxxx Golf, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") 1,600,000 shares of common stock, par value $.001 per share (the
"Offered Shares"), which Offered Shares are presently authorized but unissued
shares of the common stock, par value $.001 per share (individually, a "Common
Share" and collectively the "Common Shares"), of the Company. In addition, the
Underwriter, in order to cover over-allotments in the sale of the Offered
Shares, may purchase up to an aggregate of 240,000 Common Shares (the "Optional
Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"). The Shares are described in the
Registration Statement, as defined below. The Company also proposes to issue and
sell to the Underwriter for its own account and the accounts of its designees,
warrants to purchase an aggregate of 160,000 Common Shares at an exercise price
of $11.55 per share (the "Underwriter's Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement (as
hereinafter defined).
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $6.30 per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $7.00 per
Offered Share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to
the Company by wire transfer or certified or official bank check or
checks payable to its order in New York Clearing House funds, at the offices of
the Underwriter, Whale Securities Co., L.P., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, against delivery of the Offered Shares to the Underwriter (the
"Closing"). Such payment and delivery will be made at ______________, New York
City time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the
Offered Shares commences on the day following the Effective Date), the date and
time of such payment and delivery being herein called the "Closing Date." The
certificates representing the Offered Shares to be delivered will be in such
denominations and registered in such names as the Underwriter may request not
less than two full business days prior to the Closing Date, and will be made
available to the Underwriter for inspection, checking and packaging at the
office of the Company's transfer agent or correspondent in New York City,
American Stock Transfer & Trust Company, 00 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000 not less than one full business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the Underwriter
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is $160.00. The Underwriter's Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrants will be made to the Company by check or checks payable to
its order on the Closing Date against delivery of the certificates representing
the Underwriter's Warrants. The certificates representing the Underwriter's
Warrants will be in such denominations and such names as the Underwriter may
request prior to the Closing Date.
3. Option to Purchase Optional Shares.
----------------------------------
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares as
contemplated by the Prospectus, the Underwriter is hereby granted an option to
purchase all or any part of the Optional Shares from the Company. The purchase
price to be paid for the Optional Shares will be the same price per Optional
Share as the price per Offered Share set forth in Section 1 hereof. The option
granted hereby may be exercised by the Underwriter as to all or any part of the
Optional Shares at any time within 45 days after the Effective Date. The
Underwriter will not be under any obligation
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to purchase any Optional Shares prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than five full business days after the date of such
notice. The date and time set forth in such notice is herein called the "Option
Closing Date." Upon exercise of such option, the Company will become obligated
to convey to the Underwriter, and, subject to the terms and conditions set forth
in Section 3(d) hereof, the Underwriter will become obligated to purchase, the
number of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be
made to the Company by wire transfer or certified or official bank check or
checks payable to its order in New York Clearing House funds, at the office of
the Underwriter, against delivery of the Optional Shares purchased to the
Underwriter. The certificates representing the Optional Shares to be delivered
will be in such denominations and registered in such names as the Underwriter
requests not less than two full business days prior to the Option Closing Date,
and will be made available to the Underwriter for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Underwriter to purchase and
pay for any of the Optional Shares is subject to the accuracy and completeness
(as of the date hereof and as of the Option Closing Date) of and compliance in
all material respects with the representations and warranties of the Company
herein, to the accuracy and completeness of the statements of the Company or its
officers made in any certificate or other document to be delivered by the
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder which are required to be performed
prior to the Option Closing Date, to the satisfaction by the Company of the
conditions, as of the date hereof and as of the Option Closing Date, set forth
in
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Section 6 hereof, and to the delivery to the Underwriter of opinions,
certificates and letters dated the Option Closing Date substantially similar in
scope to those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with
each reference to "Offered Shares" and "Closing Date" to be, respectively, to
the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority, corporate and other, to own or lease and operate,
as the case may be, its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement and to execute,
deliver and perform this Agreement and the Underwriter's Warrant Agreement and
to consummate the transactions contemplated hereby and thereby. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties (a "Material Adverse Effect") of the
Company. The Company has no subsidiaries other than Gran Prix Marketing, Inc.
(the "Material Subsidiary") and Rhino Marketing, Inc. (collectively, the
"Subsidiaries"), and the Company has no equity interests in any entity other
than the Subsidiaries.
Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of California,
with full power and authority, corporate or other, to own or lease and operate,
as the case may be, its respective properties, whether tangible or intangible,
and to conduct its respective business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure to so qualify could have a Material
Adverse Effect on the Company and the Subsidiaries, taken as a whole.
The Company owns all of the issued and outstanding
shares of capital stock of the Material Subsidiary, free and clear of any
security interests, liens, encumbrances, claims and charges, except for such
security interests, liens, encumbrances, claims and charges which secure
indebtedness which is described in the Registration Statement and which the
Company covenants to repay within three days following the Closing Date, and all
of such shares have been duly authorized and validly issued and are fully paid
and nonassessable. There are no options or warrants for the
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purchase of, or other rights to purchase, or outstanding securities convertible
into or exchangeable for, any capital stock or other securities of any
Subsidiary.
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and each of the Underwriter's Warrant Agreement and the Consulting
Agreement described in Section 5(r) hereof (the "Consulting Agreement"), when
executed and delivered by the Company on the Closing Date, will be the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms. The execution, delivery and performance
of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement by the Company, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
of this Agreement, the Consulting Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Certificate of Incorporation or
By-Laws, each as amended, of the Company; (ii) result in a breach of or conflict
with any of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or any Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties or
businesses; or (iv) have any effect on any permit, certification, registration,
approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or the Material
Subsidiary to own or lease and operate their respective properties and to
conduct their respective businesses or the ability of the Company to make use
thereof.
(c) No Permits of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriter, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement, the Consulting Agreement or the
Underwriter's Warrant Agreement.
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(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-53729) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares,
the Underwriter's Warrants and the Warrant Shares under the Act, including the
related preliminary prospectus or preliminary prospectuses (each thereof being
herein called a "Preliminary Prospectus") and a proposed final prospectus. Each
Preliminary Prospectus was endorsed with the legend required by Item 501(a)(5)
of Regulation S-B of the Regulations and, if applicable, Rule 430A of the
Regulations. Such registration statement including any documents incorporated by
reference therein and all financial schedules and exhibits thereto, as amended
at the time it becomes effective, and the final prospectus included therein are
herein, respectively, called the "Registration Statement" and the "Prospectus,"
except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b)
of the Regulations differs from the Prospectus, the term "Prospectus" will also
include the prospectus filed pursuant to Rule 424(b), and (ii) if the
Registration Statement is amended or such Prospectus is supplemented after the
date the Registration Statement is declared effective by the Commission (the
"Effective Date") and prior to the Option Closing Date, the terms "Registration
Statement" and "Prospectus" shall include the Registration Statement as amended
or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, will contain all statements which are
required to be stated therein in accordance with the Act and the Regulations and
will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under
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which they were made, not misleading, except that this representation and
warranty does not apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company in connection
with the Registration Statement or Prospectus or any amendment or supplement
thereto by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in
the Prospectus a duly authorized and outstanding capitalization as set forth in
the Prospectus. Based on the assumptions stated in the Registration Statement
and the Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement or the Prospectus, on the Effective Date and on the Closing Date,
there will be no options to purchase, warrants or other rights to subscribe for,
or any securities or obligations convertible into, or any contracts or
commitments to issue or sell shares of the Company's capital stock or any such
warrants, convertible securities or obligations. Except as set forth in the
Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate in all material
respects and present fairly the information required to be disclosed, and there
are no contracts or other documents required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement under the Act or the Regulations which have not been so described or
filed as required.
(i) Xxxxx Xxxxxxxx LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. The selected financial data set forth
in the Registration Statement and the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of the
audited and unaudited financial
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statements included in the Registration Statement and the Prospectus.
(j) The Company and each Subsidiary has filed with
the appropriate federal, state and local governmental agencies, and all
appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or has
duly obtained extensions of time for the filing thereof and has paid all taxes
shown on such returns and all assessments received by it to the extent that the
same have become due, except where the failure to do so would not have a
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole;
and the provisions for income taxes payable, if any, shown on the consolidated
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic taxes, whether or not
disputed, and for all periods to and including the dates of such consolidated
financial statements. Except as disclosed in writing to the Underwriter, neither
the Company nor any Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of material
taxes have been asserted against the Company or any Subsidiary which are
currently outstanding.
(k) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
None of the outstanding Common Shares or options or warrants to purchase Common
Shares has been issued in violation of the preemptive rights of any shareholder
of the Company, except for such violations which have been waived or with
respect to which there would not be a Material Adverse Effect on the Company and
the Subsidiaries, taken as a whole. The offers and sales of the outstanding
Common Shares and outstanding options and warrants to purchase Common Shares
were at all relevant times either registered under the Act and the applicable
state securities or Blue Sky laws or exempt from such registration requirements,
except where the failure to have been so registered or except would not have a
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.
The authorized Common Shares and Preferred Shares and outstanding options and
warrants to purchase Common Shares conform to the descriptions thereof contained
in the Registration Statement and Prospectus.
(l) No securities of the Company have been sold by
the Company within the three years prior to the date hereof, except as disclosed
in the Registration Statement.
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(m) The issuance and sale of the Shares have been
duly authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
will not be subject to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrant Agreement, such Common Shares will
be validly issued, fully paid and nonassessable. Holders of Common Shares
issuable upon the exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof will
be subject to preemptive rights of any shareholder of the Company. The Common
Shares issuable upon exercise of the Underwriter's Warrants have been duly
reserved for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(o) Neither the Company nor the Material Subsidiary
is in violation of, or in default under, (i) any term or provision of its
Certificate of Incorporation or By-Laws, each as amended; (ii) any material term
or provision or any financial covenants of any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by which
it or any of its property or business is or may be bound or affected, except for
indebtedness under certain notes as set forth in the Prospectus which the
Company covenants to repay within three business days from the Closing Date; or
(iii) any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or the Material Subsidiary or any of the Company's or the
Material Subsidiary's properties or business, except where such breaches or
defaults, individually or in the aggregate, would not have a Material Adverse
Effect on the Company and the Subsidiaries, taken as a whole. The Company and
each Subsidiary owns, possesses or has obtained all governmental and other
(including those obtainable from third parties) Permits, necessary to own or
lease, as the case may be, and to operate its properties, whether tangible or
intangible, and to conduct its business and operations as presently conducted
and all such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of
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the Company's knowledge, threatened, or any basis therefor, seeking to cancel,
terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or any Subsidiary or
involving the Company's or any Subsidiary's properties or business which, if
determined adversely to the Company or any Subsidiary, would, individually or in
the aggregate, would not have a Material Adverse Effect on the Company and the
Subsidiaries, taken as a whole, or which question the validity of the capital
stock of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to, or in connection with, this Agreement; nor, to the best
of the Company's knowledge, is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or the Material Subsidiary and enjoining the Company or the
Material Subsidiary from taking, or requiring the Company or the Material
Subsidiary to take, any action, or to which the Company or the Material
Subsidiary, or the Company's or the Material Subsidiary's properties or
businesses is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) Each of the Company and the Material Subsidiary
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights, rights, trade secrets,
confidential information, processes and formulations used or proposed to be used
in the conduct of their businesses as described in the Prospectus (collectively
the "Intangibles"); to the best of the Company's knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing upon the rights of others
with respect to the Intangibles, except for any infringements which,
individually or in the aggregate, could not have a Material Adverse Effect on
the Company and the Subsidiaries, taken as a whole; and neither the Company nor
any Subsidiary has received any notice of conflict with the asserted rights of
others with respect to the Intangibles which could, singly or in the aggregate,
have a Material Adversely Affect on the Company and its Subsidiaries, taken as a
whole, and the Company knows of no basis therefor; and, to the best of the
Company's knowledge, no others have infringed upon the Intangibles of the
Company or the Material Subsidiary.
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(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, except as disclosed in or
contemplated by the Prospectus or Registration Statement, neither the Company
nor any Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, and has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
except as disclosed in or contemplated by the Prospectus or Registration
Statement, there have not been, and prior to the Closing Date referred to below
there will not be, any changes in the capital stock or any material increases in
the long-term debt of the Company or any material adverse change in or affecting
the general affairs, management, financial condition, shareholders' equity,
results of operations or prospects of the Company or any Subsidiary, otherwise
than as set forth or contemplated in the Prospectus or Registration Statement.
(t) The Company does not own any real property.
The Company and the Material Subsidiary has good title to all personal property
(tangible and intangible) owned by it, free and clear of all security interests,
charges, mortgages, liens and encumbrances, except such as are described in the
Registration Statement and Prospectus, which secure indebtedness which is
described in the Registration Statement and Prospectus and which the Company
covenants to repay within three days following the Closing Date or such as do
not materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or the Material Subsidiary. The material leases, licenses or other
contracts or instruments under which the Company and the Material Subsidiary
leases, holds or is entitled to use any property, real or personal, are valid,
subsisting and enforceable only with such exceptions as are not material and do
not interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor the Material Subsidiary, nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default thereunder,
except for such defaults which, individually or in the aggregate, would not have
a Material Adverse Effect on the Company and the Material Subsidiary, taken as a
whole. Neither the Company
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nor the Material Subsidiary has received notice of any violation of any
applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties. Each of the Company and the Material Subsidiary has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar businesses located in its
geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company or the Material Subsidiary is a
party or by which their properties or businesses are or may be bound or affected
and to which specific reference is made in the Prospectus has been duly and
validly executed, is in full force and effect in all material respects and is
enforceable against the parties thereto in accordance with its terms, and none
of such contracts or instruments has been assigned by the Company or the
Material Subsidiary, and neither the Company nor the Material Subsidiary, nor,
to the best of the Company's knowledge, any other party, is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the lapse of time or the giving of notice, or both, would constitute
a default thereunder, except for such defaults which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and the
Material Subsidiary, taken as a whole.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses,
including, without limitation, those promulgated by the Federal Trade
Commission, including, without limitation, the Federal Telephone Consumer
Protection Act of 1991 and the Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994 and the rules and regulations promulgated
thereunder, except for such violations which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company and the Subsidiaries,
taken as a whole.
(v) The employment and consulting agreements between
the Company and its officers, employees and consultants, described in the
Registration Statement, are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except
with respect to the non-competition provisions of such agreements and as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws or arrangements affecting creditors' rights generally and
subject to principles of equity.
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(w) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(x) To the best of the Company's knowledge, no labor
problem exists with any of the Company's or any Subsidiary's employees or is
imminent which could have a Material Adverse Affect on the Company and the
Subsidiaries, taken as a whole.
(y) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(z) The Shares have been approved for listing on the
Nasdaq SmallCap Market.
(aa) The Company has provided to Xxxxxx Xxxxxxxxxx
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated January 28, 1998.
Any certificate signed by an officer of the Company
or of any Subsidiary and delivered to the Underwriter or to Underwriter's
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company
covenants with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares by
the Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
-13-
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately upon becoming aware of, and, if requested by the Underwriter,
confirm such advice in writing, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement or any supplemented
Prospectus is filed with the Commission; (ii) of the receipt of any comments
from the Commission; (iii) of any request of the Commission for amendment or
supplementation of the Registration Statement or Prospectus or for additional
information; and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the initiation of any proceedings for any of such purposes.
The Company will use its best efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and to obtain as soon as
possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
(d) Until the expiration of the Underwriter's option
to purchase the Optional Shares, the Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and in any Optional Shares which
may be issued and sold. If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a result of which
the Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to
-14-
amend or supplement the Registration Statement and Prospectus to comply with the
Act or the regulations thereunder, the Company will promptly file with the
Commission, subject to Section 5(a) hereof, an amendment or supplement which
will correct such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information
as may be required and otherwise cooperate in qualifying the Shares for offering
and sale under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) If the Closing occurs, the Company will make
generally available to its security holders, in the manner specified in Rule
158(b) under the Act, and deliver to the Underwriter and Underwriter's Counsel
as soon as practicable and in any event not later than 45 days after the end of
its fiscal quarter in which the first anniversary date of the effective date of
the Registration Statement occurs, an earning statement meeting the requirements
of Rule 158(a) under the Act covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement.
(g) If the Closing occurs, the Company will deliver
to the Underwriter and to Underwriter's counsel on a timely basis, (i) for a
period of five (5) years from the Effective Date, (A) a copy of each report or
document, including, without limitation, reports on Forms 8-K, 10-C, 10-K (or
10-K SB), 10-Q (or 10-Q SB) and 10-C and exhibits thereto, filed or furnished to
the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD") on the date each such report or document
is so filed or furnished; (B) as soon as practicable, copies of any reports or
communications (financial or other) of the Company mailed to its security
holders; and (C) as soon as practicable, a copy of any Schedule 13D, 13G, 14D-1
or 13E-3 received or prepared by the Company from time to time; and (ii) for a
period of three (3) years from the Effective Date, (x) monthly statements
setting forth such information regarding the Company's results of operations and
financial position (including balance sheet, profit and loss statements and data
regarding outstanding purchase orders) as is regularly prepared by management of
the Company; and (y) such additional information concerning the business and
financial condition of the Company as the Underwriter may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. If the Closing occurs, for a period of three (3)
years from the
-15-
Effective Date, the Company will furnish to its shareholders annual reports
containing audited financial statements and such other periodic reports as it
may determine to be appropriate or as may be required by law.
(h) Until the expiration of the Underwriter's option
to purchase the Optional Shares, the Company will not and will use its best
efforts to cause any person that controls, is controlled by or is under common
control with the Company not to take any action designed to or which might be
reasonably expected to cause or result in the stabilization or manipulation of
the price of the Common Shares.
(i) If the Closing occurs, the Underwriter shall
retain the $50,000 previously paid to it, and the Company will pay or cause to
be paid the following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
the fees and expenses of accountants and counsel for the Company; the
preparation, printing, mailing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses and the
Prospectus, and any amendments or supplements thereto; the printing and mailing
of the Selected Dealer Agreement, the issuance and delivery of the Shares to the
Underwriter; all taxes, if any, on the issuance of the Shares; the fees,
expenses and other costs of qualifying the Shares for sale under the Blue Sky or
securities laws of those states in which the Shares are to be offered or sold,
including fees and disbursements of counsel in connection therewith, and
including those of such local counsel as may have been retained for such
purpose; the filing fees incident to securing any required review by the NASD
and either the Boston Stock Exchange or Pacific Stock Exchange; the cost of
printing and mailing the "Blue Sky Survey", the cost of furnishing to the
Underwriter copies of the Registration Statement, Preliminary Prospectuses and
the Prospectus as herein provided; the costs of placing "tombstone
advertisements" in any publications which may be selected by the Underwriter;
and all other costs and expenses incident to the performance of the Company's
obligations hereunder which are not otherwise specifically provided for in this
Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares or any Optional Shares three percent (3%) of the gross
proceeds from the sale of such Offered Shares and/or Optional Shares at the
initial public offering price set forth in the Prospectus (less the sum of
$50,000 previously paid to the Underwriter), as payment for the Underwriter's
nonaccountable expense allowance relating to the transactions contemplated
hereby, which amount will include the fees and
-16-
expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement are not consummated because the Company decides not to proceed with
the offering for any reason or because the Underwriter decides not to proceed
with the offering as a result of a material breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
material adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to the sum of $75,000, inclusive of $50,000 previously paid to the
Underwriter by the Company. In all cases other than those set forth in the
preceding sentence, if the Company or the Underwriter decide not to proceed with
the offering, the Company will only be obligated to reimburse the Underwriter
for its accountable out-of-pocket expenses up to $50,000, and inclusive of
$50,000 previously paid to the Underwriter by the Company. In no event, however,
will the Underwriter, in the event the offering is terminated, be entitled to
retain or receive more than an amount equal to its actual accountable
out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Prospectus.
(l) If the Closing occurs, during the period of
twelve (12) months from the Effective Date, the Company will not offer for sale
or sell or otherwise dispose of, directly or indirectly, any securities of the
Company, without the prior written consent of the Underwriter, except for the
issuance of Common Shares upon the exercise of outstanding options and warrants
and as contemplated by the Prospectus and Registration Statement.
(m) If the Closing occurs, the Company will not file
any registration statement relating to the offer or sale of any of the Company's
securities, including any registration statement on Form S-8, during the twelve
(12) months from the Effective Date, without the Underwriter's prior written
consent.
(n) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary in order to permit
-17-
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) If the Closing occurs, for a period of five (5)
years from the Effective Date, the Company will, unless and until the holders of
a majority of the Common Shares following the consummation of the Company's
initial public offering of securities vote otherwise (directly or indirectly in
connection with a reorganization): (i) use its best efforts to maintain the
listing of the Shares on NASDAQ or a national securities exchange and (ii) if so
qualified, list the Shares, and maintain such listing for so long as qualified,
on the NASDAQ National Market System.
(p) The Company will, concurrently with the
Effective Date, register the Common Shares under Section 12(g) or Section 12(b)
of the Exchange Act and, if the Closing occurs the Company will maintain such
registration (under at least one of such sections) for a minimum of five (5)
years from the Effective Date, unless and until the holders of a majority of the
Common Shares following the consummation of the Company's initial public
offering of securities vote (directly or indirectly in connection with a
reorganization) otherwise.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors by operation by law will have the right to
designate a nominee for election, at its or their option, either as a member of
or a non-voting advisor to the Board of Directors of the Company (which Board,
during such period, shall be comprised of five (5), seven (7) or nine (9)
persons, a majority of the members of which Board must, during such period, be
persons not otherwise affiliated with the Company, its management or its
founders), and the Company will use its best efforts to cause such nominee (or a
successor nominee) to be elected and continued in office as a director of the
Company or as such advisor until the expiration of three (3) years from the
Effective Date. Following the election of such nominee as a director or advisor,
such person shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging and transportation (in accordance with the Company's standard
policies for travel). The Company agrees to enter into an indemnification
agreement in the form filed as an exhibit to the Registration Statement.
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The Company agrees to give the Underwriter
notice of each such meeting and to provide the Underwriter with an agenda and
minutes of the meeting no later than it gives such notice and provides such
items to the directors.
(r) If the Closing occurs, the Company agrees to
enter into a consulting agreement on the Closing Date, in form and substance
reasonably acceptable to the Company and the Underwriter, pursuant to which the
Company will (i) engage the Underwriter or a designee of the Underwriter as a
financial consultant on a non-exclusive basis for a period of two (2) years from
the Closing Date, at an annual rate of Fifteen Thousand Dollars ($15,000)
(inclusive of any accountable out-of-pocket expenses) payable in full, in
advance on the Closing Date; and (ii) agree to pay the Underwriter a finder's
fee in the event that the Underwriter originates a financing, merger,
acquisition, joint venture or other transaction to which the Company is a party.
(s) If the Closing occurs, the Company shall retain
a transfer agent for the Common Shares, reasonably acceptable to the
Underwriter, for a period of three (3) years from the Effective Date. In
addition, for a period of three (3) years from the Effective Date, the Company,
at its own expense, shall cause such transfer agent to provide the Underwriter,
if so requested in writing, with copies of the Company's daily transfer sheets,
and, when requested by the Underwriter, a current list of the Company's
securityholders, including a list of the beneficial owners of securities held by
a depository trust company and other nominees.
(t) If the Closing occurs, the Company hereby
agrees, at its sole cost and expense, to supply and deliver to the Underwriter
and Underwriter's Counsel, within a reasonable period from the date hereof, four
bound volumes, including the Registration Statement, as amended or supplemented,
all exhibits to the Registration Statement, the Prospectus and all other
underwriting documents.
(u) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing until
the earlier of three (3) years from the Effective Date or the date on which the
Common Shares are listed on a national securities exchange or the NASDAQ
National Market System.
(v) For a period of three (3) years from the
Effective Date, the Company shall provide the Underwriter, on a not less than
annual basis, with internal forecasts setting forth
-19-
projected results of operations for each quarterly and annual period in the two
(2) fiscal years following the respective dates of such forecasts. Such
forecasts shall be provided to the Underwriter more frequently than annually if
prepared more frequently by management, and are submitted to the Company's Board
of Directors for formal review.
(w) If the Closing occurs, for a period of three (3)
years from the Effective Date, or until such earlier time as the Common Shares
are listed on the New York Stock Exchange or the American Stock Exchange, the
Company shall cause its legal counsel to provide the Underwriter with a list, to
be updated at least annually, of those states in which the Common Shares may be
traded in non-issuer transactions under the Blue Sky laws of the 50 states.
(x) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company shall continue to retain Xxxxx
Xxxxxxxx LLP (or such other nationally recognized accounting firm reasonably
acceptable to the Underwriter) as the Company's independent public accountants.
(y) If the Closing occurs, for a period of three (3)
years from the Effective Date, the Company, at its expense, shall cause its then
independent certified public accountants, as described in Section 5(x) above, to
review (but not audit) the Company's financial statements for each of the first
three fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's 10-Q (or 10-QSB) quarterly report (or
other equivalent report) and the mailing of quarterly financial information to
shareholders.
(z) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(aa) If the Closing occurs, the Company will not
increase or authorize an increase in the compensation of its employees whose
employment agreements are described in the Prospectus greater than those
increases provided for in their employment agreements with the Company in effect
as of the Effective Date and disclosed in the Registration Statement without the
prior written consent of the Underwriter, for a period of three (3) years from
the Effective Date.
(ab) If the Closing occurs, for a period of three
(3) years from the Effective Date, the Company will promptly submit
-20-
to the Underwriter copies of management reports and similar correspondence
between the Company's independent auditors and the Company.
(ac) If the Closing occurs, except as described in
the Registration Statement, for a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities pursuant to
Regulation S promulgated under the Act without the prior written consent of the
Underwriter.
(ad) If the Closing occurs, for a period of three
(3) years from the Effective Date, the Company will provide to the Underwriter
ten days' written notice prior to any issuance by the Company of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) Common Shares issuable upon exercise of currently
outstanding options and warrants or conversion of currently outstanding
convertible securities, (ii) options available for future grant pursuant to any
stock option plan in effect on the Effective Date and the issuance of Common
Shares upon the exercise of such options and (iii) securities issuable upon
exercise or conversion of securities for which notice pursuant to this Paragraph
5(ad) was previously given to the Underwriter.
(ae) Prior to the Effective Date and if the Closing
occurs for a period of three (3) years thereafter, the Company will retain a
financial public relations firm reasonably acceptable to the Underwriter.
(af) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per year.
(ag) Prior to the Effective Date, the Company shall
have obtained directors' and officers' insurance naming the Underwriter as an
additional insured party, in an amount not less than twenty-five percent (25%)
of the gross proceeds of the offering, and, if the Closing occurs the Company
will use its best efforts to maintain such insurance for a period of at least
three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to
Purchase Shares from the Company. The obligation of the Underwriter to purchase
and pay for the Offered Shares which it has agreed to purchase from the Company
is subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the performance in all material respects by
-21-
the Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement will have become
effective not later than .M., New York City time, on the day following
the date of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Underwriter's or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriter's Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, counsel for the Company
("Company Counsel"), dated as of the date hereof or the Closing Date, as the
case may be (and any other opinions of counsel referred to in such opinion of
Company Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority necessary to own or lease, as the case
may be, and operate its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions in which the Company has advised Company Counsel that it
owns or leases properties or maintains permanent employees. To Company Counsel's
knowledge, other than the Subsidiaries, the Company has no subsidiaries and no
equity interests in any other entity.
(ii) Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California, with full corporate power and authority to own or lease and operate,
as the case may be, its respective properties, whether tangible or intangible,
and to conduct its respective business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the Company
has advised Company Counsel that such Subsidiary owns or leases properties or
maintains permanent employees.
-22-
(iii) To Company Counsel's knowledge, the
Company owns all of the issued and outstanding shares of capital stock of the
Material Subsidiary, free and clear of any security interests, liens,
encumbrances, claims and charges, other than security interests, liens,
encumbrances, claims and charges subject to indebtedness described in the
Prospectus as being due and payable within three days following the consummation
of the offering, and all of such shares have been duly authorized and validly
issued and are fully paid and nonassessable.
(iv) The Company has full corporate power and
authority to execute, deliver and perform this Agreement, the Consulting
Agreement and the Underwriter's Warrant Agreement and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action,
and this Agreement [Note: for Closing Date opinion add:] [and each of the
Consulting Agreement and the Underwriter's Warrant Agreement] has been duly
executed and delivered by the Company. This Agreement is and, when executed and
delivered by the Company on the Closing Date, each of the Consulting Agreement
and the Underwriter's Warrant Agreement will be, valid and binding obligations
of the Company, enforceable in accordance with their respective terms, subject
to the Enforceability Exceptions (defined below).
(v) The execution, delivery and performance of
this Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement
by the Company, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms of this
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement do
not, and will not, with or without the giving of notice or the lapse of time, or
both, (A) result in a violation of the Certificate of Incorporation or By-Laws,
each as amended, of the Company or any Subsidiary, (B) result in a breach of or
conflict with any terms or provisions of, or constitute a default under, or
result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any Material
Contract (defined below); (C) violate any existing applicable California or
federal law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any Subsidiary or any of the Company's or any Subsidiary's properties or
business; or (D) have any material adverse effect on any
-23-
Permit of which Company Counsel is aware (based on an officer's certificate)
necessary for the Company or any Subsidiary to own or lease and operate its
their respective properties or conduct their businesses or the ability of the
Company to make use thereof.
(vi) To Company Counsel's knowledge, no Permits
of any California or federal court or governmental agency or body (other than
under the Act, the Regulations and applicable state securities or Blue Sky laws)
are required for the valid authorization, issuance, sale and delivery of the
Shares or the Underwriter's Warrants to the Underwriter, and the consummation by
the Company of the transactions contemplated by this Agreement, the Consulting
Agreement or the Underwriter's Warrant Agreement.
(vii) The Registration Statement has become
effective under the Act; to Company Counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act or applicable state securities laws.
(viii) The Registration Statement and the
Prospectus (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel expresses no
opinion) comply as to form in all material respects with the requirements of the
Act and Regulations and the conditions for use of a registration statement on
Form SB-2 have been satisfied by the Company.
(ix) The descriptions in the Registration
Statement and the Prospectus of statutes, regulations, government
classifications, specifically named contracts and other documents (including
opinions of Company Counsel); and the response to Item 13 of Form SB-2 have been
reviewed by Company Counsel, and, based upon such review, are accurate in all
material respects and present fairly the information required to be disclosed,
and there are no material California or federal statutes, regulations or
government classifications, or, to Company Counsel's knowledge, material
contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
(x) The outstanding Common Shares and
outstanding options and warrants to purchase Common Shares have been duly
authorized and validly issued. The outstanding Common Shares are fully paid and
nonassessable. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of: (A) except as discussed
below, the preemptive rights of any stockholder of the Company pursuant to
-24-
California law, the Company's Certificate of Incorporation or By-Laws or the
Material Contracts or (B) to our knowledge, any other contractual preemptive
rights. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The authorized
Common Shares and outstanding options and warrants to purchase Common Shares
conform in all material respects to the descriptions thereof contained in the
Registration Statement and Prospectus. To Company Counsel's knowledge, except as
set forth in the Prospectus, no holders of any of the Company's securities has
any rights, "demand", "piggyback" or otherwise, to have such securities
registered under the Act.
(xi) The issuance and sale of the Shares have
been duly authorized and, when the Shares have been issued and duly delivered
against payment therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. The
Shares are not subject to: (A) preemptive rights of any shareholder of the
Company pursuant to California law, the Company's Certificate of Incorporation
or by-laws or the Material Contracts or (B) to Company Counsel's knowledge,
other contractual preemptive rights. The certificates representing the Shares
are in proper legal form.
(xii) The issuance and sale of the Common Shares
issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrant Agreement, such Common Shares will
be validly issued, fully paid and nonassessable. Holders of Common Shares
issuable upon exercise of the Underwriter's Warrants will not be subject to
personal liability solely by reason of being such holders. Neither the
Underwriter's Warrants nor the Common Shares issuable upon exercise thereof are
subject to: (A) any existing preemptive rights of any shareholder of the Company
pursuant to California law, the Company's Certificate of Incorporation or
by-laws or the Material Contracts, or (B) to Company Counsel's knowledge, any
other contractual preemptive rights. The Warrant Shares issuable upon exercise
of the Underwriter's Warrants have been duly reserved for issuance upon exercise
of the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform in all
material respects to the descriptions thereof in the Registration Statement and
Prospectus.
(xiii) Upon delivery of the Offered Shares to
the Underwriter against payment therefor as provided in this Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
California Uniform Commercial Code) will
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be the owners of such Offered Shares, free and clear of any adverse claims.
(xiv) [On the Option Closing Date], assuming
that the Underwriter exercises the over-allotment option to purchase any of the
Optional Shares and makes payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares to the Underwriter hereunder,
the Underwriter (assuming it is a bona fide purchaser within the meaning of the
California Uniform Commercial Code) will be the owners of such Optional Shares,
free and clear of any adverse claims.
(xv) To Company Counsel's knowledge, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any Subsidiary, or involving the Company's or any
Subsidiary's properties or businesses, which is required to be disclosed
pursuant to Item 103 of Regulation S-B other than as described in the
Prospectus.
(xvi) To Company Counsel's knowledge, except as
set forth in the Prospectus and this opinion, neither the Company nor any
Subsidiary has received any notice that it has or may have infringed, is
infringing upon or is conflicting with the asserted rights of others with
respect to any patents, patent applications, trademarks, service marks,
copyrights, rights, trade secrets, confidential information, processes and
formulations (collectively the "Intangibles") which might, singly or in the
aggregate, materially adversely affect its business, results of operations or
financial condition and Company Counsel is not aware of any licenses with
respect to the Intangibles which are required to be obtained by the Company.
Company Counsel hereby advises the Underwriter
that Company Counsel has participated in the preparation of the Registration
Statement and the Prospectus, including participation in conferences with
officers and representatives of the Company and with its independent public
accountants, and with the Underwriter's Counsel, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and while Company Counsel has not independently verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus except as necessary to render the opinions provided
above and Company Counsel has not made any investigation or analysis with
respect to the financial statements or other financial information included in
the Registration Statement or the Prospectus, no facts have come to Company
Counsel's attention which would give Company Counsel reason
-26-
to believe that the Registration Statement, at the time the Registration
Statement became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus, at the time
the Registration Statement became effective and at the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
As set forth in the foregoing opinion, the term
"Material Contract" refers to all indentures, mortgages, deeds of trust, loan
agreements, bonds, debentures, note agreements, leases, contracts and other
agreements, instruments and evidences of indebtedness which were filed as
exhibits to the Registration Statement, which have been certified to Company
Counsel by the Company as being all of the indentures, mortgages, deeds of
trust, loan agreements, bonds, debentures, note agreements, leases, contracts
and other agreements, instruments and evidences of indebtedness material to the
Company to which the Company or any Subsidiary is a party or by which any of
their properties or assets are bound.
The opinion set forth in Section 6(b)(iv) above
is subject to the following qualifications (the "Enforceability Exceptions"):
(A) enforceability may be subject to or limited
by bankruptcy, insolvency, reorganization, or moratorium or other similar laws
relating to or affecting creditors' rights generally or the appointment of a
receiver or a conservator pursuant to state or federal law;
(B) the availability of equitable remedies,
specific performance and injunctive relief is subject to the discretion of the
court before which any proceeding therefore is brought;
(C) the validity or binding effect of certain
covenants may be limited to the extent that the court before which any
proceedings therefor are brought includes that such enforcement would be
unreasonable, unconscionable or unnecessary for the protection of the other
parties to such agreement under the circumstances existing at such time;
(D) enforcement of certain rights may be
unavailable if any of the parties seek to enforce their rights other than in
good faith or other than in a commercially reasonable manner; and
-27-
(E) rights to indemnity may be limited by
applicable law or the public policy underlying such law.
In rendering its opinion pursuant to this
Section 6(b), Company Counsel may rely upon the certificates of government
officials and officers of the Company as to matters of fact, provided that
Company Counsel shall state that they have no reason to believe, and do not
believe, that they are not justified in relying upon such opinions or such
certificates of government officials and officers of the Company as to matters
of fact, as the case may be.
(c) At the Closing Date, there will have been
delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as
of the Closing Date, to the effect that the opinions delivered pursuant to
Section 6(b) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
specifying the same, and with respect to such related matters as the Underwriter
may reasonably require.
(d) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements thereto will
contain all material statements which are required to be stated therein in
accordance with the Act and the Regulations and will conform in all material
respects to the requirements of the Act and the Regulations, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have been any
material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicate might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company
-28-
before or by any federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding would not have a
Material Adverse Effect on the Company, other than as set forth in the
Registration Statement and the Prospectus. At the Closing Date, there will be
delivered to the Underwriter a certificate of the Company signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed
and at the Closing Date, the Underwriter will have received a signed letter from
Xxxxx Xxxxxxxx LLP, dated the date such letter is to be received by the
Underwriter and addressed to it, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by them, in their opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to their attention which, in their judgment,
would indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the
-29-
date of such letter, there have been any decreases in net current assets or net
assets as compared with amounts shown in such financial statements or decreases
in net sales or decreases [increases] in total or per share net income [loss]
compared with the corresponding period in the preceding year or any change in
the capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares to be sold on the
Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriter.
(h) No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date or the Option Closing Date, as the case may be, for
any member firm of the NASD to execute transactions (as principal or as agent)
in the Shares, and no proceedings for the purpose of taking such action shall
have been instituted or shall be pending, or, to the best of the Underwriter's
or the Company's knowledge, shall be contemplated by the Commission or the NASD.
The Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
-30-
(i) The Company meets the current and any
existing and proposed criteria for inclusion of the Shares in Nasdaq.
(j) All proceedings taken at or prior to the
Closing Date or the Option Closing Date, as the case may be, in connection with
the authorization, issuance and sale of the Shares shall be reasonably
satisfactory in form and substance to the Underwriter and to Underwriter's
Counsel, and such counsel shall have been furnished with all such documents,
certificates and opinions as they may request for the purpose of enabling them
to pass upon the matters referred to in Section 6(c) hereof and in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company, the performance of any covenants of the Company,
or the compliance by the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings, in form satisfactory to
the Underwriter, of (i) its officers, directors and securityholders agreeing not
to offer for sale, sell or otherwise dispose of, directly or indirectly, any
securities of the Company in any manner whatsoever, whether pursuant to Rule 144
of the Regulations or otherwise during the twelve (12) month period from the
Effective Date (the "Lock-Up Period") in form and substance reasonably
satisfactory to the Underwriter and (ii) of the holders of registration rights
relating to securities of the Company not to exercise any such registration
rights, in either case, without the prior written consent of the Underwriter. In
addition, such undertakings shall provide that, for a period of twelve (12)
months following the Lock-Up Period, no officer, director or securityholder
beneficially owning 5% or more of the outstanding Common Shares of the Company
(calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act) (each, a
"Principal Shareholder") may, without the Underwriter's prior written consent,
sell any of its Common Shares during any three (3) month period in excess of the
amount that the Principal Shareholder would be allowed to sell if it were deemed
an "affiliate" of the Company and its shares were deemed "restricted," as those
terms are defined in Rule 144 promulgated under the Act, i.e., in general, no
more than the greater of (a) 1% of the then outstanding Common Shares, and (b)
the average weekly trading volume of the Common Shares during the four calendar
weeks preceding such sale.
If any of the conditions specified in this
Section 6 have not been fulfilled, this Agreement may be terminated by the
Underwriter on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent of
the Underwriter, and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the Act or
-31-
Section 20(a) of the Exchange Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions in respect
thereof), to which they or any of them may become subject under the Act or under
any other statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse the Underwriter and each such person, if any, for any
legal or other expenses reasonably incurred by them or any of them in connection
with investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof (hereinafter
"application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from the Underwriter or other indemnified person; (B) the
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Shares to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or
-32-
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in the Registration Statement, in any Preliminary Prospectus
or in the Prospectus (or the Registration Statement or Prospectus as from time
to time amended or supplemented) or (ii) in any application (including any
application for registration of the Shares under state securities or Blue Sky
laws), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, in light of the
circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, a conflict of interest exists making it advisable
for the indemnified party or parties to be represented by separate counsel, the
indemnified party or parties shall have the right to employ a single counsel to
represent the indemnified parties who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified parties
thereof against the indemnifying party, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. Any party
against whom indemnification may be sought under this Section 7 shall not be
liable to indemnify any person that might otherwise be indemnified pursuant
hereto for any settlement of any action effected without such indemnifying
party's consent, which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for
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indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed the Registration Statement and any controlling person of the Company) as
one entity and the Underwriter (including, for this purpose, any contribution by
or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter) as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discount per Share set forth on the cover page of the Prospectus
represents of the initial public offering price per Share set forth on the cover
page of the Prospectus and the Company is responsible for the remaining portion;
provided, however, that if applicable law does not permit such allocation, then,
if applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or by the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim
-34-
or action effected without its written consent. This Section 8 is intended to
supersede, to the extent permitted by law, any right to contribution under the
Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice
to the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Shares and the obligation to purchase the
Optional Shares after exercise of the option referred to in Section 3 hereof,
are subject to termination in the absolute discretion of the Underwriter, by
notice given to the Company prior to delivery of and payment for all the Offered
Shares or such Optional Shares, as the case may be, if, prior to such time, any
of the following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
after the date hereof trading in securities generally on the New York Stock
Exchange or the American Stock Exchange will have been suspended; (iv) after the
date hereof, limited or minimum prices will have been established on either such
Exchange; (v) after the date hereof, a banking moratorium will have been
declared either by federal or New York State authorities; (vi) after the date
hereof,
-35-
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, including the
Offered Shares or the Optional Shares, will be established by either of such
Exchanges, by the Commission, by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) after the date hereof, trading in any
securities of the Company shall have been suspended or halted by any national
securities exchange, the NASD or the Commission; (viii) there has been a
materially adverse change in the condition (financial or otherwise), prospects
or obligations of the Company; (ix) the Company will have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; (x) after the date hereof, any action has been taken by the government
of the United States or any department or agency thereof which, in the judgment
of the Underwriter, has had a material adverse effect upon the market or
potential market for securities in general; or (xi) after the date hereof, the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares or the Optional
Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations
hereunder is not satisfied or because of any refusal, inability or failure on
the part of the Company to comply with any of the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company shall be unable
to or does not perform all of its obligations under this Agreement, the Company
will not be liable to the Underwriter for damages on account of loss of
anticipated profits arising out of the transactions covered by this Agreement,
but the Company will remain liable to the extent provided in Sections 5(j), 7, 8
and 9 of this Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
-36-
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P.,
Attention: Xxxxxxx X. Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, with
a copy to Xxxxxx Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq., 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; if to the Company, addressed to it
at Xxxx Xxxxxx Golf, Inc., Attention: Xxxxxx X. Xxxxx, President and Chief
Executive Officer, 0000 Xxxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, with a
copy to Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, Attention: Xxxx X. Xxxxx, Esq.,
00000 Xxxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from the
Underwriter, as such purchaser.
14. Entire Agreement. This Agreement contains the entire
agreement and understanding of the parties with respect to the entire subject
matter hereof, and there are no representations, inducements, promises or
agreements, oral or otherwise, not embodies herein. Any and all prior
discussions, negotiations, commitments and understanding relating thereto,
including without
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limitation, that certain letter of intent between the Company and the
Underwriter dated January 20, 1998, are superseded hereby.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
XXXX XXXXXX GOLF, INC.
By:
-----------------------
Name:
Title:
Confirmed and accepted in New York, N.Y., as of the date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:
---------------------------------
Name:
Title:
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