Exhibit 1.1
UNDERWRITING AGREEMENT
BETWEEN
GURUNET CORPORATION,
MAXIM GROUP LLC
AND
EARLYBIRDCAPITAL, INC.
DATED: ________________, 2004
TABLE OF CONTENTS
PAGE
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Section 1. P urchase and Sale of Shares .....................................1
Section 1.1 Firm Shares ..............................................1
Section 1.1.1 Purchase of Firm Shares price ..............................1
Section 1.1.2 Delivery and Payment .......................................1
Section 1.2 Over-Allotment Option ....................................2
Section 1.2.1 Option Shares ..............................................2
Section 1.2.2 Exercise of Option .........................................2
Section 1.2.3 Payment and Delivery .......................................2
Section 1.3 Underwriters' Purchase Option ............................2
Section 1.3.1 Purchase Option ............................................2
Section 1.3.2 Payment and Delivery .......................................3
Section 2. Representations and Warranties of the Company ....................3
Section 2.1 Filing of Registration Statement .........................3
Section 2.1.1 Pursuant to the Act ........................................3
Section 2.1.2 Pursuant to the Exchange Act ...............................3
Section 2.2 No Stop Orders, Etc ......................................3
Section 2.3 Disclosures in Registration Statement ....................4
Section 2.3.1 Securities Act Representation ..............................4
Section 2.3.2 Disclosure of Contracts ....................................4
Section 2.3.3 Prior Securities Transactions ..............................5
Section 2.4 Changes After Dates in Registration Statement ............5
Section 2.4.1 No Material Adverse Change .................................5
Section 2.4.2 Recent Securities Transactions, Etc ........................5
Section 2.5 Independent Accountants ..................................5
Section 2.6 Financial Statements .....................................5
Section 2.7 Authorized Capital; Options; Etc .........................5
Section 2.8 Valid Issuance of Securities; Etc ........................6
Section 2.8.1 Outstanding Securities .....................................6
Section 2.8.2 Securities Sold Pursuant to this Agreement .................6
Section 2.9 Registration Rights of Third Parties .....................6
Section 2.10 Validity and Binding Effect of Agreements ................7
Section 2.11 No Conflicts, Etc ........................................7
Section 2.12 No Defaults; Violations ..................................7
Section 2.13 Corporate Power; Licenses; Consents ......................7
Section 2.13.1 Conduct of Business ........................................7
Section 2.13.2 Transactions Contemplated Herein ...........................8
Section 2.14 Title to Property; Insurance .............................8
Section 2.15 Litigation; Governmental Proceedings .....................8
Section 2.16 Good Standing ............................................8
Section 2.17 Taxes ....................................................9
Section 2.18 [Intentionally Omitted] ..................................9
Section 2.19 Transactions Affecting Disclosure to NASD ................9
Section 2.19.1 Finder's Fees ..............................................9
Section 2.19.2 Payments Within Twelve Months ..............................9
Section 2.19.3 Use of Proceeds ............................................9
Section 2.19.4 Insiders' NASD Affiliation .................................9
Section 2.20 Foreign Corrupt Practices Act ...........................10
TABLE OF CONTENTS (CONT.)
PAGE
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Section 2.21 Nasdaq and Boston Stock Exchange Eligibility ............10
Section 2.22 Intangibles .............................................10
Section 2.23 Relations With Employees ................................10
Section 2.23.1 Employee Matters ..........................................10
Section 2.23.2 Employee Benefit Plans ....................................11
Section 2.24 Officers' Certificate ...................................11
Section 2.25 [Intentionally Omitted] .................................11
Section 2.26 Lock-Up Agreements ......................................11
Section 2.26.1 Eighteen Month Lock-Up Agreements .........................11
Section 2.26.2 Twelve Month Lock-Up Agreements ...........................12
Section 2.27 Subsidiaries ............................................12
Section 2.28 Environmental Matters ...................................12
Section 2.29 Product Liability Insurance .............................12
Section 2.30 Related Party Transactions ..............................12
Section 2.31 Conversion and Repayment of Bridge Notes ................12
Section 2.32 Standard & Poor's .......................................12
Section 3. Covenants of the Company ........................................12
Section 3.1 Amendments to Registration Statement ....................12
Section 3.2 Federal Securities Laws .................................13
Section 3.2.1 Compliance .................................................13
Section 3.2.2 Filing of Final Prospectus .................................13
Section 3.2.3 Exchange Act Registration ..................................13
Section 3.3 Blue Sky Filings ........................................13
Section 3.4 Delivery to the Underwriters of Prospectuses ............13
Section 3.5 Events Requiring Notice to the Underwriters .............14
Section 3.6 Review of Financial Statements ..........................14
Section 3.7 Secondary Market Trading and Standard & Poor's ..........14
Section 3.8 Nasdaq and Boston Stock Exchange Maintenance ............14
Section 3.9 [Intentionally Omitted] .................................15
Section 3.10 Public Relations Firm ...................................15
Section 3.11 Reports to the Underwriters and Others ..................15
Section 3.11.1 Periodic Reports, Etc .....................................15
Section 3.11.2 Transfer Sheets and Weekly Position Listings ..............15
Section 3.11.3 Secondary Market Trading Memorandum .......................15
Section 3.12 Underwriters' Purchase Option ...........................15
Section 3.13 Disqualification of Form SB-2 or Form S-1
(or other appropriate form) ...........................15
Section 3.14 Payment of Expenses .....................................16
Section 3.14.1 General Expenses ..........................................16
Section 3.14.2 Non-Accountable Expenses ..................................16
Section 3.15 Application of Net Proceeds .............................17
Section 3.16 Delivery of Earnings Statements to Security Holders......17
Section 3.17 Key Person Life Insurance ...............................17
Section 3.18 Stabilization ...........................................17
Section 3.19 Internal Controls .......................................17
Section 3.20 Accountants and Lawyers .................................18
Section 3.21 Transfer Agent ..........................................18
Section 3.22 Sale of Shares ..........................................18
II
TABLE OF CONTENTS (CONT.)
PAGE
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Section 4. Conditions of the Underwriters' Obligations .....................18
Section 4.1 Regulatory Matters ......................................18
Section 4.1.1 Effectiveness of Registration Statement ...................18
Section 4.1.2 NASD Clearance ............................................18
Section 4.1.3 No Blue Sky Stop Orders ...................................18
Section 4.2 Company Counsel Matters .................................19
Section 4.2.1 Effective Date Opinion of Counsel .........................19
Section 4.2.2 Closing Date and Option Closing Date Opinion of Counsel....19
Section 4.2.3 Secondary Market Trading Memorandum .......................19
Section 4.2.4 Reliance ..................................................19
Section 4.3 Cold Comfort Letter .....................................19
Section 4.4 Officers' Certificates ..................................21
Section 4.4.1 Officers' Certificate .....................................21
Section 4.4.2 Secretary's Certificate ...................................21
Section 4.5 No Material Changes .....................................21
Section 4.6 Delivery of Agreements ..................................22
Section 4.7 Opinion of Counsel for the Underwriters .................22
Section 4.8 Unaudited Financials ....................................22
Section 5. Indemnification .................................................22
Section 5.1 Indemnification of the Underwriters .....................22
Section 5.1.1 General ...................................................22
Section 5.1.2 Procedure .................................................23
Section 5.2 Indemnification of the Company ..........................24
Section 5.3 Contribution ............................................24
Section 5.3.1 Contribution Rights .......................................24
Section 5.3.2 Contribution Procedure ....................................25
Section 6. Default by an Underwriter .......................................25
Section 7. Additional Covenants ............................................25
Section 7.1 Board Designee ..........................................25
Section 7.2 [Intentionally Omitted] .................................26
Section 7.3 [Intentionally Omitted] .................................26
Section 7.4 Press Releases ..........................................26
Section 7.5 Solicitation in Israel ..................................26
Section 8. Representations and Agreements to Survive Delivery ..............26
Section 9. Effective Date of This Agreement and Termination Thereof ........26
Section 9.1 Effective Date ..........................................26
Section 9.2 Termination .............................................26
Section 9.3 Notice ..................................................27
Section 9.4 Expenses ................................................27
Section 9.5 Indemnification .........................................27
Section 10. Miscellaneous ...................................................27
Section 10.1 Notices .................................................27
Section 10.2 Headings ................................................28
Section 10.3 Amendment ...............................................28
Section 10.4 Entire Agreement ........................................28
Section 10.5 Binding Effect ..........................................28
Section 10.6 Governing Law, Jurisdiction .............................28
Section 10.7 Execution in Counterparts ...............................29
Section 10.8 Waiver, Etc .............................................29
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INDEX OF DEFINITIONS
TERM SECTION
---- -------
Act........................................................................2.1.1
Closing Date...............................................................1.1.2
Code .....................................................................2.23.2
Commission.................................................................2.1.1
Common Stock...............................................................1.1.1
Company.............................................................Introductory
Paragraph
Effective Date.............................................................1.2.2
ERISA.....................................................................2.23.2
ERISA Plans...............................................................2.23.2
Exchange Act...............................................................2.1.2
Filing Date...............................................................2.19.2
Firm Shares................................................................1.1.1
Insiders....................................................................3.15
Intangibles.................................................................2.22
NASD......................................................................2.19.1
Option Closing Date........................................................1.2.2
Option Shares..............................................................1.2.1
Over-allotment Option......................................................1.2.1
Preliminary Prospectus.....................................................2.1.1
Prospectus.................................................................2.1.1
Public Shares..............................................................1.2.1
Registration Statement.....................................................2.1.1
Regulations................................................................2.1.1
Secondary Market Trading Memorandum.......................................3.11.3
Shares.....................................................................1.3.1
Subsidiary(ies).............................................................2.27
Transfer Agent..............................................................3.21
Unaudited Financials.........................................................4.8
Underwriters........................................................Introductory
Paragraph
Underwriters' Purchase Option..............................................1.3.1
Underwriters' Shares.......................................................1.3.1
iv
GURUNET CORPORATION
2,200,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
New York, New York
_________, 2004
Maxim Group LLC
000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
EarlyBirdCapital, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
The undersigned, GuruNet Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with Maxim Group LLC ("Maxim") and
EarlyBirdCapital, Inc. ("EBC" and, together with Maxim, the "Underwriters") as
follows:
Section 1. PURCHASE AND SALE OF SHARES.
Section 1.1 FIRM SHARES.
Section 1.1.1 PURCHASE OF FIRM SHARES price.
Section 1.1.2 DELIVERY AND PAYMENT. Delivery and
payment for the Firm Shares shall be made at 10:00 a.m., New York time, on or
before the third business day following the date that the Firm Shares commence
trading or at such earlier time as the Underwriters shall determine, or at such
other time as shall be agreed upon by the Underwriters and the Company, at the
offices of counsel to the Underwriters or at such other place as shall be agreed
upon by the Underwriters and the Company. The hour and date of delivery and
payment for the Firm Shares are called the "Closing Date." Payment for the Firm
Shares shall be made on the Closing Date at the Underwriters' election by wire
transfer or by certified or bank cashier's check(s) in New York Clearing House
funds, payable to the order of the Company upon delivery to the Underwriters of
certificates (in form and substance satisfactory to the Underwriters)
representing the Firm Shares for the respective accounts of the Underwriters.
The certificates representing the Firm Shares shall be registered in such name
or names and in such authorized denominations as the Underwriters may request in
writing at least two full business days prior to the Closing Date. The Company
will permit the Underwriters to examine and package the Firm Shares for delivery
at least one full business day prior to the Closing Date. The Company shall not
be obligated to sell or deliver the Firm Shares except upon tender of payment by
the Underwriters for all the Firm Shares.
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Section 1.2 OVER-ALLOTMENT OPTION.
Section 1.2.1 OPTION SHARES. For the purposes of
covering any over-allotments in connection with the distribution and sale of the
Firm Shares, the Underwriters are hereby granted an option to purchase up to an
additional 330,000 shares of Common Stock from the Company ("Over-allotment
Option"). Such additional 330,000 shares of Common Stock are hereinafter
referred to as the "Option Shares." The Firm Shares and the Option Shares are
hereinafter referred to collectively as the "Public Shares." The purchase price
to be paid for the Option Shares will be the same price per Option Shares as the
price per Firm Security set forth in Section 1.1.1 hereof.
Section 1.2.2 EXERCISE OF OPTION. The Over-allotment
Option granted pursuant to Section 1.2.1 hereof may be exercised by the
Underwriters as to all or any part of the Option Shares at any time, from time
to time, within forty-five (45) days after the effective date ("Effective Date")
of the Registration Statement (as hereinafter defined). The Underwriters will
not be under any obligation to purchase any Option Shares prior to the exercise
of the Over-allotment Option. The Over-allotment Option granted hereby may be
exercised by the giving of oral notice to the Company from the Underwriters,
which must be confirmed within one (1) business day by a letter or telecopy
setting forth the number of Option Shares to be purchased, the date and time for
delivery of and payment for the Option Shares and stating that the Option Shares
referred to therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Firm Shares. If such notice
is given at least two full business days prior to the Closing Date, the date set
forth therein for such delivery and payment will be the Closing Date. If such
notice is given thereafter, the date set forth therein for such delivery and
payment will not be earlier than three full business days after the date of the
notice, unless the Underwriters and the Company agree upon an earlier date. If
such delivery and payment for the Option Shares does not occur on the Closing
Date, the date and time of the closing for such Option Shares will be as set
forth in the notice (hereinafter the "Option Closing Date"). Upon exercise of
the Over-allotment Option, the Company will become obligated to convey to the
Underwriters, and, subject to the terms and conditions set forth herein, the
Underwriters will become obligated to purchase, the number of Option Shares
specified in such notice.
Section 1.2.3 PAYMENT AND DELIVERY. Payment for the
Option Shares will be at the Underwriters' election by wire transfer or by
certified or bank cashier's check(s) in New York Clearing House funds, payable
to the order of the Company at the offices of counsel to the Underwriters or at
such other place as shall be agreed upon by the Underwriters and the Company
upon delivery to the Underwriters of certificates representing such securities
for the Underwriters. The certificates representing the Option Shares to be
delivered will be in such denominations and registered in such names as the
Underwriters request not less than two full business days prior to the Closing
Date or the Option Closing Date, as the case may be. The Company will permit the
Underwriters to examine and package the Option Shares for delivery not less than
one full business day prior to such Closing Date.
Section 1.3 UNDERWRITERS' PURCHASE OPTION.
Section 1.3.1 PURCHASE OPTION. The Company hereby
agrees to issue and sell to the Underwriters (and/or their designees) on the
Closing Date for an
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aggregate purchase price of $100, an option ("Underwriters' Purchase Option")
for the purchase of an aggregate of 220,000 shares of Common Stock
("Underwriters' Shares") at an initial exercise price of 125% of the initial
offering price of a share of common stock (I.E, $6.25 per share of Common
Stock). The Underwriters' Shares are identical to the Firm Shares. The
Underwriters' Purchase Option shall be exercisable for a period of four years
commencing one year from the Effective Date. The Underwriters' Purchase Option
and the Underwriters' Shares are hereinafter referred to collectively as the
"Underwriters' Shares." The Public Shares and the Underwriters' Shares are
hereinafter referred to collectively as the "Shares."
Section 1.3.2 PAYMENT AND DELIVERY. Delivery and
payment for the Underwriters' Purchase Option shall be made on the Closing Date.
The Company shall deliver to the Underwriters, upon payment therefor,
certificates for the Underwriters' Purchase Option in the name or names and in
such authorized denominations as the Underwriters may request.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters as follows:
Section 2.1 FILING OF REGISTRATION STATEMENT. Section 2.1.1
PURSUANT TO THE ACT. The Company has filed with the Securities and Exchange
Commission ("Commission") a registration statement and an amendment or
amendments thereto, on Form SB-2 (No. 333-115424) including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Shares under the Securities Act of 1933, as amended ("Act"), which registration
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the rules and regulations
("Regulations") of the Commission under the Act. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430A of the Regulations), is hereinafter called the "Registration Statement,"
and the form of the final prospectus dated the Effective Date or such later date
as may be determined by the Underwriters (or, if applicable, the form of final
prospectus filed with the Commission pursuant to Rule 424 of the Regulations),
is hereinafter called the "Prospectus." The Registration Statement has been
declared effective by the Commission on the date hereof.
Section 2.1.2 PURSUANT TO THE EXCHANGE ACT. The
Company has filed with the Commission a registration statement on Form 8-A (No.
________) providing for the registration of the Shares under the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Such registration of the
Shares has been declared effective by the Commission on the date hereof.
Section 2.2 NO STOP ORDERS, ETC. Neither the Commission nor,
to 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 Company's knowledge, threatened to institute any proceedings with
respect to such an order.
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Section 2.3 DISCLOSURES IN REGISTRATION STATEMENT.
Section 2.3.1 SECURITIES ACT REPRESENTATION. At the
time the Registration Statement became effective and at all times subsequent
thereto up to and including the Closing Date and the Option Closing Date, if
any, the Registration Statement and the Prospectus and any amendment or
supplement thereto contained and will contain all material statements that are
required to be stated therein in accordance with the Act and the Regulations,
and conformed and will conform in all material respects to the requirements of
the Act and the Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, during such time period and
on such dates, contained or will contain any untrue statement of a material fact
or omitted or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. When any Preliminary
Prospectus was first filed with the Commission (whether filed as part of the
Registration Statement or any amendment thereto or pursuant to Rule 424(a) of
the Regulations) and when any amendment thereof or supplement thereto was first
filed with the Commission, such Preliminary Prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not 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. The representation
and warranty made in this Section 2.3.1 does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by the Underwriters
expressly for use in the Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
Section 2.3.2 DISCLOSURE OF CONTRACTS. The
description in the Registration Statement and the Prospectus of contracts and
other documents is accurate in all material respects and presents 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 with the Commission as exhibits to the Registration
Statement that have not been so described or filed. Each contract or other
instrument (however characterized or described) to which the Company is a party
or by which its property or business is or may be bound or affected and that is
(i) referred to in the Prospectus, or (ii) material to the Company's business,
has been duly and validly executed, is in full force and effect in all material
respects in accordance with its terms and is enforceable against the Company
and, to the Company's knowledge, the other parties thereto in accordance with
its terms, and none of such contracts or instruments has been assigned by the
Company, and neither the Company nor, to the Company's knowledge, any other
party is in default thereunder and, to the Company's knowledge, no event has
occurred that, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder. None of the material provisions of such
contracts or instruments violates or will result in a violation of any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court having jurisdiction over the Company or any of its assets or
businesses, including, without limitation, those relating to environmental laws
and regulations.
4
Section 2.3.3 PRIOR SECURITIES TRANSACTIONS. No
securities of the Company have been sold by the Company or by or on behalf of,
or for the benefit of, any person or persons controlling, controlled by, or
under common control with the Company within the three years prior to the date
hereof, except as disclosed in the Registration Statement.
Section 2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT.
Section 2.4.1 NO MATERIAL ADVERSE CHANGE. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, except as otherwise specifically stated therein, (i) there
has been no material adverse change in the condition, financial or otherwise, or
in the results of operations, business or business prospects of the Company,
including, but not limited to, a 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, whether or not arising in the ordinary course of business, and (ii)
there have been no transactions entered into by the Company, other than those in
the ordinary course of business, that are material with respect to the
condition, financial or otherwise, or to the results of operations, business or
business prospects of the Company.
Section 2.4.2 RECENT SECURITIES TRANSACTIONS, ETC.
Since the respective dates as of which information is given in the Registration
Statement and the Prospectus, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not (i) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed money;
or (ii) declared or paid any dividend or made any other distribution on or in
respect to its capital stock.
Section 2.5 INDEPENDENT ACCOUNTANTS. KPMG Somekh Xxxxxxx,
whose report is filed with the Commission as part of the Registration Statement,
are independent accountants as required by the Act and the Regulations.
Section 2.6 FINANCIAL STATEMENTS. The financial statements,
including the notes thereto and supporting schedules included in the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company at the dates and for the periods to
which they apply; and such financial statements have been prepared in conformity
with generally accepted accounting principles, consistently applied throughout
the periods involved; and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. The pro
forma financial information set forth in the Registration Statement and
Prospectus reflects all significant assumptions and adjustments relating to the
business and operations of the Company.
Section 2.7 AUTHORIZED CAPITAL; OPTIONS; ETC. The Company
had, at the date or dates indicated in the Prospectus, duly authorized, issued
and outstanding capitalization as set forth in the Registration Statement and
the Prospectus. Based on the assumptions and adjustments 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 and the Prospectus, on the Effective Date and on the
Closing Date there will be no outstanding or authorized subscriptions, options,
warrants or other rights to purchase or otherwise acquire, or preemptive rights
5
with respect to the issuance or sale of any Common Stock of the Company,
including any obligations to issue any shares pursuant to anti-dilution
provisions, or any security convertible into shares of Common Stock of the
Company, or any contracts or commitments to issue or sell shares of Common Stock
or any such options, warrants, rights or convertible securities.
Section 2.8 VALID ISSUANCE OF SECURITIES; ETC.
Section 2.8.1 OUTSTANDING SECURITIES. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company. The outstanding options
and warrants to purchase shares of Common Stock constitute valid and binding
obligations of the Company, enforceable in accordance with their terms. The
authorized Common Stock and outstanding options and warrants to purchase shares
of Common Stock conform to all statements relating thereto contained in the
Registration Statement and the Prospectus. The offers and sales by the Company
of the outstanding Common Stock, options and warrants to purchase shares of
Common Stock, and securities convertible into shares of Common Stock, were at
all relevant times registered under the Act and registered or qualified under
the applicable state securities or Blue Sky laws or exempt from such
registration or qualification requirements.
Section 2.8.2 SECURITIES SOLD PURSUANT TO THIS
AGREEMENT. The Shares have been duly authorized and, when issued and paid for,
will be validly issued, fully paid and non-assessable; the holders thereof are
not and will not be subject to personal liability by reason of being such
holders; the Shares are not and will not be subject to the preemptive rights of
any holders of any security of the Company or similar contractual rights granted
by the Company; and all corporate action required to be taken for the
authorization, issuance and sale of the Shares has been duly and validly taken.
When issued, the Underwriters' Purchase Option will constitute a valid and
binding obligation of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company called for
thereby and will be enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Section 2.9 REGISTRATION RIGHTS OF THIRD PARTIES. Except as
set forth in the Prospectus, no holders of any securities of the Company or of
any options or warrants of the Company or other rights exercisable for or
convertible or exchangeable into securities of the Company have the right to
require the Company to register any such securities of the Company under the Act
or to include any such securities in a registration statement to be filed by the
Company.
6
Section 2.10 VALIDITY AND BINDING EFFECT OF AGREEMENTS. This
Agreement has been duly and validly authorized by the Company and constitutes,
and the Underwriters' Purchase Option has been duly and validly authorized by
the Company and, when executed and delivered, will constitute, the valid and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Section 2.11 NO CONFLICTS, ETC. The execution, delivery, and
performance by the Company of this Agreement and the Underwriters' Purchase
Option, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms hereof and thereof
do not and will not, with or without the giving of notice or the lapse of time
or both, (i) result in a breach of, or conflict with any of the terms and
provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company is
subject; (ii) result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company; (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 of its properties or businesses; or (iv) have a material adverse effect on
any permit, license, certificate, registration, approval, consent, license or
franchise of or concerning the Company.
Section 2.12 NO DEFAULTS; VIOLATIONS. Except as described in
the Prospectus, no material default exists in the due performance and observance
of any term, covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the properties or assets of the Company is
subject. Except as described in the Prospectus, the Company is not in violation
of any term or provision of its Certificate of Incorporation or By-Laws or in
violation of any material franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
businesses.
Section 2.13 CORPORATE POWER; LICENSES; CONSENTS.
Section 2.13.1 CONDUCT OF BUSINESS. The Company has
all requisite corporate power and authority, and has all necessary and material
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies to own or lease its
properties and conduct
7
its business as described in the Prospectus, and the Company is and has been
doing business in compliance with all such material authorizations, approvals,
orders, licenses, certificates and permits and all federal, state and local
laws, rules and regulations. The disclosures in the Registration Statement
concerning the effects of federal, state and local regulation on the Company's
business as currently contemplated are correct in all material respects and do
not omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 2.13.2 TRANSACTIONS CONTEMPLATED HEREIN. The
Company has all corporate power and authority to enter into this Agreement and
to carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained. No consent, approval, authorization or order of, and no filing with,
any court, government agency or other body is required for the valid
authorization, issuance, sale and delivery of the Shares and the consummation of
the transactions and agreements contemplated by this Agreement, the
Underwriters' Purchase Option and the Prospectus, except with respect to
applicable federal and state securities laws.
Section 2.14 TITLE TO PROPERTY; INSURANCE. The Company has
good and defensible title to, or valid and enforceable leasehold estates in, all
items of real and personal property (tangible and intangible) owned or leased by
it, free and clear of all liens, encumbrances, claims, security interests,
defects and restrictions of any material nature whatsoever, other than those
referred to in the Prospectus (including the financial statements and notes
thereto) and liens for taxes not yet due and payable. The Company 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 business.
Section 2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as
set forth in the Prospectus, there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding pending or, to
the Company's knowledge, threatened against, or involving the properties or
business of, the Company that might materially and adversely affect the
financial position, prospects, value or the operation of the properties or the
business of the Company, or that questions 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. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal, domestic or foreign, naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, its properties or business is bound or subject.
Section 2.16 GOOD STANDING. The Company has been duly
organized and is validly existing as a corporation and is in good standing under
the laws of the state of its incorporation. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, except where the failure to qualify
would not have a material adverse effect on the financial position, prospects or
value or the operation of the properties or the business of the Company.
8
Section 2.17 TAXES. The Company has filed all returns (as
hereinafter defined) required to be filed with taxing authorities prior to the
date hereof or has duly obtained extensions of time for the filing thereof. The
Company has paid all taxes (as hereinafter defined) shown as due on such returns
that were filed and has paid all taxes imposed on or assessed against the
Company. The provisions for taxes payable, if any, shown on the financial
statements filed with or as part of the Registration Statement are sufficient
for all accrued and unpaid 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 Underwriters, (i) no issues have been raised (and
are currently pending) by any taxing authority in connection with any of the
returns or taxes asserted as due from the Company, and (ii) no waivers of
statutes of limitation with respect to the returns or collection of taxes have
been given by or requested from the Company. The term "taxes" mean all federal,
state, local, foreign, and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments, or charges of any kind whatever, together with any interest
and any penalties, additions to tax, or additional amounts with respect thereto.
The term "returns" means all returns, declarations, reports, statements, and
other documents required to be filed in respect to taxes.
Section 2.18 [Intentionally Omitted]
Section 2.19 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.
Section 2.19.1 FINDER'S FEES. Except as described in
the Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's, consulting or
origination fee with respect to the introduction of the Company to the
Underwriters or the sale of the Shares hereunder or any other arrangements,
agreements, understandings, payments or issuances with respect to the Company
that may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
Section 2.19.2 PAYMENTS WITHIN TWELVE MONTHS. Except
as set forth on SCHEDULE 2.19.2, other than payments to the Underwriters, the
Company has not made any direct or indirect payments (in cash, securities or
otherwise) to (i) any person, as a finder's fee, investing fee or otherwise, in
consideration of such person raising capital for the Company or introducing to
the Company persons who provided capital to the Company, (ii) any NASD member,
or (iii) any person or entity that has any direct or indirect affiliation or
association with any NASD member within the 12-month period prior to the date on
which the Registration Statement was filed with the Commission ("Filing Date")
or thereafter.
Section 2.19.3 USE OF PROCEEDS. None of the net
proceeds of the offering will be paid by the Company to any participating NASD
member or any affiliate or associate of any participating NASD member, except as
specifically authorized herein.
Section 2.19.4 INSIDERS' NASD AFFILIATION. Except as
set forth on SCHEDULE 2.19.4, no (i) officer or director of the Company, (ii)
owner of 5% or more of the Company's unregistered securities or (iii) owner of
any amount of the Company's
9
unregistered securities acquired within the 180-day period prior to the Filing
Date, has any direct or indirect affiliation or association with any NASD
member. The Company will advise the Underwriters and the NASD if any officer,
director or stockholder of the Company is or becomes an affiliate or associated
person of an NASD member participating in the offering.
Section 2.20 FOREIGN CORRUPT PRACTICES ACT. Neither the
Company nor any of its officers, directors, employees, agents or any other
person acting on behalf of the Company has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or foreign) or
any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company (or assist it in connection with any actual or proposed transaction)
that (i) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in the
past, might have had a material adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Prospectus or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
Section 2.21 NASDAQ AND BOSTON STOCK EXCHANGE ELIGIBILITY. As
of the Effective Date, the Public Shares have been approved for quotation on the
Nasdaq SmallCap Market and for listing on the Boston Stock Exchange.
Section 2.22 INTANGIBLES. The Company owns or possesses the
requisite licenses or rights to use all trademarks, service marks, service
names, trade names, patents and patent applications, copyrights and other rights
(collectively, "Intangibles") described as being licensed to or owned by it in
the Registration Statement. The Company's Intangibles that have been registered
in the United States Patent and Trademark Office have been fully maintained and
are in full force and effect. Except as described in the Prospectus, there is no
claim or action by any person pertaining to, or proceeding pending or, to the
Company's knowledge, threatened relating to, and the Company has not received
any notice of conflict with the asserted rights of others, that challenges the
exclusive right of the Company with respect to, any Intangibles used in the
conduct of the Company's business. To the Company's knowledge, the Intangibles
and the Company's current products, services and processes do not infringe on
any Intangibles held by any third party. To the Company's knowledge, no others
have infringed upon the Intangibles of the Company.
Section 2.23 RELATIONS WITH EMPLOYEES.
Section 2.23.1 EMPLOYEE MATTERS. The Company has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all federal, state
and local laws and regulations respecting the employment of its employees and
employment practices, terms and conditions of employment and wages and hours
relating thereto. There are no pending
10
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal, state
and local laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or any strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving the Company or any predecessor entity, and none
has ever occurred. No question concerning representation exists respecting the
employees of the Company and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company, if any.
Section 2.23.2 EMPLOYEE BENEFIT PLANS. Other than as
set forth in the Registration Statement, the Company neither maintains, sponsors
nor contributes to, nor is it required to contribute to, any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a, "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute to, and has at no time maintained or contributed to, a defined
benefit plan, as defined in Section 3(35) of ERISA. If the Company does maintain
or contribute to a defined benefit plan, any termination of the plan on the date
hereof would not give rise to liability under Title IV of ERISA. No ERISA Plan
(or any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended ("Code"), that could subject the Company to any
tax penalty for prohibited transactions and that has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan that is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. The Company has never completely or partially withdrawn
from a "multi-employer plan."
Section 2.24 OFFICERS' CERTIFICATE. Any certificate signed by
any duly authorized officer of the Company and delivered to the Underwriters or
to its counsel shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
Section 2.25 [Intentionally Omitted]
Section 2.26 LOCK-UP AGREEMENTS.
Section 2.26.1 EIGHTEEN MONTH LOCK-UP AGREEMENTS.
Except as set forth on SCHEDULE 2.26.1, the Company has caused to be duly
executed legally binding and enforceable agreements pursuant to which all of the
officers and directors of the Company (including their family members and
affiliates) agree not to sell any shares of Common Stock or warrants or options
to purchase, or other securities convertible into Common Stock owned by them
(either pursuant to Rule 144 of the Regulations or otherwise) for a period of 18
months following the Effective Date except with the prior written consent of the
Underwriters.
11
Section 2.26.2 TWELVE MONTH LOCK-UP AGREEMENTS. The
Company has caused to be duly executed legally binding and enforceable
agreements pursuant to which the persons set forth on SCHEDULE 2.26.2 agree not
to sell any shares of Common Stock or warrants or options to purchase, or other
securities convertible into Common Stock owned by them (either pursuant to Rule
144 of the Regulations or otherwise) for a period of 12 months following the
Effective Date, subject to certain exceptions as provided in such lockup
agreements.
Section 2.27 SUBSIDIARIES. Except as set forth on
SCHEDULE 2.27, the Company does not own an interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
entity. The Company has no subsidiaries other than those subsidiaries set forth
on SCHEDULE 2.27, each of which is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation (each a
"Subsidiary" and collectively the "Subsidiaries"). The Company owns all of the
capital stock of the Subsidiaries free and clear of all liens, security
interests and other encumbrances of any nature whatsoever, except as set forth
in the Prospectus. The representations and warranties made by the Company in
this Agreement shall also apply and be true with respect to each Subsidiary,
individually and taken as a whole with the Company and all other Subsidiaries,
as if each representation and warranty contained herein made specific reference
to the Subsidiaries each time the term "Company" was used.
Section 2.28 ENVIRONMENTAL MATTERS. The Company has complied
in all material respects with all applicable environmental laws.
Section 2.29 PRODUCT LIABILITY INSURANCE. To its knowledge,
the Company maintains product liability insurance of the type and in the amounts
typically maintained by similar companies operating in the industry in which the
Company operates.
Section 2.30 RELATED PARTY TRANSACTIONS. There are no
business relationships or related party transactions involving the Company or
any other person required to be described in the Prospectus that have not been
described as required.
Section 2.31 CONVERSION AND REPAYMENT OF BRIDGE NOTES. As of
the Closing Date, (i) Convertible Promissory Notes ("Bridge Notes") in the
aggregate principal amount of not less than $2,500,000 will convert into shares
of Common Stock at $3.75 per share and accrued interest thereon will be repaid
in cash and (ii) Bridge Notes in the aggregate principal amount of not more than
$2,500,000 plus accrued interest will be repaid.
Section 2.32 STANDARD & POOR'S. The Company has taken all
necessary and appropriate action to achieve accelerated publication in Standard
and Poor's Corporation Records Corporate Descriptions.
Section 3. COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
Section 3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company
will deliver to the Underwriters, prior to filing, any amendment or supplement
to the
12
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Underwriters
shall reasonably object.
Section 3.2 FEDERAL SECURITIES LAWS.
Section 3.2.1 COMPLIANCE. During the time when a
Prospectus is required to be delivered under the Act, the Company will use all
reasonable efforts to comply with all requirements imposed upon it by the Act,
the Regulations and the Exchange Act and by the regulations under the Exchange
Act, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Public Shares in accordance with the
provisions hereof, and the Prospectus. If at any time when a Prospectus relating
to the Public Shares is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Underwriters, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriters promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
Section 3.2.2 FILING OF FINAL PROSPECTUS. The Company
will file the Prospectus (in form and substance satisfactory to the
Underwriters) with the Commission pursuant to the requirements of Rule 424 of
the Regulations.
Section 3.2.3 EXCHANGE ACT REGISTRATION. For a period
of five years from the Effective Date, the Company will use its best efforts to
maintain the registration of the Shares under the provisions of Section 12 of
the Exchange Act.
Section 3.3 BLUE SKY FILINGS. The Company will endeavor in
good faith, in cooperation with the Underwriters, at or prior to the time the
Registration Statement becomes effective, to qualify the Public Shares for
offering and sale under the securities laws of such jurisdictions as the
Underwriters may reasonably designate, provided that no such qualification shall
be required in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the Underwriters agree
that such action is not at the time necessary or advisable, use all reasonable
efforts to file and make such statements or reports at such times as are or may
be required by the laws of such jurisdiction.
Section 3.4 DELIVERY TO THE UNDERWRITERS OF PROSPECTUSES. The
Company will deliver to the Underwriters, without charge, from time to time
during the period when the Prospectus is required to be delivered under the Act
or the Exchange Act such number of copies of each Preliminary Prospectus and the
Prospectus as the Underwriters may reasonably request and, as soon as the
Registration Statement or any amendment or supplement thereto becomes effective,
deliver to the Underwriters one original executed Registration Statement,
including exhibits, and all post-effective
13
amendments thereto and copies of all exhibits filed therewith or incorporated
therein by reference and all original executed consents of certified experts.
Section 3.5 EVENTS REQUIRING NOTICE TO THE UNDERWRITERS. The
Company will notify the Underwriters immediately and confirm the notice in
writing (i) of the effectiveness of the Registration Statement and any amendment
thereto, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding for that purpose, (iii) if it
becomes aware of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Shares for offering
or sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the mailing and delivery to the Commission
for filing of any amendment or supplement to the Registration Statement or
Prospectus, (v) of the receipt of any comments or request for any additional
information from the Commission, and (vi) of the happening of any event during
the period described in Section 3.4 hereof that, in the judgment of the Company,
makes any statement of a material fact made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Commission
or any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
Section 3.6 REVIEW OF FINANCIAL STATEMENTS. For a period of
five years from the Effective Date, the Company, at its expense, shall cause its
regularly engaged independent certified public accountants to participate to
review (as described in Statement on Audited Standards No. 71 -- Interim
Financial Information) (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 Form 10-Q or Form 10-QSB
quarterly reports and the mailing of any quarterly financial information to
stockholders.
Section 3.7 SECONDARY MARKET TRADING AND STANDARD & POOR'S.
The Company will take all necessary and appropriate actions to achieve
accelerated publication in Standard and Poor's Corporation Records Corporate
Descriptions (within 30 days after the Effective Date) and to maintain such
publication with updated quarterly information for a period of five years from
the Effective Date, including the payment of any necessary fees and expenses.
The Company shall take such action as may be reasonably requested by the
Underwriters to obtain a secondary market trading exemption in such states as
may be requested by the Underwriters, including the payment of any necessary
fees and expenses and the filing of requisite forms (e.g., Form 25101(b) for
secondary market trading in the State of California) on the Effective Date.
Section 3.8 NASDAQ AND BOSTON STOCK EXCHANGE MAINTENANCE. For
a period of five years from the date hereof, the Company will use its best
efforts to maintain the quotation by the Nasdaq SmallCap Market and the listing
by the Boston Stock Exchange of the Shares and, if the Company satisfies the
inclusion standards for the Nasdaq National Market System, to apply for and
maintain quotations by the Nasdaq National Market System of such securities
during such period.
14
Section 3.9 [Intentionally Omitted]
Section 3.10 PUBLIC RELATIONS FIRM. The Company shall retain a
public relations firm acceptable to the Underwriters for a period of five years
from the Effective Date.
Section 3.11 REPORTS TO THE UNDERWRITERS AND OTHERS.
Section 3.11.1 PERIODIC REPORTS, ETC. For a period of
five years from the Effective Date, the Company will promptly furnish to the
Underwriters copies of such financial statements and other periodic and special
reports as the Company from time to time files with any governmental authority
or furnishes generally to holders of any class of its securities, and promptly
furnish to the Underwriters (i) a copy of each periodic report the Company shall
be required to file with the Commission, (ii) a copy of every press release and
every news item and article with respect to the Company or its affairs that was
released by the Company, (iii) a copy of each Form 8-K or Schedules 13D, 13G,
14D-1 or 13E-4 received or prepared by the Company, and (iv) such additional
documents and information regarding the Company and the affairs of any future
subsidiaries of the Company as the Underwriters may from time to time reasonably
request.
Section 3.11.2 TRANSFER SHEETS AND WEEKLY POSITION
LISTINGS. For a period of three years from the Closing Date, the Company will
furnish to the Underwriters at the Company's sole expense such transfer sheets
and position listings of the Company's securities as the Underwriters may
request, including the daily, weekly and monthly consolidated transfer sheets of
the transfer agent of the Company and the weekly position listings of the
Depository Trust Company.
Section 3.11.3 SECONDARY MARKET TRADING MEMORANDUM.
Until such time as the Public Shares are listed or quoted, as the case may be,
on one of the following: the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market System, the Company shall request that
the Underwriters' legal counsel deliver to the Underwriters a written memorandum
detailing those states in which the Shares may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Memorandum"). The Company shall pay to the Underwriters' legal counsel a
one-time fee of $5,000 for such services at the Closing.
Section 3.12 UNDERWRITERS' PURCHASE OPTION. On the Closing
Date, the Company will execute and deliver the Underwriters' Purchase Option to
the Underwriters or its designees in the form filed as an exhibit to the
Registration Statement.
Section 3.13 DISQUALIFICATION OF FORM SB-2 OR FORM S-1 (OR
OTHER APPROPRIATE FORM). For a period equal to five (5) years from the date
hereof, the Company will not take any action or actions that may prevent or
disqualify the Company's use of Form SB-2 or Form S-1 (or other appropriate
form) for the registration of the Underwriters' Shares under the Act.
15
Section 3.14 PAYMENT OF EXPENSES.
Section 3.14.1 GENERAL EXPENSES. The Company hereby
agrees to pay on the Closing Date and, to the extent not paid on the Closing
Date, on the Option Closing Date, all expenses incident to the performance of
the obligations of the Company under this Agreement, including but not limited
to (i) the preparation, printing, filing, delivery and mailing (including the
payment of postage with respect to such mailing) of the Registration Statement,
the Prospectus and the Preliminary Prospectuses and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and any amendments thereof or supplements thereto supplied to the Underwriters
in quantities as may be required by the Underwriters, (ii) the printing,
engraving, issuance and delivery of the shares of Common Stock and the
Underwriters' Purchase Option, including any transfer or other taxes payable
thereon, (iii) the qualification of the Public Shares under state or foreign
securities or Blue Sky laws, including the filing fees under such Blue Sky laws,
the costs of printing and mailing the "Preliminary Blue Sky Memorandum," and all
amendments and supplements thereto, the fees ($35,000, of which $15,000 has been
paid) and disbursements of the Underwriters' counsel, and fees and disbursements
of local counsel, if any, retained for such purpose and a one-time fee of $5,000
payable to Underwriters' counsel for the preparation of the Secondary Market
Trading Memorandum pursuant to Section 3.11.3 hereof, (iv) filing fees, costs
and expenses (including fees and disbursements for the Underwriters' counsel)
incurred in registering the offering with the NASD, (v) costs of placing
"tombstone" advertisements in THE WALL STREET JOURNAL, THE NEW YORK TIMES and a
third publication to be selected by the Underwriters, the total costs of such
advertisements not to exceed $25,000, (vi) fees and disbursements of the
transfer and warrant agent, (vii) the Company's expenses associated with "due
diligence" meetings arranged by the Underwriters, (viii) the preparation,
binding and delivery of transaction "bibles," in quantity, form and style
satisfactory to the Underwriters and transaction lucite cubes or similar
commemorative items in a style and quantity as requested by the Underwriters,
(ix) any listing of the Public Shares on Nasdaq SmallCap or National Market
System, as the case may be, and any securities exchange and any listing in
Standard & Poor's and (x) all other costs and expenses incident to the
performance of its obligations hereunder that are not otherwise specifically
provided for in this Section 3.14.1. The Company also agrees to engage and pay
$7,500 for an investigative search firm of the Underwriters' choice
(International Business Research (U.S.A.), Inc.) to conduct an investigation of
the officers and directors of the Company. The Underwriters may deduct from the
net proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth in this Agreement to be paid
by the Company to the Underwriters and/or to third parties.
Section 3.14.2 NON-ACCOUNTABLE EXPENSES. The Company
further agrees that, in addition to the expenses payable pursuant to Section
3.14.1, it will pay to the Underwriters a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Firm Shares, $75,000 of which has been paid to date, and the
Company will pay the balance on the Closing Date by certified or bank cashier's
check or, at the election of the Underwriters, by deduction from the proceeds of
the offering contemplated herein. For the avoidance of doubt, the Underwriters
shall not be entitled to receive such non-accountable allowance from the sale of
any Option Shares. If the offering contemplated by this Agreement is not
16
consummated for any reason whatsoever then the following provisions shall apply:
The Company's liability for payment to the Underwriters of the non-accountable
expense allowance shall be equal to the sum of the Underwriters' actual
out-of-pocket expenses (including, but not limited to, counsel fees, "road-show"
and due diligence expenses). The Underwriters shall retain such part of the
non-accountable expense allowance previously paid as shall equal such actual
out-of-pocket expenses. If the amount previously paid is insufficient to cover
such actual out-of-pocket expenses, the Company shall remain liable for and
promptly pay any other actual out-of-pocket expenses. If the amount previously
paid exceeds the amount of actual out-of-pocket expenses, the Underwriters shall
promptly remit to the Company any such excess.
Section 3.15 APPLICATION OF NET PROCEEDS. The Company will
apply the net proceeds from the offering received by it in a manner consistent
with the application described under the caption "Use of Proceeds" in the
Prospectus. The Company hereby agrees that, except as so described, without the
express prior written consent of the Underwriters, the Company will not apply
any net proceeds from the offering to pay (i) any debt for borrowed funds other
than pursuant to the Bridge Notes as described in the Prospectus or (ii) any
debt or obligation owed to any of the Company's officers, directors or any
stockholder owning one percent or more of the outstanding shares of the
Company's Common Stock or any family member or affiliate of any of the foregoing
persons ("Insiders") (excluding salaries or fees payable on a current basis to
officers and directors in the ordinary course of the Company's business).
Section 3.16 DELIVERY OF EARNINGS STATEMENTS TO SECURITY
HOLDERS. The Company will make generally available to its security holders as
soon as practicable, but not later than the first day of the fifteenth full
calendar month following the Effective Date, an earnings statement (which need
not be certified by independent certified public accountants unless required by
the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section 11(a) of the Act) covering a period of at least twelve
consecutive months beginning after the Effective Date.
Section 3.17 KEY PERSON LIFE INSURANCE. The Company will
maintain key person life insurance in an amount not less than $1,000,000 on the
life of Xxxxxx Xxxxxxxxxxx, to be in effect as of the Effective Date, and pay
the annual premiums therefor and name the Company as the sole beneficiary
thereof.
Section 3.18 STABILIZATION. Neither the Company, nor, to its
knowledge, any of its employees, directors or stockholders has taken or will
take, directly or indirectly, any action designed to or that has constituted or
that might reasonably be expected to cause or result in, under the Exchange Act,
or otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Shares.
Section 3.19 INTERNAL CONTROLS. The Company maintains and
will continue to maintain a system of internal accounting controls that comply
with the requirements of the Xxxxxxxx-Xxxxx Act of 2002 (and the rules
promulgated thereunder) and which are sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain
17
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.
Section 3.20 ACCOUNTANTS AND LAWYERS. For a period of five
years from the Effective Date, the Company shall retain independent public
accountants and securities lawyers acceptable to the Underwriters. KPMG Somekh
Xxxxxxx and Xxxxxxxxx Xxxxxxx, LLP are acceptable to the Underwriters.
Section 3.21 TRANSFER AGENT. For a period of five years from the
Effective Date, the Company shall retain a transfer agent ("Transfer Agent") for
the Common Stock acceptable to the Underwriters. American Stock Transfer & Trust
Company is acceptable to the Underwriters.
Section 3.22 SALE OF SHARES. Subject to the exceptions
described in Section 2.26 hereof, the Company agrees not to permit or cause a
private or public sale or private or public offering of any of its securities
(in any manner, including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the Insiders for the time periods set forth in Section 2.26
following the Effective Date without obtaining the prior written consent of the
Underwriters.
Section 4. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters to purchase and pay for the Shares, as provided
herein, shall be subject to the continuing accuracy of the representations and
warranties of the Company as of the date hereof and as of each of the Closing
Date and the Option Closing Date, if any, to the accuracy of the statements of
officers of the Company made pursuant to the provisions hereof and to the
performance by the Company of its obligations hereunder and to the following
conditions:
Section 4.1 REGULATORY MATTERS.
Section 4.1.1 EFFECTIVENESS OF REGISTRATION
STATEMENT. The Registration Statement has been declared effective on the date of
this Agreement and, at each of the Closing Date and the Option Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for such purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Xxxxxxxx Xxxxxx, counsel to the Underwriters.
Section 4.1.2 NASD CLEARANCE. By the Effective Date,
the Underwriters shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement.
Section 4.1.3 NO BLUE SKY STOP ORDERS. No order
suspending the sale of the Shares in any jurisdiction designated by the
Underwriters pursuant to Section 3.3 hereof shall have been issued on or before
either the Closing Date or the Option
18
Closing Date, and no proceedings for that purpose shall have been instituted or
shall be contemplated.
Section 4.2 COMPANY COUNSEL MATTERS.
Section 4.2.1 EFFECTIVE DATE OPINION OF COUNSEL. On
the Effective Date, the Underwriters shall have received the opinion of
Xxxxxxxxx Traurig, LLP, counsel to the Company, dated the Effective Date,
addressed to the Underwriters and in form and substance satisfactory to Xxxxxxxx
Xxxxxx, counsel to the Underwriters. Xxxxxxxxx Traurig, LLP may rely on the
opinion of Xxxxxxx, Xxxxxx & Xxxxx with respect to matters of Israeli law.
Section 4.2.2 CLOSING DATE AND OPTION CLOSING DATE
OPINION OF COUNSEL. On each of the Closing Date and the Option Closing Date, if
any, the Underwriters shall have received the opinion of Xxxxxxxxx Traurig, LLP,
counsel to the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters and in form and substance
satisfactory to Xxxxxxxx Xxxxxx, counsel to the Underwriters, confirming as of
the Closing Date and, if applicable, the Option Closing Date, the statements
made by Xxxxxxxxx Traurig, LLP in their opinion delivered on the Effective Date.
Xxxxxxxxx Xxxxxxx, LLP may rely on the opinion of Xxxxxxx, Xxxxxx & Xxxxx with
respect to matters of Israeli law.
Section 4.2.3 SECONDARY MARKET TRADING MEMORANDUM. On
the Effective Date, the Underwriters shall have received the Secondary Market
Trading Memorandum.
Section 4.2.4 RELIANCE. In rendering such opinion,
such counsel may rely (i) as to matters involving the application of laws other
than the laws of the United States and jurisdictions in which they are admitted,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to the Underwriters' counsel) of other counsel
reasonably acceptable to the Underwriters' counsel, familiar with the applicable
laws, and (ii) as to matters of fact, to the extent they deem proper, on
certificates or other written statements of officers of departments of various
jurisdiction having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to the Underwriters' counsel if requested. The
opinion of counsel for the Company shall include a statement to the effect that
it may be relied upon by counsel for the Underwriters in its opinion delivered
to the Underwriters.
Section 4.3 COLD COMFORT LETTER. At the time this Agreement
is executed, and at each of the Closing Date and the Option Closing Date, if
any, you shall have received a letter, addressed to the Underwriters and in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to you and
to Xxxxxxxx Xxxxxx, counsel for the Underwriters, from KPMG Somekh Xxxxxxx
dated, respectively, as of the date of this Agreement and as of the Closing Date
and the Option Closing Date, if any:
19
(i) confirming that they are independent accountants
with respect to the Company within the meaning of the Act and the applicable
Regulations;
(ii) stating that in their opinion the financial
statements and the financial statement schedules of the Company included in the
Registration Statement and Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act and the published
Regulations thereunder;
(iii) stating that, based on the performance of
procedures specified by the American Institute of Certified Public Accountants
for a review of the latest available unaudited interim financial statements of
the Company (as described in Statement on Auditing Standards ("SAS") No. 71 -
"Interim Financial Information"), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
that would lead them to believe that (a) the unaudited financial statements of
the Company included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or any material modification should be made to the unaudited
interim financial statements included in the Registration Statement for them to
be in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements of
the Company included in the Registration Statement, (b) at a date not later than
five days prior to the Effective Date, Closing Date or Option Closing Date, as
the case may be, there was any change in the capital stock or long-term debt of
the Company, or any decrease in the stockholders' equity of the Company as
compared with amounts shown in the __________, 2004 balance sheet included in
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any decrease, setting forth the amount
of such decrease, and (c) during the period from ___________, 2004 to a
specified date not later than five days prior to the Effective Date, Closing
Date or Option Closing Date, as the case may be, there was any decrease in
revenues, net earnings or net earnings per share of Common Stock or increase in
net loss or net loss per share of Common Stock, in each case as compared with
the corresponding period in the preceding year and as compared with the
corresponding period in the preceding quarter, other than as set forth in or
contemplated by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
20
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
and work sheets, of the Company 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; and
(v) statements as to such other matters incident to
the transaction contemplated hereby as you may reasonably request.
Section 4.4 OFFICERS' CERTIFICATES.
Section 4.4.1 OFFICERS' CERTIFICATE. At each of the
Closing Date and the Option Closing Date, if any, the Underwriters shall have
received a certificate of the Company signed by the Chairman of the Board or the
President and the Secretary of the Company, dated the Closing Date or the Option
Closing Date, as the case may be, respectively, to the effect 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 and as of the
Closing Date, or the Option Closing Date, as the case may be, and that the
conditions set forth in Section 4.5 hereof have been satisfied as of such date
and that, as of Closing Date and the Option Closing Date, as the case may be,
the representations and warranties of the Company set forth in Section 2 hereof
are true and correct. In addition, the Underwriters will have received such
other and further certificates of officers of the Company as the Underwriters
may reasonably request.
Section 4.4.2 SECRETARY'S CERTIFICATE. At each of the
Closing Date and the Option Closing Date, if any, the Underwriters shall have
received a certificate of the Company signed by the Secretary of the Company,
dated the Closing Date or the Option Date, as the case may be, respectively,
certifying (i) that the By-Laws and Certificate of Incorporation, as amended, of
the Company are true and complete, have not been modified and are in full force
and effect, (ii) that the resolutions relating to the public offering
contemplated by this Agreement are in full force and effect and have not been
modified, (iii) all correspondence between the Company or its counsel and the
Commission, (iv) all correspondence between the Company or its counsel and
Nasdaq concerning listing of the Shares on Nasdaq and (vi) as to the incumbency
of the officers of the Company. The documents referred to in such certificate
shall be attached to such certificate.
Section 4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing
Date and the Option Closing Date, if any, (i) there shall have been no material
adverse change or development involving a prospective material change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company, taken as a whole, (iii) the Company shall not be in
21
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a material adverse effect on the Company,
(iv) no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements that are
required to be stated therein in accordance with the Act and the Regulations and
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 contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 4.6 DELIVERY OF AGREEMENTS. The Company has delivered
to the Underwriters an executed copy of the Underwriters' Purchase Option.
Section 4.7 OPINION OF COUNSEL FOR THE UNDERWRITERS. All
proceedings taken in connection with the authorization, issuance or sale of the
Shares as herein contemplated shall be reasonably satisfactory in form and
substance to the Underwriters and to Xxxxxxxx Xxxxxx, counsel to the
Underwriters, and the Underwriters shall have received from such counsel a
favorable opinion, dated the Closing Date and the Option Closing Date, if any,
with respect to such of these proceedings as the Underwriters may reasonably
require. On or prior to the Effective Date, the Closing Date and the Option
Closing Date, as the case may be, counsel for the Underwriters shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
Section 4.8 UNAUDITED FINANCIALS. The Company shall have
furnished to the Underwriters a copy of the latest available unaudited interim
financial statements for the period ended __________, 2004 ("Unaudited
Financials") of the Company which have been read by KPMG Somekh Xxxxxxx, as
stated in their letter dated as of the Closing Date to be furnished pursuant to
Section 4.3 hereof.
Section 5. INDEMNIFICATION.
Section 5.1 INDEMNIFICATION OF THE UNDERWRITERS.
Section 5.1.1 GENERAL. Subject to the conditions set
forth below, the Company agrees to indemnify and hold harmless each of the
Underwriters, their respective directors, officers, agents and employees and
each person, if any, who controls either Underwriter ("controlling person")
within the meaning of Section 15 of the Act or
22
Section 20(a) of the Exchange Act, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all legal or
other expenses reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, whether arising out of any
action between either of the Underwriters and the Company or between an
Underwriter and any third-party or otherwise) to which they or any of them may
become subject under the Act, the Exchange Act or any other statute or at common
law or otherwise or under the laws of foreign countries, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in (i) any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time each may be amended and supplemented); (ii) in
any post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Underwriters' Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Shares
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to either Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application, as the case may be. The Company agrees promptly to notify
the Underwriters of the commencement of any litigation or proceedings against
the Company or any of its officers, directors or controlling persons in
connection with the issue and sale of the Shares or in connection with the
Registration Statement or Prospectus.
Section 5.1.2 PROCEDURE. If any action is brought
against an Underwriter or controlling person in respect of which indemnity may
be sought against the Company pursuant to Section 5.1.1, such Underwriter shall
promptly notify the Company in writing of the institution of such action and the
Company shall assume the defense of such action, including the employment and
fees of counsel (subject to the approval of such Underwriter) and payment of
actual expenses. Such Underwriter or controlling person shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action, or (ii)
the Company shall not have employed counsel to have charge of the defense of
such action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys selected by the Underwriter or
Underwriters and/or controlling person shall be borne by the Company.
Notwithstanding anything to the contrary contained herein, if either Underwriter
or controlling person shall assume the defense of such action
23
as provided above, the Company shall have the right to approve the terms of any
settlement of such action which approval shall not be unreasonably withheld.
Section 5.2 INDEMNIFICATION OF THE COMPANY. Each Underwriter,
severally and not jointly, agrees to indemnify and hold harmless the Company,
its directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act, against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to any and all legal or other expenses
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, whether arising out of any action between
the Underwriters and the Company or between the Company and any third-party or
otherwise) described in the foregoing indemnity from the Company to the several
Underwriters, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions directly relating to the
transactions effected by the Underwriters in connection with this offering made
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or in any application in reliance upon, and in
strict conformity with, written information furnished to the Company with
respect to such Underwriter by or on behalf of such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment or supplement thereto or in any such application. In case any
action shall be brought against the Company based on any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement thereto
or any application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the
Company, and the Company shall have the rights and duties given to several
Underwriters by the provisions of Section 5.1.2.
Section 5.3 CONTRIBUTION.
Section 5.3.1 CONTRIBUTION RIGHTS. In order to
provide for just and equitable contribution under the Act in any case in which
(i) any person entitled to indemnification under this Section 5 makes claim for
indemnification pursuant hereto but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case, or (ii)
contribution under the Act, the Exchange Act or otherwise may be required on the
part of any such person in circumstances for which indemnification is provided
under this Section 5, then, and in each such case, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company and the Underwriters, as incurred, in such proportions
that the Underwriters are responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover page of the
Prospectus bears to the initial offering price appearing thereon and the Company
is responsible for the balance; provided, that, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 5.3, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Public Shares underwritten by it and
24
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each director, officer and employee of an Underwriter, and each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act,
shall have the same rights to contribution as such Underwriter.
Section 5.3.2 CONTRIBUTION PROCEDURE. Within fifteen
days after receipt by any party to this Agreement (or its representative) of
notice of the commencement of any action, suit or proceeding, such party will,
if a claim for contribution in respect thereof is to be made against another
party ("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability that it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding that was effected
by the party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
Section 6. DEFAULT BY AN UNDERWRITER. If either Underwriter shall
default in its obligations to purchase Shares hereunder, the non-defaulting
Underwriter may, in its discretion, arrange for itself or another party or
parties to purchase such Shares on the terms contained herein. In the event that
within one business day after such default the non-defaulting Underwriter does
not arrange for the purchase of the Shares as to which such default relates,
this Agreement will thereupon terminate automatically (but only with respect to
the obligations relating to the Option Shares if such default occurs after the
Closing Date) without liability on the part of the Company (except as provided
in Sections 3.15 and 5.1 hereof) or the non-defaulting Underwriter, but nothing
herein shall relieve the defaulting Underwriter of its liability, if any, to the
non-defaulting Underwriter and to the Company for damages occasioned by its
default.
Section 7. ADDITIONAL COVENANTS.
Section 7.1 BOARD DESIGNEE. For a period of three years from
the Effective Date, the Company will appoint a designee of the Underwriters who
is reasonably acceptable to the Company as a member of the Board of Directors of
the Company. Alternatively, the Underwriters shall have the right to send a
representative (who need not be the same individual from meeting to meeting) to
observe each meeting of the Board of Directors. Such designee or representative,
as the case may be, shall receive no more or less compensation than is paid to
other non-management directors of the Company and shall be entitled to be
reimbursed for all reasonable out-of-pocket expenses incurred in attending such
meetings, including but not limited to food, lodging and transportation. The
Company will obtain and maintain a liability insurance policy affording coverage
for the acts of its officers and directors in an amount not less than
25
$_____________ and will include the Underwriters' designee as an insured under
such policy. The Company agrees to give the Underwriters written notice of each
such meeting and to provide the Underwriters with an agenda and minutes of the
meeting no later than it gives such notice and provides such items to the other
directors.
Section 7.2 [Intentionally Omitted].
Section 7.3 [Intentionally Omitted].
Section 7.4 PRESS RELEASES. The Company will not issue a
press release or engage in any other publicity until 14 days after the Effective
Date without the Underwriters' prior written consent.
Section 7.5 SOLICITATION IN ISRAEL. The Underwriters shall
not solicit offers to purchase or sell Firm Shares in Israel without the prior
written consent of the Company, which shall not be unreasonably withheld.
Section 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except
as the context otherwise requires, all representations, warranties and
agreements contained in this Agreement shall be deemed to be representations,
warranties and agreements at the Closing Dates and such representations,
warranties and agreements of the Underwriters and Company, including the
indemnity agreements contained in Section 5 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Underwriters, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Shares to the
several Underwriters until the earlier of the expiration of any applicable
statute of limitations and the seventh anniversary of the later of the Closing
Date or the Option Closing Date, if any, at which time the representations,
warranties and agreements shall terminate and be of no further force and effect.
Section 9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
Section 9.1 EFFECTIVE DATE. This Agreement shall become
effective on the Effective Date at the time that the Registration Statement is
declared effective.
Section 9.2 TERMINATION. The Underwriters shall have the
right to terminate this Agreement at any time prior to any Closing Date, (i) if
any domestic or international event or act or occurrence has materially
disrupted, or in the Underwriters' opinion will in the immediate future
materially disrupt, general securities markets in the United States, or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been fixed, or maximum ranges for prices for securities shall have
been required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction, or (iii) in
the event of a material outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war (including without limitation as a result of an act of terrorism) if the
effect of any such event specified in this clause (iii) in the reasonable
judgment of the Underwriters makes it impracticable or inadvisable to proceed
with the offering or the delivery of the Shares being delivered on
26
the Closing Date on the terms and in the manner contemplated in the final
prospectus, or (iv) if a banking moratorium has been declared by a New York
State or federal authority, or (v) if a moratorium on foreign exchange trading
has been declared which materially adversely impacts the United States
securities market, or (vi) if the Company shall have sustained a material loss
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in your opinion, make it inadvisable to proceed with the delivery
of the Shares, or (vii) if Xxxxxx Xxxxxxxxxxx shall no longer serve the Company
in his present capacity, or (viii) if the Company has breached any of its
representations, warranties or obligations hereunder, or (ix) if the
Underwriters shall have become aware after the date hereof of such a material
adverse change in the condition (financial or otherwise), business, or prospects
of the Company, or such adverse material change in general market conditions as
in the Underwriters' judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Shares or to enforce contracts made by the
Underwriters for the sale of the Shares.
Section 9.3 NOTICE. If the Underwriters elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided in
this Section 9, the Company shall be notified on the same day as such election
is made by the Underwriters by telephone or telecopy, confirmed by letter.
Section 9.4 EXPENSES. If this Agreement shall not be carried
out for any reason whatsoever, within the time specified herein or any
extensions thereof pursuant to the terms hereof, the obligations of the Company
to pay the expenses related to the transactions contemplated herein shall be
governed by Section 3.14 hereof.
Section 9.5 INDEMNIFICATION. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Section 5 shall not be in any way affected by, such election
or termination or failure to carry out the terms of this Agreement or any part
hereof.
Section 10. MISCELLANEOUS.
Section 10.1 NOTICES. All communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telecopied and confirmed
If to the Underwriters:
Maxim Group LLC
000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxx
Telecopier: (000) 000-0000
EarlyBirdCapital, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopier: (000) 000-0000
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Copy to:
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx Xxxxxx, Esq.
Telecopier: (000) 000-0000
If to the Company:
GuruNet Corporation
Xxxxxxxxx Xxxxxxxxxx Xxxx
Xxxxxxxx 00
Xxxxxxxxx 00000 Xxxxxx
Attention: Xxxxxx Xxxxxxxxxxx
Telecopier: 000-0-0000000
Copy to:
Xxxxxxxxx Traurig, LLP
The MetLife Building
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
elecopier: (000) 000-0000
Section 10.2 HEADINGS. The headings contained herein are for
the sole purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions of this
Agreement.
Section 10.3 AMENDMENT. This Agreement may be amended only by
a written instrument executed by each of the parties hereto.
Section 10.4 ENTIRE AGREEMENT. This Agreement (together with
the other agreements and documents being delivered pursuant to or in connection
with this Agreement) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
Section 10.5 BINDING EFFECT. This Agreement shall inure solely
to the benefit of and shall be binding upon, the Underwriters, the Company and
the controlling persons, directors and officers referred to in Section 5 hereof,
and their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained.
Section 10.6 GOVERNING LAW, JURISDICTION. This Agreement shall
be governed by and construed and enforced in accordance with the law of the
State of New
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York, without giving effect to conflicts of law. The Company hereby agrees that
any action, proceeding or claim against it arising out of or relating in any way
to this Agreement shall be brought and enforced in the courts of the State of
New York or the United States District Court for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to Xxxxxxxxx Traurig, LLP, 000 Xxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx X. Xxxxx, Esq. Such mailing shall be
deemed personal service and shall be legal and binding upon the Company in any
action, proceeding or claim. The parties agree that the prevailing party(ies) in
any such action shall be entitled to recover from the other party(ies) all of
its reasonable attorneys' fees and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
Section 10.7 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same agreement, and shall
become effective when one or more counterparts has been signed by each of the
parties hereto and delivered to each of the other parties hereto.
Section 10.8 WAIVER, ETC. The failure of any of the parties
hereto at any time to enforce any of the provisions of this Agreement shall not
be deemed or construed to be a waiver of any such provision, nor in any way to
affect the validity of this Agreement or any provision hereof or the right of
any of the parties hereto thereafter to enforce each and every provision of this
Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of
the provisions of this Agreement shall be effective unless set forth in a
written instrument executed by the party or parties against whom or which
enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
GURUNET CORPORATION
By:___________________________________________
Name: Xxxxxx Xxxxxxxxxxx
Title: Chairman and Chief Executive Officer
Accepted as of the date first
above written.
New York, New York
MAXIM GROUP LLC
By:___________________________
Name: Xxxxxxxx X. Xxxxxx
Title: Managing Director
EARLYBIRDCAPITAL, INC.
By:_____________________________________________
Name: Xxxxxx X. Xxxxxx
Title: President and Chief Executive Officer
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