Exhibit 1.1
KAIRE INTERNATIONAL, INC.
825,000 Shares of Common Stock
and 1,000,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
----------------------
_________________, 1998
May Xxxxx Group, Inc.
Xxx Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Kaire International, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with May Xxxxx Group, Inc. (the "Underwriter") as
follows:
1. (a) DESCRIPTION OF OFFERING
The Company agrees to retain the Underwriter as the exclusive agent of
the Company to publicly offer and sell, pursuant to the terms of this
Underwriting Agreement, an aggregate of 825,000 shares of common stock, $.01 par
value per share ("Common Stock"), and 1,000,000 redeemable common stock purchase
warrants (the "Warrants") at a price of $6.00 per share and $.10 per warrant,
respectively. Each Warrant shall entitle the holder to purchase one share of
Common Stock at $6.60, subject to adjustment. The Common Stock and Warrants
shall be offered on a "best efforts, all or none" basis. The offering of Common
Stock and Warrants contemplated hereby may sometimes be referred to as the
"Offering."
(b) THE WARRANTS.
The Warrants are exercisable for a four year period commencing
two years after the effective date of the Registration Statement ("Exercise
Period"), as defined in Paragraph 2(a) (the "Effective Date") until their
expiration six years after the Effective Date, subject to prior redemption by
the Company, provided, however, that prior to the Exercise Period, the Warrants
will be exercisable only if the Underwriter has consented in writing to all of
the Warrants being exercisable. The Warrants will be exercisable at $6.60 per
share and expire on ___________, 200_. The shares of
Common Stock issuable upon the exercise of the Warrants are hereinafter referred
to as the "Warrant Shares."
During the Exercise Period, the Warrants will be redeemable at a price
of $.05 per Warrant, upon prior written notice of not less than 30 days after 20
consecutive trading days immediately prior to the date on which the Company
gives notice of redemption on which the average closing bid price of the Common
Stock shall have exceeded $10.00 per share, and subject to the right of the
holder to exercise his purchase rights thereunder until redemption.
(c) UNDERWRITER'S WARRANTS.
At the closing of the sale referred to in Section 4, the Company will
sell to the Underwriter, for a total purchase price of $10.00, warrants to
purchase up to 82,500 shares of Common Stock at $7.50 per Share and/or 100,000
warrants at $.125 per warrant to purchase an additional 100,000 shares of Common
Stock at $6.60 per share (the "Underwriter's Warrants"). The Underwriter's
Warrants shall be non-exercisable and non-transferable other than to (i)
officers of the Underwriter, and (ii) members of the selling group and their
officers or partners, for a period of 12 months following the Effective Date.
Thereafter, they are exercisable and transferable for a period of four years. If
the Underwriter's Warrants are not exercised during their term, they shall, by
their terms, automatically expire. The Underwriter's Warrants and the Warrants
and Common Stock issuable thereunder, shall be registered for sale to the public
and shall be included in the Registration Statement filed in connection with the
Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission"), a registration statement on Form S-1 (File No. 333-46085),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Common Stock and Warrants under the Securities Act of 1933
(the "Act"). The Company will file further amendments to said registration
statement in the form to be delivered to you and will not, before the
registration statement becomes effective, file any other amendment thereto to
which you shall have objected in writing after having been furnished with a copy
thereof. 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,
exhibits and all other documents filed as a part thereof or incorporated
therein), is hereinafter called the "Registration Statement" and the prospectus,
in the form filed with the Commission pursuant to Rule 424(b) of the General
Rules and Regulations of the Commission under the Act (the "Regulations") or, if
no such filing is made, the definitive prospectus used in the Offering, is
hereinafter called the
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"Prospectus." The term "Preliminary Prospectus" shall mean any Prospectus
included in the Registration Statement prior to the time the same is declared
effective by the Commission. The Company has delivered to you copies of each
Preliminary Prospectus as filed with the Commission and has consented to the use
of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and has not
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, subject to the provisions set forth below.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto including the Closing Date (hereinafter
defined) and for such longer periods as a Prospectus is required to be delivered
in connection with the sale of the Common Stock and Warrants by the Underwriter,
the Registration Statement and Prospectus, and any amendment thereof or
supplement thereto, will contain all material statements which are required to
be stated therein in accordance with the Act and the Regulations, and will in
all material respects conform to the requirements of the Act and the Regulations
and neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
does not apply to statements or omissions made in reliance upon and in
conformity with information furnished to the Company by you, for use in
connection with the preparation of the Registration Statement or Prospectus, or
in any amendment thereof or supplement thereto. It is understood that (i) the
statements set forth under the heading "Underwriting" in the Prospectus with
respect to the amounts of the selling concession and reallowance; and (ii) the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by or on behalf of the
Underwriter for use in connection with the preparation of the Registration
Statement and Prospectus.
(d) The Company and each of its subsidiaries, if any, are, and at the
Closing Date will be, corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation. The
Company and each of its subsidiaries are duly qualified or licensed and in good
standing as foreign corporations in each jurisdiction in which their ownership
or leasing of any properties or the character of their operations requires such
qualification or licensing, except those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the Company. The Company
and each of its subsidiaries have all requisite corporate powers and authority,
and the Company, its
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subsidiaries, and its employees have all material and necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies to own or lease their properties
and conduct their business as is described in the Prospectus and the Company and
its subsidiaries are doing business and have been doing business during the
period described in the Registration Statement in compliance with all such
material authorizations, approvals, orders, licenses, certificates and permits
and all material federal, state and local laws, rules and regulations concerning
the business in which the Company and its subsidiaries are engaged. The
disclosures in the Registration Statement concerning the effects of federal,
state and local regulation on the Company's business and that of its
subsidiaries, as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact. The Company and its
subsidiaries have all necessary corporate power and authority to enter into this
Agreement and carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed
by the Company. The Common Stock and the Warrants, the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), the Underwriter's
Warrants to be issued and sold by the Company pursuant to this Agreement, the
Common Stock and Warrants issuable upon exercise of the Underwriter's Warrants
and payment therefor, and the Warrant Shares, have been duly authorized (and, in
the case of the Common Stock and the Warrant Shares, have been duly reserved for
issuance) and, when issued and paid for in accordance with this Agreement (and,
in the case of the Warrant Shares, upon exercise of the Warrants and payment to
the Company of the exercise price therefor), the Common Stock and Warrant Shares
will be validly issued, fully paid and non-assessable; the Common Stock,
Warrants, Warrant Shares, Underwriter's Warrants are not and will not be subject
to the preemptive rights of any stockholder of the Company and conform, and at
all times up to and including their issuance will conform, in all material
respects to all statements with regard thereto contained in the Registration
Statement and Prospectus; and all corporate action required to be taken for the
authorization, issuance and sale of the Common Stock, Warrants, Warrant Shares
and Underwriter's Warrants has been taken, and this Agreement constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms, to issue and sell, upon exercise in accordance with the terms thereof,
the number and kind of securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or Bylaws of the Company or of any evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties is bound, or
under any applicable law, rule, regulation, judgment, order or decree of any
government, professional advisory body,
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administrative agency or court, domestic or foreign, having jurisdiction over
the Company or its properties, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the properties or assets of the Company;
and no consent, approval, authorization or order of any court or governmental or
other regulatory agency or body is required for the consummation by the Company
of the transactions on its part herein contemplated, except as may be required
under the Act, the Securities Exchange Act of 1934 (the "Exchange Act") or under
state securities or blue sky laws.
(g) Subsequent to the date hereof, and prior to the Closing Date, the
Company will not issue or acquire any equity securities, except that the Company
may make short-term investments as contemplated in the "Use of Proceeds" section
of the Prospectus and except that the Company may issue Common Stock in
satisfaction of outstanding options and warrants, as described in the
Registration Statement. Except as described in the Registration Statement, the
Company does not have, and at the Closing Date will not have, outstanding any
options to purchase or rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell
shares of its Preferred Stock or Common Stock, or any such options, warrants,
convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective 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.
(i) Except as set forth in the Registration Statement, the Company is
not, and at the Closing Date will not be, in violation or breach of, or in
default of, the due performance and observance of any term, covenant or
condition 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, which default or defaults, singularly or in
the aggregate, would have a material adverse effect on the Company. The Company
has not and will not have taken any action in material violation of the
provisions of the Articles of Incorporation or the Bylaws of the Company or any
statute or any order, rule or regulation of any court or regulatory authority or
governmental body having jurisdiction over or application to the Company, its
business or properties.
(j) The Company has, and at the Closing Date will have, good and
marketable title to all properties and assets described in the Prospectus as
owned by it, free and clear of all liens, charges, encumbrances, claims,
security interests,
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restrictions and defects of any material nature whatsoever, except such as are
described or referred to in the Prospectus and liens for taxes not yet due and
payable. All of the material leases and subleases under which the Company is the
lessor or sublessor of properties or assets or under which the Company holds
properties or assets as lessee as described in the Prospectus are, and will on
the Closing Date will be in full force and effect, and except as described in
the Prospectus, the Company is not and will not be in default in respect to any
of the terms or provisions of any of such leases or subleases (which would have
a material adverse effect on the business, business prospects or operations of
the Company taken as a whole), and no claim has been asserted by anyone adverse
to rights of the Company as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company to continue possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus, and the Company owns or leases all such properties as are
necessary to its operations as now conducted and, except as otherwise stated in
the Prospectus, as proposed to be conducted set forth in the Prospectus.
(k) The authorized, issued and outstanding capital stock of the
Company as of June 30, 1998 and as of the date of the Prospectus is as set forth
in the Prospectus under "Capitalization;" the shares of issued and outstanding
capital stock of the Company set forth thereunder have been duly authorized,
validly issued and are fully paid and non-assessable; except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company; and the Common Stock, the Warrants and all such
options and warrants conform, in all material respects, to all statements
relating thereto contained in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not own
or control any capital stock or securities of, or have any proprietary interest
in, or otherwise participate in, any other corporation, partnership, joint
venture, firm, association or business organization; provided, however, that
this provision shall not be applicable to the investment, if any, of the net
proceeds from the sale of the Common Stock and Warrants sold by the Company in
certificates of deposits, savings deposits, short-term obligations of the United
States Government, money market instruments or other short-term investments.
(m) BDO Xxxxxxx, LLP has reported on the financial statements of the
Company for the years ended December 31, 1997, 1996 and 1995, all of which are
filed with the Commission as a part of the Registration Statement, and are
independent accountants as required by the Act and the Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be
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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) entered into any transaction other than in the ordinary
course of business; or (iii) declared or paid any dividend or made any other
distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company threatened against, or involving the properties or
business of the Company which might materially and adversely affect the value,
assets or the operation of the properties or the business of the Company, except
as referred to in the Prospectus. Further, except as referred to in the
Prospectus, there are no actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or race,
nor is the Company charged with or, to its knowledge, under investigation with
respect to any violation of any statutes or regulations of any regulatory
authority having jurisdiction over its business or operations, and no labor
disturbances by the employees of the Company exist or, to the knowledge of the
Company, have been threatened.
(p) The Company has, and at the Closing Date will have, filed all
necessary federal, state and foreign income and franchise tax returns or has
requested extensions thereof (except in any case where the failure to so file
would not have a material adverse effect on the Company), and has paid all taxes
which it believes in good faith were required to be paid by it, except for any
such tax that currently is being contested in good faith or as described in the
Prospectus.
(q) The Company has not at any time (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets, or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date all transfer or other taxes, if any (other
than income tax), which are required to be paid, and are due and payable, in
connection with the sale and transfer of the Common Stock and Warrants by the
Company to the Underwriter, will have been fully paid or provided for by the
Company as the case may be, and all laws imposing such taxes will have been
fully complied with.
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(t) There are no contracts or other documents of the Company which
are of a character required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company intends to apply the proceeds from the sale of the
Common Stock and Warrants sold by it for the purposes and in the manner set
forth in the Registration Statement and Prospectus under the heading "Use of
Proceeds."
(v) The Company owns or possesses the requisite licenses or rights to
use all material trademarks, service marks, service names, trade names and
patents necessary to conduct its business. Except as set forth in the
Prospectus, there is no claim or action by any person pertaining to or
proceeding pending, or to the knowledge of the Company, threatened, which
challenges the exclusive right of the Company with respect to any material
trademarks, service marks, service names, trade names and patents used in the
conduct of the Company's business.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specified authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(y) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock or the Warrants
to facilitate the sale or resale of such securities.
(aa) There are no claims for services in the nature of a finder's
origination fee with respect to the sale of the Common Stock and Warrants
hereunder, except as set forth in the Prospectus.
(bb) No right of first refusal exists with respect to any sale of
securities by the Company, except as contained in this agreement.
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(cc) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to you was, when made, or as of the Closing Date
will be, materially inaccurate, untrue or incorrect.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees that:
(a) It will deliver to the Underwriter, without charge, two fully
signed copies of the Registration Statement and of each amendment or supplement
thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, without charge, as
many copies as the Underwriter has requested of each Preliminary Prospectus
heretofore filed with the Commission in accordance with and pursuant to the
Commission's Rule 430 under the Act, and will deliver to the Underwriter and to
any Selected Dealer (as hereinafter defined), without charge, on the Effective
Date of the Registration Statement, and thereafter from time to time during such
reasonable period as the Underwriter may request if, in the opinion of counsel
for the Underwriter, the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as the Underwriter may
request for the purposes contemplated by the Act. The Company will take all
necessary actions to furnish to whomever the Underwriter directs, when and as
requested by the Underwriter, all necessary documents, exhibits, information,
applications, instruments and papers as may be reasonably required or, in the
opinion of counsel to the Underwriter are desirable in order to permit or
facilitate the sale of the Common Stock and Warrants.
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by the Underwriter in
connection with the distribution of the Common Stock and Warrants (the "Selected
Dealers") to be purchased by the Underwriter and all dealers to whom any of such
Common Stock and Warrants may be sold by the Underwriter or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented, in
connection with the sale of the Common Stock and Warrants in accordance with the
applicable provisions of the Act, the applicable Regulations and applicable
state law, until completion of the distribution of the Common Stock and Warrants
and for such longer period as the Underwriter may request if the Prospectus is
required under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Common Stock and Warrants by the
Underwriter or the Selected Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement
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to become effective and will notify the Underwriter immediately, and confirm the
notice in writing: (i) when the Registration Statement or any post-effective
amendment thereto becomes effective; (ii) of the issuance by the Commission of
any stop order or of the initiation, or the threatening, of any proceedings for
that purpose; (iii) of the suspension of the qualification of the Common Stock
and Warrants and the Underwriter's Warrants or underlying securities, for
offering or sale in any jurisdiction or of the initiating, or the threatening,
of any proceeding for that purpose; and (iv) of the receipt of any comments from
the Commission. If the Commission shall enter a stop order at any time, the
Company will make every reasonable effort to obtain the lifting of such order at
the earliest possible moment.
(e) During the time when a prospectus is required to be delivered
under the Act, the Company will comply with all requirements imposed upon it by
the Act and the Exchange Act, as now and hereafter amended and by the
Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Common Stock and Warrants in
accordance with the provisions hereof and the Prospectus. If at any time when a
prospectus relating to the Common Stock and Warrants 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 and counsel for the Underwriter, 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 the 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
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act and will
furnish to the Underwriter copies thereof.
(f) The Company will endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Common Stock and Warrants for offering and sale under
the securities laws or blue sky laws of such jurisdictions as the Underwriter
may reasonably designate. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, file and make such statements or reports
at such times as are or may reasonably be required by the laws of such
jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings statement of the Company, which will be in reasonable
detail but which need not be audited, covering a period of at least twelve
months beginning after the Effective Date of the Registration Statement, which
earnings statements shall satisfy the requirements of Section 11(a) of the Act
and the Regulations as then in effect. The Company may discharge this obligation
in accordance with Rule 158 of the Regulations.
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(h) During the five year period commencing on the Effective Date of
the Registration Statement, the Company will furnish to its stockholders an
annual report (including financial statements audited by its independent public
accountants), in reasonable detail, and, at its expense, furnish the Underwriter
if so requested (i) within 105 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its then consolidated
subsidiaries and a separate balance sheet of each subsidiary of the Company the
accounts of which are not included in such consolidated balance sheet as of the
end of such fiscal year, and consolidated statements of operations,
stockholder's equity and cash flows of the Company and its consolidated
subsidiaries and separate statements of operations, stockholder's equity and
cash flows of each of the subsidiaries of the Company the accounts of which are
not included in such consolidated statements, for the fiscal year then ended,
all in reasonable detail and all certified by independent accountants (within
the meaning of the Act and the Regulations), (ii) within 50 days after the end
of each of the first three fiscal quarters of each fiscal year, similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, stockholder's equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, (iii) as
soon as available, each report furnished to or filed with the Commission or any
securities exchange and each report and financial statement furnished to the
Company's shareholders generally and (iv) as soon as available, such other
material as the Underwriter may from time to time reasonably request regarding
the financial condition and operations of the Company and its subsidiaries.
(i) For a period of three years from the Closing Date, the Company,
at its expense, shall cause its regularly engaged independent certified public
accountants to consult with the Company concerning the Company's financial
statements for each of the first three quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q (or 10Q-SB)
quarterly report and the mailing of quarterly financial information to
stockholders. The purpose of such consultation is to obtain the assistance and
input of such accountants so that each of such financial statements will comply
in all material respects with the applicable accounting requirements of the
Exchange Act and the regulations promulgated thereunder and will be fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the then most recently audited
financial statements of the Company. It is not the intended purpose of this
provision that such accountant's audit or review such financial statements
within the meaning of the AICPA's Statement on Auditing Standards or that such
accountants issue any report to the Company or the Underwriter.
(j) Prior to the Closing Date, the Company will not issue, directly
or indirectly, without the Underwriter's prior written consent and that of
counsel for the Underwriter, which consent shall not be unreasonably withheld,
any press release or
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other public announcement or hold any press conference with respect to the
Company or its activities with respect to this Offering, other than promotion of
its products in the ordinary course of business; provided, however, that if a
press release is required as a matter of law or prudent corporate disclosure
posture, the Company may make said press release without consent.
(k) It will deliver to the Underwriter prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date of the Registration Statement and will not file any
such amendment or supplement to which the Underwriter shall reasonably object
after being furnished such copy.
(l) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action designed
to, or which will constitute or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock and
Warrants to facilitate the sale or resale of any of the Common Stock and
Warrants.
(m) The Company will not, without the Underwriter's prior written
consent, issue or sell, or contract to sell or otherwise dispose of any of its
securities, except sales of the Common Stock and Warrants (and the Common Stock
underlying the Warrants) pursuant to this Agreement and except for stock options
under the Company's stock option plan and outstanding warrants, or as otherwise
described in the Prospectus for a period of 120 days after the commencement of
the Offering.
(n) The Company will apply the net proceeds from the Offering
received by it in a manner consistent with the application described in "Use of
Proceeds" in the Prospectus.
(o) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Common Stock and Warrants
or any amendment or supplement to the Prospectus relating to the offering of the
Common Stock and Warrants subsequent to the Effective Date of the Registration
Statement, whether pursuant to subsection (j) herein or otherwise, such counsel,
such accountants, such officers and directors will, at the time of such filing
or at such subsequent time as the Underwriter shall specify, so long as
securities being registered by such amendment or supplement are being
underwritten by the Underwriter, respectively, furnish to the Underwriter such
opinions, letters and certificates, each dated the date of its delivery, of the
same nature as the opinions, the letters and the certificates referred to in
said Paragraph 9, respectively, as the Underwriter may reasonably request, or,
if any such opinion or letter or certificate cannot be furnished by reason of
the fact that such counsel or such accountants or any such officer or director
believes that the same would be inaccurate, such counsel or
12
such accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(p) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(q) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued Shares which are issuable upon
exercise of the Warrants and issuable upon exercise of the Underwriter's Share
Warrants and Underwriter's Warrant Warrants (including the underlying
securities) outstanding from time to time.
(r) Following the Effective Date and from time to time thereafter, so
long as the Warrants are outstanding, the Company will timely prepare and file
at its sole cost and expense one or more post-effective amendments to the
Registration Statement or a new registration statement as required by law as
will permit Warrant holders to be furnished with a current prospectus in the
event Warrants are exercised, and to use its best efforts and due diligence to
have same be declared effective. Such post-effective amendments or new
registration statements shall also register the Underwriter's Warrants and all
the securities underlying such Underwriter's Warrants as provided in the
Underwriter's Warrants. The Company will deliver a draft of each such
post-effective amendment or new registration statement to the Underwriter at
least ten days prior to the filing of such post-effective amendment or
registration statement.
(s) Following the Effective Date and from time to time thereafter so
long as any of the Warrants remain outstanding, the Company will timely deliver
and supply to its warrant agent sufficient copies of the Company's current
Prospectus, as will enable such warrant agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(t) So long as any of the Warrants remain outstanding, the Company
shall continue to employ the services of a firm of independent certified public
accountants acceptable to the Underwriter in connection with the preparation of
the financial statements to be included in any registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
Notwithstanding the foregoing, BDO Xxxxxxx, LLP, or any accounting firm of
national recognition shall be acceptable to the Underwriter.
(u) So long as any of the Warrants remain outstanding, the Company
shall continue to appoint a warrant agent for the Warrants, who shall be
reasonably acceptable to the Underwriter.
(v) INTENTIONALLY LEFT BLANK.
(w) Commencing on the Effective Date, the Company shall have
13
entered into a financial consulting agreement with the Underwriter in form
reasonably satisfactory to the Underwriter.
(x) The Common Stock and Warrants shall be listed on the NASD's OTC
Bulletin Board not later than the Closing Date. After the Closing Date, the
Company will effect and use its best efforts to maintain such listing (unless
the Company is acquired or is listed on either the Nasdaq SmallCap Market or
National Market System New York Stock Exchange or American Stock Exchange) for
at least five years from the date of this Agreement.
(y) The Company has applied for listing in Standard and Poors
Corporation Reports and shall use its best efforts to have the Company included
in such publications for at least five years after the Effective Date.
(z) The Company agrees not to file a registration statement on Form
S-8 or any similar form currently in effect or which may be hereafter adopted
pursuant to the Act, during the twenty-four months following the Effective Date
without prior written consent of the Underwriter.
(aa) The Company agrees not to effect any sales of Common Stock at
prices below the Exercise Price of the Warrants, during the twenty-four months
following the Effective Date without prior written approval of the Underwriter,
which consent shall not be unreasonably withheld.
4. APPOINTMENT OF AGENT TO SELL THE SHARES AND WARRANTS.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby appoints the Underwriter as its exclusive agent for a period
of 45 days from the Effective Date, subject to an extension by mutual agreement
of the Company and the Underwriter for an additional period not to exceed 45
days, to sell the Common Stock and Warrants, and the Underwriter, on the basis
of the representations and warranties of the Company herein, accepts such
appointment on a "best efforts, all or none" basis with respect to all of the
Shares and Warrants. The price at which the Underwriter shall sell the Common
Stock and Warrants to the public, as agent for the Company, shall be $6.00 per
share of Common Stock and $0.10 per Warrant, and the Company shall pay a
commission of $0.60 and $0.01 in respect of such shares of Common Stock and
Warrants, respectively, sold on behalf of the Company by the Underwriter.
(b) Provided that all of the Shares and Warrants are sold and paid
for, the Company agrees to pay the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of the offering, subject to
Paragraph 8 herein.
(c) It is a condition of this Agreement that the Underwriter shall
use its
14
best efforts to sell the shares of Common Stock and Warrants on behalf of the
Company, that the Underwriter will instruct investors to make all remittances
payable to the Escrow Agent (hereinafter defined) and that any and all funds
received from such sale, without any deduction therefrom whatsoever, including,
but not limited to, any underwriting commission or any dealer concession or
otherwise, shall be forthwith deposited in a non-interest bearing escrow account
with __________________, as Escrow Agent, pursuant to the terms of an Escrow
Agreement entered into by and among the Company, the Underwriter and the Escrow
Agent, no later than 12 noon of the next business day after receipt. In the
event all of the Shares and Warrants are not sold within 45 days from the
Effective Date, or following the expiration of an additional 45 days if so
agreed in writing by the Company and the Underwriter (with an additional ten
business days to permit clearance of the funds in escrow), all funds will be
promptly refunded to the subscribers in full, without deduction therefrom or
interest thereon. During the period of escrow, subscribers will not have the
right to demand a refund of their subscriptions. Certificates will be issued to
purchasers only if proceeds from the sale of all of the Shares and Warrants are
released from escrow to the Company or as directed by the Company. Until such
time as the funds have been released, such purchasers, if any, will be deemed
subscribers and not shareholders. The funds in escrow will be held for the
benefit of those subscribers until released to the Company and will not be
subject to creditors of the Company or for the expenses of this offering.
(d) In the event of the sale of all of the Shares and Warrants such
concessions from the public offering price may be allowed to selected dealers
and members of the National Association of Securities Dealers, Inc. ("NASD") as
you determine, within the limits set forth in the Prospectus.
5. DELIVERY AND PAYMENT.
(a) Delivery of the shares of Common Stock and Warrants against
payment therefor shall take place at the offices of May Xxxxx Group, Inc., (or
at such other place as may be designated by you) at 10:00 A.M., New York time,
on such date after the Registration Statement has become effective as the
Underwriter shall designate, such time and date of payment for and delivery of
the shares of Common Stock and Warrants being herein called the "Closing Date".
(b) The Company will make the certificates for the shares of Common
Stock and Warrants to be sold hereunder available to the Underwriter for
inspection at least two full business days prior to the Closing Date at the
offices of the Company's transfer agent. The certificates shall be in such
names and denominations as you may request, at least two full business days
prior to the Closing Date.
15
6. OFFERING THE COMMON STOCK AND WARRANTS ON BEHALF
OF THE COMPANY.
It is understood that you propose to offer the Common Stock and
Warrants to the public, solely as agent for the Company, upon the terms and
conditions set forth in the Registration Statement. The Underwriter shall
commence making such offer as agent for the Company on the Effective Date or as
soon thereafter as you deem advisable.
7. SELECTED DEALERS.
The Underwriter may offer and sell the Common Stock and Warrants for
the Company's account through Selected Dealers registered with the NASD, as
selected by the Underwriter in accordance with a form of Selected Dealer
Agreement, pursuant to which the Underwriter may allow a concession (out of the
underwriting commission in the event of the sale of all of the Shares and
Warrants within the limits to be set forth in the Prospectus, but all such sales
by Selected Dealers shall be made by the Company, acting through the Underwriter
as agent, and not for the account of the Underwriter.
8. PAYMENT OF EXPENSES.
(a) Whether or not the sale of the Common Stock and Warrants is
consummated, the Company will pay and bear all costs, fees, taxes and expenses
incident to the performance of this Agreement by the Company, including but not
limited to: (i) the issuance, offer, sale and delivery of the Common Stock and
Warrants, including all expenses and fees incident to the preparation, printing,
filing and mailing (including the payment of postage with respect to such
mailing) of the Registration Statement (including all exhibits thereto), each
Preliminary Prospectus, the Prospectus, and amendments and post-effective
amendments thereof and supplements thereto, and this Agreement and related
documents, Preliminary and Final Blue Sky Memoranda, including the cost of
preparing and printing all copies thereof to be printed by a financial printer
selected by the Underwriter in quantities deemed necessary by the Underwriter;
(ii) the preparing and printing of one "Tombstone" advertisement in the Wall
Street Journal (iii) the printing, engraving, issuance and delivery of the
Common Stock, Warrants, Warrant Shares, Underwriter's Warrants and the
securities underlying the Underwriter's Warrants, including any transfer or
other taxes payable thereon in connection with the original issuance thereof;
(iv) the qualification of the Common Stock and Warrants under the state or
foreign securities or "Blue Sky" laws selected by the Underwriter and the
Company, and disbursements and reasonable fees of counsel for the Underwriter
(such counsel fees shall be $35,000, of which $10,000 shall be due and payable
upon the commencement of blue sky filing) in connection therewith plus the
filing fees for such states; (v) fees and disbursements of counsel and
accountants for the Company; (vi) the filing fees payable to the Commission and
the National Association of Securities Dealers, Inc. ("NASD"); (vii) any other
expenses incurred on behalf of the Company; (viii) any listing of the Common
Stock and Warrants on the OTC
16
Bulletin Board; and (ix) the cost of preparing and delivering to the Underwriter
and its counsel three (3) bound volumes containing copies of all documents and
appropriate correspondence filed with or received from the Commission and the
NASD, and all closing documents.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, if all of the Shares and Warrants are sold
as provided by this Agreement, the Company shall reimburse the Underwriter at
closing for expenses incurred by the Underwriter in connection with the Offering
(for which the Underwriter need not make any accounting of), in the amount of 3%
of the price to the public of each share of Common Stock and Warrant sold in the
Offering. This 3% non-accountable expense allowance shall cover the fees of the
Underwriter's legal counsel, but shall not include any expenses for which the
Company is responsible under Paragraph 8(a) above, including the reasonable fees
and disbursements of the Underwriter's legal counsel with respect to Blue Sky
matters. As of the date hereof, $50,000 has been advanced by the Company to the
Underwriter with respect to such non-accountable expense allowance.
(c) If the transactions contemplated hereby are not consummated for
any reason whatsoever, or in the event that the Company does not or cannot, for
any reason whatsoever, expeditiously proceed with the Offering, or if any of the
representations, warranties or covenants contained in this Agreement are not
materially correct or cannot be complied with by the Company, or business
prospects or obligations of the Company are adversely affected and the Company
does not commence or continue with the Underwriting at any time or terminates
the proposed transaction prior to the closing of this Agreement, the Company
shall reimburse the Underwriter on an accountable basis for all out-of-pocket
expenses actually incurred in connection with the Underwriting, this Agreement
and all of the transactions hereby contemplated, including, without limitation,
the Underwriter's legal fees and expenses, up to an aggregate total of $50,000
less such sums which have already been paid.
(d) On the closing of the Offering the Company shall enter into a
financial consulting agreement with the Underwriter, pursuant to which the
Underwriter will provide financial consulting services to the Company for a
three-year period beginning on the Closing Date (the "Financial Consulting
Agreement"). The Company shall pay the Underwriter a consulting fee of $108,000
from the Offering proceeds, payable in full on the Closing Date.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS.
The Obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its
17
officers and directors made pursuant to the provisions hereof, and to the
performance by the Company of its covenants and agreements hereunder and under
each certificate, opinion and document contemplated hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York time, on the date following the date of this Agreement,
or such later date and time as shall be consented to in writing by the
Underwriter and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Common Stock and Warrants under the securities laws of any jurisdiction
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or to the Underwriter's knowledge or the
knowledge of the Company, shall be contemplated by the Commission or any such
authorities of any jurisdiction and any request on the part of the Commission or
any such authorities for additional information shall have been complied with to
the reasonable satisfaction of the Commission or such authorities and counsel to
the Underwriter and after the date hereof no amendment or supplement shall have
been filed to the Registration Statement or Prospectus without the Underwriter's
prior consent.
(b) The Registration Statement or the Prospectus or any amendment
thereof or supplement thereto shall not contain an untrue statement of a fact
which is material, or omit to state a fact which is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there shall
be no proceeding instituted or, to the Company's knowledge, threatened against
the Company or any of its officers or directors before or by any federal, state
or county commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding would have a material adverse effect on
the Company or its business, business prospects or properties, or have a
material adverse effect on the financial condition or results of operations of
the Company.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to the Underwriter shall be true and correct at the
Closing Date as if made at the Closing Date, and all covenants and agreements
contained herein and in each such certificate and document to be performed on
the part of the Company, and all conditions contained herein and in each such
certificate and document to be fulfilled or complied with by the Company at or
prior to the Closing Date shall be fulfilled or complied with.
18
(e) At the Closing Date, the Underwriter shall have received the
opinion of Gusrae, Xxxxxx & Xxxxx, counsel to the Company, dated such Closing
Date, addressed to the Underwriter and in form and substance satisfactory to
counsel to the Underwriter, and such counsel may rely upon certificates given to
them from such persons that they deem appropriate, to the effect that:
(i) The Company and each of its subsidiaries are corporations
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, with full corporate power and
authority, and all necessary and material licenses, permits, certifications,
registrations, approvals, consents and franchises of and from all government and
regulatory officials and bodies to own or lease and operate their properties and
to conduct their business as described in the Registration Statement. Such
licenses, permits, certifications, registrations, approvals, consents and
franchises are in full force and effect and the Company is in compliance
therewith in all material respects. The Company and each of its subsidiaries are
duly qualified to do business as foreign corporations and are in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties of the Company and its subsidiaries;
(ii) The Company has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement, the Warrant Agreement
and the Underwriter's Warrants and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Underwriting Agreement,
the Warrant Agreement and the Underwriter's Warrants by the Company, the
consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement, the
Warrant Agreement and the Underwriter's Warrants have been duly authorized by
all necessary corporate action, and each of the Underwriting Agreement, the
Warrant Agreement and the Underwriter's Warrants has been duly executed and
delivered by the Company. Each of the Underwriting Agreement, the Warrant
Agreement and the Underwriter's Warrants is a valid and legally binding
obligation of the Company, enforceable in accordance with their respective
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable remedies
and except that enforceability of the indemnification provisions and the
contribution provisions set forth in the Underwriting Agreement may be limited
by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants by
the Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Warrant Agreement and the Underwriter's Warrants do
not, and will not, with or without the
19
giving of notice or the lapse of time, or both, (A) result in a violation of the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, (B) to the best of such counsel's knowledge, result in a breach
of, or conflict with, any terms or provisions of or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries pursuant to, any
indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company or its subsidiaries is a party or by which the
Company or its subsidiaries or any of its properties or assets are or may be
bound or affected; (C) to the best of such counsel's knowledge violate any
existing applicable law, rule or regulation or judgment, order or decree known
to such counsel of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or its subsidiaries or any of its properties or
business; or (D) to the best of such counsel's knowledge, have any material
adverse effect on any material permit, certification, registration, approval,
consent, license or franchise necessary for the Company or its subsidiaries to
own or lease and operate its properties and to conduct its business or the
ability of the Company or its subsidiaries to make use thereof;
(iv) To the best of such counsel's knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Common Stock, the Warrants,
the Warrant Shares, or the Underwriter's Warrants, and the consummation by the
Company of the transactions contemplated by the Underwriting Agreement, the
Warrant Agreement or the Underwriter's Warrants;
(v) The Registration Statement was declared effective under the
Act on _____________, 1998; to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which such counsel expresses no
opinion), comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form SB-2 have been satisfied by the Company;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by such counsel, and, based upon such review, are accurate in all
material respects and present fairly the information required to be disclosed,
and there are no material statutes or regulations, or, to the best of such
counsel's knowledge, material
20
contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule or regulation or
judgment, order or decree known to such counsel of any United States
governmental agency or court having jurisdiction over the Company or its
subsidiaries or any of its assets or businesses;
(viii) The outstanding Common Stock, Options and Warrants have
been duly authorized and validly issued. The outstanding Common stock is fully
paid and nonassessable. None of the outstanding Common Stock has been issued in
violation of the preemptive rights of any shareholder of the Company. None of
the holders of the outstanding Common Stock is subject to personal liability
solely by reason of being such a holder. The offers and sales of the outstanding
Common Stock were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Stock conforms to the description thereof
contained in the Registration Statement and Prospectus. To the best of such
counsel's knowledge, except as set forth in the Prospectus, no holder of any of
the Company's securities has any rights, "demand," "piggyback" or otherwise, to
have such securities registered under the Act;
(ix) The issuance and sale of the Common Stock, the Warrants, the
Warrant Shares and the Underwriter's Warrants have been duly authorized and when
issued and paid for, will be validly issued, fully paid and nonassessable, and
the holders thereof will not be subject to personal liability solely by reason
of being such holders. The Common Stock is not subject to preemptive rights of
any stockholder of the Company. The certificates representing the securities are
in proper legal form;
(x) The issuance and sale of the Warrants, the Warrant Shares
and the Underwriter's Warrants have been duly authorized and, when paid for,
issued and delivered pursuant to the terms of the Warrant Agreement, the
Underwriting Agreement or the Underwriter's Warrants, as the case may be, the
Warrants, the Warrant Shares and the Underwriter's Warrants will constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms, to issue and sell the Warrants, the Warrant Shares and/or
Underwriter's Warrants. All corporate action required to be taken for the
authorization, issuance and sale of the securities has been duly, validly and
sufficiently taken. The Warrants, the Warrant Shares and the Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and Prospectus;
(xi) The Underwriter will acquire good title to the Common
21
Stock and Warrants, free and clear of all liens, encumbrances, equities,
security interests and claims, provided that the Underwriter is a bona fide
purchaser as defined in Section 8-302 of the Uniform Commercial Code;
(xii) INTENTIONALLY LEFT BLANK.
(xiii) To the best of such counsel's knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against the
Company or its subsidiaries, or involving their properties or business, other
than as described in the Prospectus, such description being accurate, and other
than litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material, and, except as otherwise
disclosed in the Prospectus and the Registration Statement, the Company and its
subsidiaries are not in violation of any applicable federal and state laws,
statutes and regulations concerning its business;
(xiv) The Company has federal registrations of the
trademarks/servicemarks as set forth in the Registration Statement. To the best
of such counsel's knowledge, the Company and its subsidiaries have not infringed
and are not infringing with the rights of others with respect to such
intangibles; and, to the best of such counsel's knowledge, except as otherwise
disclosed in the Prospectus, the Company and its subsidiaries have not received
any notice of conflict with the asserted rights of others with respect to
intangibles which might, singly or in the aggregate, materially adversely affect
their business, results of operations or financial condition;
(xv) Such counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
otherwise set forth in the opinion), in the course of such reviews and
discussions and such other investigation as they deemed necessary, no facts came
to their attention which lead them to believe that (A) the Registration
Statement (except as to the financial statements and other financial data
contained therein, as to which such counsel expresses no opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which such counsel expresses no opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading;
(f) INTENTIONALLY LEFT BLANK.
(g) On or prior to the Closing Date, counsel for the Underwriter
shall
22
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraph (e) of this Paragraph 9, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company, other than as contemplated in the Registration Statement, 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, outside 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 material to the Company, which is either (x)
required to be disclosed in the Prospectus or Registration Statement and is not
so disclosed, or (y) likely to have material adverse effect on the Company's
business or financial condition;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness;
(iv) No material amount of the assets of the Company shall
have been pledged, mortgaged or otherwise encumbered, 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 to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
operations, prospects or financial condition or income of the Company, taken as
a whole, except as set forth in the Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the Act and
no proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of the
Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to the Underwriter was, when
originally made and is at the time such certificate is dated, true and correct.
(i) Concurrently with the execution and delivery of this Agreement
and
23
at the Closing Date, the Underwriter shall have received a certificate of the
Company signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the effect
that the conditions set forth in subparagraph (g) above have been satisfied and
that, as of the Closing Date, the representations and warranties of the Company
set forth in Paragraph 2 herein and the statements in the Registration Statement
and Prospectus were and are true and correct. Any certificate signed by any
officer of the Company and delivered to the Underwriter or counsel for the
Underwriter shall be deemed a representation and warranty by the Company to the
Underwriter as to the statements made therein.
(j) At the time this Agreement is executed, and at the Closing Date,
the Underwriter shall have received letters, addressed to the Underwriter and in
form and substance satisfactory in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and counsel for the Underwriter, from BDO Xxxxxxx, LLP, dated
as of the date of this Agreement and as of the Closing Date:
(i) Confirming that they are independent public accountants
with respect to the Company and its subsidiaries, within the meaning of the Act
and applicable regulations thereunder;
(ii) Stating that in their opinion the audited consolidated
financial statements of the Company included in the Registration Statement and
Prospectus for the years ended December 31, 1997, 1996 and 1995, respectively,
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations thereunder with respect to
registration statements on Form S-1;
(iii) Stating that, with respect to the period from June 30,
1998 (Company) to a specified date (the "Specified Date") not earlier than five
days prior to the date of such letter, they have read such interim unaudited
consolidated financial data of the Company for the period from June 30, 1998,
through the Specified Date as are available on the date of such letter, read the
minutes of the stockholders and board of directors of the Company and for the
period from June 30, 1998 through the Specified Date (or, to the extent that
they are advised by the Company that final minutes of any such meeting are not
available on the date of such letter, a draft thereof furnished by the Company,
and made inquiries of officers of the Company responsible for financial and
accounting matters as to whether (I) at the specified date there was any change
in the capital stock or long-term liabilities of the Company, or any decrease in
the net current assets or net assets of the Company, as compared with the
amounts shown on the June 30, 1998 balance sheets filed with and as part of the
Prospectus, or (II) for the period from June 30, 1998 to the Specified Date,
there were any increases, as compared with the corresponding period in the
preceding year, in the total or per share amounts of net loss (or, as the case
may be, any decrease in net income), and further stating that while such
procedures and inquiries do not constitute an
24
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that there was any
such change other than as disclosed or contemplated by the Prospectus or, if any
such change has occurred, fully explaining the nature of such change and its
effect on the financial position of the Company.
(iv) Stating that they have carried out certain specified
procedures (specifically set forth in such letter or letters) as specified by
the Underwriter not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and compared them with, either the audited financial statements
filed with and as a part of the Prospectus and covered by their report included
therein, or other financial data, specified by the Underwriter, not included in
the Prospectus but from which information in the Prospectus is derived, and
which have been obtained directly from the general accounting records of the
Company or indirectly from such accounting records by analysis or computation,
and having compared such tables, statistics and other financial data with such
audited financial statements or the accounting records of the Company stating
that they have found such tables, statistics and other financial data to agree
therewith; and
(v) Stating such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
(k) All proceedings taken in connection with the authorization,
issuance or sale of the Common Stock, Warrants, Warrant Shares, the
Underwriter's Warrants and the Underwriter's Warrant Shares as herein
contemplated shall be satisfactory in form and substance to the Underwriter and
to counsel to the Underwriter, and the Underwriter shall have received from such
counsel an opinion, dated as the Closing Date with respect to such of these
proceedings as the Underwriter may reasonably require.
(l) The Company shall have furnished to the Underwriter such
certificates, additional to those specifically mentioned herein, as the
Underwriter may have reasonably requested in a timely manner as to the accuracy
and completeness, at the Closing Date, of any statement in the Registration
Statement or the Prospectus, as to the accuracy, at the Closing Date, of the
representations and warranties of the Company herein and in each certificate and
document contemplated under this Agreement to be delivered to the Underwriter,
as to the performance by the Company of its obligations hereunder and under each
such certificate and document or as to the fulfillment of the conditions
concurrent and precedent to the Underwriter's obligations hereunder.
(m) The obligation of the Underwriter to purchase Common Stock and
Warrants hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Closing Date.
25
(n) On the Closing Date there shall have been duly tendered to the
Underwriter for the Underwriter's account the appropriate number of shares of
Common Stock and Warrants.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under 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 the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriter's Warrant Shares upon exercise of the Underwriter's
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares,
Underwriter's Warrants and Underwriter's Warrant Shares (including the Shares
issuable upon exercise of the Warrants underlying the Underwriter's Warrants)
under the securities laws thereof or filed with the Commission 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 not
misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon or in conformity with information furnished to the Company as
provided in Section 2(c) hereof with respect to the Underwriter by or on behalf
of the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in application, as the case may be. Notwithstanding the foregoing, the Company
shall have no liability under this Paragraph 10(a) if any such untrue statement
or omission made in a Preliminary Prospectus, is cured in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company
and each of the officers and directors of the Company who have signed the
26
Registration Statement and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
Underwriter in Paragraph 10(a), but only with respect to any untrue statement or
alleged untrue statement of any material fact contained in, or any omission or
alleged omission to state a material fact required to be stated in, any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, information furnished to the Company by the Underwriter as provided in
Section 2(c) hereof expressly for use in the preparation of such Preliminary
Prospectus, the Registration Statement or Prospectus. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise have.
Notwithstanding the foregoing, the Underwriter shall have no liability under
this Paragraph 10(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against the Underwriter or controlling
person in respect of which indemnity may be sought against the Company pursuant
to the foregoing, the Underwriter shall promptly notify the Company in writing
of the institution of such action and the Company shall assume the defense of
the action, including the employment and fees of counsel (reasonably
satisfactory to the Underwriter) and payment of expenses. The 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 the Underwriter or such controlling person unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action. If the Company shall have employed counsel to have
charge of the defense or shall previously have assumed the defense of any such
action or claim, the Company shall not thereafter be liable to any Underwriter
or controlling person in investigating, preparing or defending any such action
or claim. Each indemnified party shall promptly notify the Underwriter of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors or controlling persons in connection with the issue and
sale of the Common Stock, Warrants, Warrants Shares, Underwriter's Warrants or
Underwriter's Warrant Shares or in connection with the Registration Statement or
Prospectus.
(d) In order to provide for just and equitable contribution under the
Act in any case in which: (i) the Underwriter makes a claim for indemnification
pursuant to Paragraph 10 hereof, but it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the time
to appeal has expired or the last right of appeal has been denied) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriter shall contribute to
27
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein by the total purchase price of
all Common Stock and Warrants sold in the public offering and the Company is
responsible for the remaining portion; provided, that in any such case, 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.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company, and the Underwriter. As used in this Paragraph 10,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any officer, director or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
(e) Within fifteen (15) 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 made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability 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 his or its representative
of the commencement thereof within the aforesaid fifteen (15) 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 effected by such party seeking
contribution without the written consent of such contributing party. The
indemnification provisions contained in this Paragraph 10 are in addition to any
other rights or remedies which either party hereto may have with respect to the
other or hereunder.
11. REPRESENTATIONS, WARRANTIES, AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company set forth in this Agreement, shall
remain operative and in full force and effect regardless of (i) any
investigation made by
28
the Underwriter or on its behalf or by or on behalf of any person who controls
the Underwriter, or by the Company or any controlling person of the Company or
any director or any officer of the Company, (ii) acceptance of any of the Common
Stock and Warrants and payment therefor, or (iii) any termination of this
Agreement, and shall survive the delivery of the Common Stock and Warrants and
any successor of the Underwriter or the Company, or of any person who controls
the Underwriter or the Company or any other indemnified party, as the case may
be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriter and the Company contained in this Paragraph 11 shall be in
addition to any liability which the Underwriter and the Company may otherwise
have.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 10:00 A.M., New York
time, on the first full business day following the day on which the Underwriter
and the Company receive notification that the Registration Statement became
effective.
(b) This Agreement may be terminated by the Underwriter by notifying
the Company at any time on or before the Closing Date, if in the Underwriter's
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Common Stock and Warrants agreed to be
purchased hereunder by reason of (i) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date herein), (iv) a banking moratorium having
been declared by federal or New York State authorities, (v) an outbreak of major
international hostilities or other national or international calamity having
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company, (vii) the Company is merged
or consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs, (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, or any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Underwriter to have a
material impact on the business, financial condition or financial statements of
the Company, (ix) any adverse change in the financial or securities markets
beyond normal market fluctuations having occurred since the date of this
Agreement, or (x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement and
Prospectus, in the earnings, business prospects or general condition of
29
the Company, financial or otherwise, whether or not arising in the ordinary
course of business.
(c) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12, the
Company shall be notified promptly by the Underwriter by telephone or facsimile,
confirmed by letter.
(d) If this Agreement shall not become effective by reason of an
election of the Underwriter pursuant to this Paragraph 12 or if this Agreement
shall not be carried out within the time specified herein by reason of any
failure on the part of the Company to perform any undertaking, or to satisfy any
condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriter, in addition to the obligations
assumed by the Company pursuant to Paragraph 8 herein, will be to reimburse the
Underwriter for the following: (i) Blue Sky counsel fees and expenses to the
extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees; and (iii)
such reasonable out-of-pocket expenses of the Underwriter (including the fees
and disbursements of their counsel), to the extent set forth in Paragraph 8(c),
in connection with this Agreement and the proposed offering of the Shares and
Warrants, but in no event to exceed the sum of $50,000 less such amounts already
paid.
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 Paragraph 8 and 10
hereof 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.
13. NOTICES.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to May Xxxxx Group, Inc., Xxx Xxxxx Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx May, with a copy thereof to
Xxx X. Xxxxxxxxx, Esq., Gersten, Savage, Xxxxxxxxx & Xxxxxxxxxx, LLP, 000 Xxxx
00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, and, if sent to the Company,
shall be mailed, delivered or telegraphed and confirmed to the Company at 000
Xxxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxx 00000, Attention: Xxxxxx X. Xxxxxxxx, with a
copy thereof to Gusrae, Xxxxxx & Bruno, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, Attention: Xxxxxx Xxxxx, Esq.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Paragraph 10 hereof, and their respective
successors, legal representatives and assigns, and no other person, shall have
or be construed to have
30
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained.
15. CONSTRUCTION.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and the Underwriter relating to the sale of any of the Common Stock and
Warrants.
16. JURISDICTION AND VENUE.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Eastern District of New York.
17. COUNTERPARTS.
This Agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between the
Underwriter 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,
KAIRE INTERNATIONAL, INC.
By:
---------------------------------
Xxxxxx X. Xxxxxxxx
President
Accepted as of the date
first above written:
MAY XXXXX GROUP, INC.
By:
-----------------------------
Xxxx May, President
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