FORM OF
UNDERWRITING AGREEMENT
BETWEEN
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND
XXXXXX SECURITIES, INC.
DATED: ____________, 2004
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Securities....................................................1
1.1 Firm Securities...........................................................1
1.1.1 Purchase of Firm Securities......................................1
1.1.2 Delivery and Payment.............................................1
1.2 Over-Allotment Option.....................................................2
1.2.1 Option Securities................................................2
1.2.2 Exercise of Option...............................................2
1.2.3 Payment and Delivery.............................................2
1.3 Representative's Purchase Option..........................................3
1.3.1 Purchase Option..................................................3
1.3.2 Payment and Delivery.............................................3
2. Representations and Warranties of the Company......................................3
2.1 Filing of Registration Statement..........................................3
2.1.1 Pursuant to the Act..............................................3
2.1.2 Pursuant to the Exchange Act.....................................4
2.2 No Stop Orders, Etc.......................................................4
2.3 Disclosures in Registration Statement.....................................4
2.3.1 Securities Act Representation....................................4
2.3.2 Disclosure of Contracts..........................................4
2.3.3 Prior Securities Transactions....................................5
2.4 Changes After Dates in Registration Statement.............................5
2.4.1 No Material Adverse Change.......................................5
2.4.2 Recent Securities Transactions, Etc..............................5
2.5 Independent Accountants...................................................5
2.6 Financial Statements......................................................5
2.7 Authorized Capital; Options; Etc..........................................5
2.8 Valid Issuance of Securities; Etc.........................................6
2.8.1 Outstanding Securities...........................................6
2.8.2 Securities Sold Pursuant to this Agreement.......................6
2.9 Registration Rights of Third Parties......................................7
2.10 Validity and Binding Effect of Agreements.................................7
2.11 No Conflicts, Etc.........................................................7
2.12 No Defaults; Violations...................................................7
2.13 Corporate Power; Licenses; Consents.......................................8
2.13.1 Conduct of Business..............................................8
2.13.2 Transactions Contemplated Herein.................................8
2.14 Title to Property; Insurance..............................................8
2.15 Litigation; Governmental Proceedings......................................8
2.16 Good Standing.............................................................8
2.17 Taxes.....................................................................9
2.18 Employees' Options........................................................9
2.19 Transactions Affecting Disclosure to NASD.................................9
2.19.1 Finder's Fees....................................................9
2.19.2 Payments Within Twelve Months....................................9
2.19.3 Use of Proceeds.................................................10
2.19.4 Insiders' NASD Affiliation......................................10
TABLE OF CONTENTS (CONT.)
Page
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2.20 Foreign Corrupt Practices Act............................................10
2.21 Bulletin Board Eligibility...............................................10
2.22 Intangibles..............................................................10
2.23 Relations With Employees.................................................11
2.23.1 Employee Matters................................................11
2.23.2 Employee Benefit Plans..........................................11
2.24 Officers' Certificate....................................................11
2.25 Warrant Agreement........................................................11
2.26 Lock-Up Agreements.......................................................11
2.27 Subsidiaries.............................................................12
2.28 Environmental Matters....................................................12
2.29 Product Liability Insurance..............................................12
2.30 Conversion of 7 1/4% Notes...............................................12
2.31 Related Party Transactions...............................................12
2.32 Standard & Poor's Listing................................................12
2.33 Regulatory Compliance....................................................12
2.34 Board of Directors.......................................................13
2.35 No Stop Orders...........................................................13
2.36 Non Non-Competition Obligations..........................................13
2.37 Xxxxxxxx-Xxxxx Compliance................................................13
2.37.1 Disclosure Controls.............................................13
2.37.2 Compliance......................................................13
3. Covenants of the Company..........................................................13
3.1 Amendments to Registration Statement.....................................13
3.2 Federal Securities Laws..................................................13
3.2.1 Compliance......................................................13
3.2.2 Filing of Final Prospectus......................................14
3.2.3 Exchange Act Registration.......................................14
3.3 Blue Sky Filings.........................................................14
3.4 Delivery to the Underwriters of Prospectuses.............................14
3.5 Events Requiring Notice to the Representative............................14
3.6 Review of Financial Statements...........................................15
3.7 Exchange Maintenance.....................................................15
3.8 Standard & Poor's and Secondary Market Trading...........................15
3.9 Warrant Solicitation and Registration of Common Stock
Underlying the Warrants..................................................15
3.9.1 Warrant Solicitation Fees.......................................15
3.9.2 Registration of Common Stock....................................16
3.10 Reports to the Representative............................................16
3.10.1 Periodic Reports, Etc...........................................16
3.10.2 Transfer Sheets and Weekly Position Listings....................16
3.10.3 Secondary Market Trading Memorandum.............................16
3.11 Agreements between the Representative and the Company....................16
3.11.1 Merger and Acquisition Agreement................................16
3.11.2 Representative's Purchase Option................................17
3.12 Disqualification of Form SB-2 or Form S-1 (or other appropriate form)....17
3.13 Payment of Expenses......................................................17
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TABLE OF CONTENTS (CONT.)
Page
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3.13.1 General Expenses................................................17
3.13.2 Non-Accountable Expenses........................................18
3.14 Application of Net Proceeds..............................................18
3.15 Delivery of Earnings Statements to Security Holders......................18
3.16 Key Person Life Insurance................................................18
3.17 Stabilization............................................................18
3.18 Internal Controls........................................................18
3.19 Accountants and Lawyers..................................................19
3.20 Transfer Agent...........................................................19
3.21 NASD.....................................................................19
3.22 Sale of Securities.......................................................19
3.23 Form S-8.................................................................19
3.24 Employee Benefit Plans...................................................19
4. Conditions of the Underwriters' Obligations.......................................19
4.1 Regulatory Matters.......................................................19
4.1.1 Effectiveness of Registration Statement.........................19
4.1.2 NASD Clearance..................................................20
4.1.3 No Blue Sky Stop Orders.........................................20
4.2 Company Counsel Matters..................................................20
4.2.1 Effective Date Opinion of Counsel...............................20
4.2.2 Closing Date and Option Closing Date Opinion of Counsels........20
4.2.3 Reliance........................................................20
4.3 Cold Comfort Letter......................................................20
4.4 Officers' Certificates...................................................21
4.4.1 Officers' Certificate...........................................21
4.4.2 Secretary's Certificate.........................................22
4.5 No Material Changes......................................................22
4.6 Delivery of Agreements...................................................22
4.7 Opinion of Counsel for the Underwriters..................................22
4.8 Unaudited Financials.....................................................23
5. Indemnification...................................................................23
5.1 Indemnification of Underwriters..........................................23
5.1.1 General.........................................................23
5.1.2 Procedure.......................................................24
5.1.3 Indemnification of the Company..................................24
5.2 Contribution.............................................................24
5.2.1 Contribution Rights.............................................24
5.2.2 Contribution Procedure..........................................25
6. Default by an Underwriter.........................................................25
6.1 Default Not Exceeding 10% of Firm Securities or Option Securities........25
6.2 Default Exceeding 10% of Firm Securities or Option Securities............26
6.3 Postponement of Closing Date.............................................26
7. Right to Appoint Representative...................................................26
8. Additional Covenants..............................................................26
8.1 Board Composition and Board Designations.................................26
8.2 Employment and Compensation Matters......................................27
8.3 Press Releases...........................................................27
iii
TABLE OF CONTENTS (CONT.)
Page
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9. Representations and Agreements to Survive Delivery................................27
10. Effective Date of This Agreement and Termination Thereof..........................27
10.1 Effective Date...........................................................27
10.2 Termination..............................................................27
10.3 Notice...................................................................28
10.4 Expenses.................................................................28
10.5 Indemnification..........................................................28
11. Miscellaneous.....................................................................28
11.1 Notices..................................................................28
11.2 Headings.................................................................29
11.3 Amendment................................................................29
11.4 Entire Agreement.........................................................29
11.5 Binding Effect...........................................................29
11.6 Governing Law, Jurisdiction..............................................29
11.7 Execution in Counterparts................................................30
11.8 Waiver, Etc..............................................................30
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INDEX OF DEFINITIONS
Term Section
---- -------
Act.....................................................................2.1.1
AMEX.....................................................................2.21
Closing Date............................................................1.1.2
Code ..................................................................2.23.2
Commission..............................................................2.1.1
Common Stock............................................................1.1.1
Company..........................................................Introductory
Paragraph
Debentures...............................................................2.26
Effective Date..........................................................1.2.2
ERISA..................................................................2.23.2
ERISA Plans............................................................2.23.2
Exchange Act............................................................2.1.2
Filing Date............................................................2.19.2
Financial Consulting Agreement.........................................3.13.1
Firm Securities.........................................................1.1.1
Insiders.................................................................2.26
Intangibles..............................................................2.22
Merger and Acquisition Agreement.......................................3.12.1
NASD...................................................................2.19.1
Option Closing Date.....................................................1.2.2
Option Securities.......................................................1.2.1
Over-allotment Option...................................................1.2.1
Preferred Stock..........................................................2.26
Preliminary Prospectus..................................................2.1.1
Prospectus..............................................................2.1.1
Public Securities.......................................................1.2.1
Registration Statement..................................................2.1.1
Regulations.............................................................2.1.1
Secondary Market Trading Memorandum....................................3.11.3
Securities..............................................................1.3.1
Subsidiary(ies)..........................................................2.27
Transfer Agent...........................................................3.21
Unaudited Financials......................................................4.8
Underwriter......................................................Introductory
Paragraph
Representative's Purchase Option........................................1.3.1
Representative's Securities.............................................1.3.1
Representative's Shares.................................................1.3.1
Representative's Warrants...............................................1.3.1
Warrant.................................................................1.1.1
Warrant Agreement........................................................2.25
v
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
[ ] SHARES OF COMMON STOCK
AND
[ ] REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
New York, New York
_________, 2004
Xxxxxx Securities, Inc.
0000 Xxxxxxx Xxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
The undersigned, Fusion Telecommunications International, Inc., a
Delaware corporation (the "Company"), hereby confirms its agreement with Xxxxxx
Securities, Inc. (being referred to herein variously as "you," "Xxxxxx" or the
"Representative") and with the other underwriters named on Schedule I hereto for
which Xxxxxx is acting as Representative (the Representative and the other
Underwriters being collectively called the "Underwriters" or, individually, an
"Underwriter") as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 FIRM SECURITIES.
1.1.1 PURCHASE OF FIRM SECURITIES. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell, severally and
not jointly, to the several Underwriters an aggregate of [ ] shares of the
Company's common stock, par value $[.01] per share ("Common Stock") at a
purchase price (net of discounts and commissions) of $[ ] per share, and [ ]
Redeemable Common Stock Purchase Warrants ("Warrant(s)") at a purchase price
(net of discounts and commissions) of $[ ] per Warrant. Each Warrant will
entitle the holder thereof to purchase one share of Common Stock at a purchase
price of $[ ] per share during the period beginning on the Effective Date (as
hereinafter defined) and ending on the fifth anniversary of the Effective Date.
The foregoing shares of Common Stock and Warrants are referred to herein as the
"Firm Securities." The Underwriters, severally and not jointly, agree to
purchase from the Company the number of Firm Securities set forth opposite their
respective names on Schedule I attached hereto and made a part hereof.
1.1.2 DELIVERY AND PAYMENT. Delivery and payment for the
Firm Securities shall be made at 10:00 A.M., New York time, on or before the
third business day following the date that the Firm Securities commence trading
or at such earlier time as the Representative shall determine, or at such other
time as shall be agreed upon by the
1
Representative and the Company, at the offices of counsel to the Representative
or at such other place as shall be agreed upon by the Representative and the
Company. The hour and date of delivery and payment for the Firm Securities are
called the "Closing Date." Payment for the Firm Securities shall be made on the
Closing Date by wire transfer in immediately available funds, payable to the
order of the Company upon delivery to you by either electronic transfer of the
Firm Securities or of certificates (in form and substance reasonably
satisfactory to the Underwriters) representing the Firm Securities for the
account of the Underwriters. Any certificates representing the Firm Securities
shall be registered in such name or names and in such authorized denominations
as the Representative may request in writing at least two full business days
prior to the Closing Date. The Company will permit the Representative to examine
and package the Firm Securities for delivery at least one full business day
prior to the Closing Date. The Company shall not be obligated to sell or deliver
the Firm Securities except upon tender of payment by the Representative for all
the Firm Securities.
1.2 OVER-ALLOTMENT OPTION.
1.2.1 OPTION SECURITIES. For the purposes of covering any
over-allotments in connection with the distribution and sale of the Firm
Securities, the Underwriters are hereby granted an option to purchase up to an
additional [ ] shares of Common Stock from the Company ("Over-allotment
Option"). Such additional [ ] shares of Common Stock are hereinafter referred to
as the "Option Securities." The Firm Securities and the Option Securities,
together with the shares of Common Stock issuable upon exercise of the Warrants,
are hereinafter referred to collectively as the "Public Securities." The
purchase price to be paid for the Option Securities will be the same price per
Option Security as the price per Firm Security set forth in Section 1.1.1
hereof.
1.2.2 EXERCISE OF OPTION. The Over-allotment Option
granted pursuant to Section 1.2.1 hereof may be exercised by the Representative
as to all (at any time) or any part (from time to time) of the Option Securities
within 45 days after the Effective Date. The Underwriters will not be under any
obligation to purchase any Option Securities prior to the exercise of the
Over-allotment Option. The Over-allotment Option granted hereby may be exercised
by the giving of oral notice to the Company by the Representative, which must be
confirmed in writing by overnight mail or facsimile transmission setting forth
the number of Option Securities to be purchased and the date and time for
delivery of and payment for the Option Securities (the "Option Closing Date"),
which will not be later than five full business days after the date of the
notice or such other time as shall be agreed upon by the Company and the
Representative, at the offices of the Representative or at such other place as
shall be agreed upon by the Company and the Representative. Upon exercise of the
Over-allotment Option, the Company will become obligated to convey to the
Underwriters, and, subject to the terms and conditions set forth herein, the
Underwriters will become obligated to purchase, the number of Option Securities
specified in such notice.
1.2.3 PAYMENT AND DELIVERY. Payment for the Option
Securities will be at the Representative's election by wire transfer in
immediately available funds, payable to the order of the Company at the offices
of the Representative or at such other place as shall be agreed upon by the
Representative and the Company upon delivery to you by either certificates
representing such securities or electronic delivery of the securities for the
Underwriters. The certificates representing the Option Securities to be
delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior
2
to the Closing Date or the Option Closing Date, as the case may be. The Company
will permit the Representative to examine and package the Option Securities for
delivery not less than one full business day prior to such Closing Date.
1.3 REPRESENTATIVE'S PURCHASE OPTION.
1.3.1 PURCHASE OPTION. The Company hereby agrees to issue
and sell to the Representative (and/or its designees) on the Closing Date for an
aggregate purchase price of $100, an option ("Representative's Purchase Option")
for the purchase of an aggregate of [ ] shares of Common Stock
("Representative's Shares") at an initial exercise price of 110% of the initial
offering price of a share of common stock (I.E, $[ ] per share of Common Stock)
and [ ] Warrants ("Representative's Warrants") at an initial exercise price of
100% of the initial offering price of a Warrant (I.E., [ ] per Warrant). Each of
the Representative's Shares and Representative's Warrants is identical to the
Common Stock and Warrants constituting the Firm Securities. The Representative's
Purchase Option shall be exercisable, in whole or part, for a period of four
years commencing one year from the Effective Date. The Representative's Purchase
Option, the Representative's Shares, the Representative's Warrants and the
shares of Common Stock issuable upon exercise of the Representative's Warrants
are hereinafter referred to collectively as the "Representative's Securities."
The Public Securities and the Representative's Securities are hereinafter
referred to collectively as the "Securities."
1.3.2 PAYMENT AND DELIVERY. Delivery and payment for the
Representative's Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriters, upon payment therefor, certificates for the
Representative's Purchase Option in the name or names and in such authorized
denominations as the Representative may request.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters as follows:
2.1 FILING OF REGISTRATION STATEMENT.
2.1.1 PURSUANT TO THE ACT. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form S-1 (No. 333-__________), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Public Securities under the Securities Act of 1933, as
amended ("Act"), which registration statement and amendment or amendments have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations ("Regulations") of the Commission under the Act.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Regulations), is hereinafter called the
"Registration Statement," and the form of the final prospectus dated the
Effective Date or such later date as may be determined by the Representative
(or, if applicable, the form of final prospectus filed with the Commission
pursuant to Rule 424 of the Regulations), is hereinafter called the
"Prospectus." The Registration Statement has been declared effective by the
Commission on the date hereof.
3
2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed
with the Commission a registration statement on Form 8-A (No. ____________)
providing for the registration under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), of the Common Stock and Warrants. Such registration of
the Common Stock and Warrants has been declared effective by the Commission on
the date hereof.
2.2 NO STOP ORDERS, ETC. Neither the Commission nor, to the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or has instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
2.3 DISCLOSURES IN REGISTRATION STATEMENT.
2.3.1 SECURITIES ACT REPRESENTATION. At the time the
Registration Statement becomes effective and at the Closing Date and the Option
Closing Date, if any, the Registration Statement and the Prospectus and any
amendment or supplement thereto, and will conform in all material respects to
the requirements of the Act and the Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. When any Preliminary Prospectus was first
filed with the Commission (whether filed as part of the Registration Statement
or any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when
any amendment thereof or supplement thereto was first filed with the Commission,
such Preliminary Prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section 2.3.1 does
not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished (or not furnished in the case of
an omission) to the Company with respect to the Underwriters by the
Representative expressly for use in the Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
2.3.2 DISCLOSURE OF CONTRACTS. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate in all material respects and presents fairly the information required
to be disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement that have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and that is (i) referred to in the Prospectus, or
(ii) material to the Company's business, has been duly and validly executed by
the Company and, to the Company's knowledge, the other parties thereto, is in
full force and effect and is enforceable against the Company and, to the
Company's knowledge, the other parties thereto in accordance with its terms,
except (x) as such enforceability may be limited by bankruptcy, insolvency,
moratorium, fraudulent transfer, fraudulent conveyance, reorganization or
similar laws affecting creditors' rights generally, (y) as enforceability of any
indemnification or contribution provision may be limited under the federal and
state securities laws, and (z) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. None of such contracts or instruments has been assigned by the
Company, and neither the Company nor, to the Company's
4
knowledge, any other party is in default thereunder and, to the Company's
knowledge, no event has occurred that, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder. None of the material
provisions of such contracts or instruments violates or will result in a
violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any of its assets or businesses, including, without limitation, those
relating to environmental laws and regulations.
2.3.3 PRIOR SECURITIES TRANSACTIONS. No securities of the
Company have been sold by the Company or by or on behalf of, or for the benefit
of, any person or persons controlling, controlled by, or under common control
with the Company within the three years prior to the date hereof, except as
disclosed in the Registration Statement.
2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT.
2.4.1 NO MATERIAL ADVERSE CHANGE. Since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, except as otherwise specifically stated therein, (i) there has been
no material adverse change in the condition, financial or otherwise, or in the
results of operations, business or business prospects of the Company and (ii)
there have been no transactions entered into by the Company, other than those in
the ordinary course of business, that are material with respect to the
condition, financial or otherwise, or to the results of operations, business or
business prospects of the Company.
2.4.2 RECENT SECURITIES TRANSACTIONS, ETC. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.
2.5 INDEPENDENT ACCOUNTANTS. Xxxxxxxxx, Xxxx & Company, P.C.
("RKC"), whose report is filed with the Commission as part of the Registration
Statement, are independent accountants as required by the Act and the
Regulations. RKC has not, during the periods covered by the financial statements
included in the Prospectus, provided to the Company any prohibited non-audit
services, as such term is used in Section 10A(g) of the Exchange Act.
2.6 FINANCIAL STATEMENTS. The financial statements, together
with the notes thereto and supporting schedules included in the Registration
Statement and Prospectus, present fairly the financial position and the results
of operations of the Company at the dates and for the periods to which they
apply; and such financial statements have been prepared in conformity with
United States generally accepted accounting principles, consistently applied
throughout the periods involved; and the supporting schedules, if any, included
in the Registration Statement present fairly the information required to be
stated therein. The pro forma financial information set forth in the
Registration Statement and Prospectus reflects all significant assumptions and
adjustments relating to the business and operations of the Company.
2.7 AUTHORIZED CAPITAL; OPTIONS; ETC. The Company had at the
date or dates indicated in the Prospectus duly authorized, issued and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. Based on the assumptions and adjustments stated
5
in the Registration Statement and the Prospectus, the Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement and the Prospectus, on the Effective Date
and on the Closing Date there will be no outstanding or authorized
subscriptions, options, warrants or other rights to purchase or otherwise
acquire, or preemptive rights with respect to the issuance or sale of any Common
Stock of the Company, including any obligations to issue any shares pursuant to
anti-dilution provisions, or any security convertible into shares of Common
Stock of the Company, or any contracts or commitments to issue or sell shares of
Common Stock or any such options, warrants, rights or convertible securities.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and on the Closing Date, the Company will not have any then
current obligation to pay principal, interest, or other monetary obligation on
any class of equity securities or debt obligation of the Company.
2.8 VALID ISSUANCE OF SECURITIES; ETC.
2.8.1 OUTSTANDING SECURITIES. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability solely by reason
of being such holders; and none of such securities were issued in violation of
the preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common Stock constitute valid and binding obligations of
the Company, enforceable in accordance with their terms. The authorized Common
Stock and outstanding options and warrants to purchase shares of Common Stock
conform in all material respects to all statements relating thereto contained in
the Registration Statement and the Prospectus. The offers and sales by the
Company of the outstanding Common Stock, options and warrants to purchase shares
of Common Stock, and securities convertible into shares of Common Stock, were at
all relevant times registered under the Act and registered or qualified under
the applicable state securities or Blue Sky laws or exempt from such
registration or qualification requirements.
2.8.2 SECURITIES SOLD PURSUANT TO THIS AGREEMENT. The
Securities have been duly authorized and, when issued and paid for, will be
validly issued, fully paid and non-assessable; the holders thereof are not and
will not be subject to personal liability solely by reason of being such
holders; the Securities are not and will not be subject to the preemptive rights
of any holders of any security of the Company or similar contractual rights
granted by the Company; and all corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. The Securities conform in all material respects to all statements with
respect thereto contained in the Registration Statement. When issued, the
Representative's Purchase Option, the Representative's Warrants and the Warrants
will constitute valid and binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the number and type of securities of
the Company called for thereby and the Representative's Purchase Option, the
Representative's Warrants and the Warrants will be enforceable against the
Company in accordance with their respective terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific
6
performance and injunctive and other forms of equitable relief may be subject to
the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
2.9 REGISTRATION RIGHTS OF THIRD PARTIES. Except as set forth
in the Prospectus, no holders of any securities of the Company or of any options
or warrants of the Company or other rights exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in the Registration Statement.
2.10 VALIDITY AND BINDING EFFECT OF AGREEMENTS. This Agreement
and the Warrant Agreement (as hereinafter defined) have been duly and validly
authorized by the Company and constitute, and the Representative's Purchase
Option and the Merger and Acquisition Agreement, have been duly and validly
authorized by the Company and, when executed and delivered, will constitute, the
valid and binding agreements of the Company, enforceable against the Company in
accordance with their respective terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provision may be limited under the federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
2.11 NO CONFLICTS, ETC. The execution, delivery, and
performance by the Company of this Agreement, the Representative's Purchase
Option, the Warrant Agreement, the Merger and Acquisition Agreement, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms hereof and thereof do not and
will not, with or without the giving of notice or the lapse of time or both, (i)
result in a breach of, or conflict with any of the terms and provisions of, or
constitute a default under, or result in the creation, modification, termination
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to the terms of any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets of the Company is subject, except which could not
reasonably be expected to have a material adverse effect on the Company; (ii)
result in any violation of the provisions of the Certificate of Incorporation or
the By-Laws of the Company; (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or businesses, except where such violation could not reasonably be
expected to have a material adverse effect on the Company; or (iv) have a
material adverse effect on any permit, license, certificate, registration,
approval, consent, license or franchise of or concerning the Company.
2.12 NO DEFAULTS; VIOLATIONS. Except as described in the
Prospectus, no material default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the properties or assets of the Company is
subject. Except as described in the Prospectus, the Company is not in violation
of any term or provision of its Certificate of Incorporation or By-Laws or in
violation of any material franchise, license,
7
permit, applicable law, rule, regulation, judgment or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or businesses.
2.13 CORPORATE POWER; LICENSES; CONSENTS.
2.13.1 CONDUCT OF BUSINESS. The Company has all requisite
corporate power and authority, and has all necessary and material
authorizations, approvals, orders, licenses, certificates and permits of and
from all applicable governmental regulatory officials and bodies to own or lease
its properties and conduct its business as described in the Prospectus, and the
Company is and has been doing business in compliance with all such material
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local laws, rules and regulations. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's business as currently contemplated are correct in
all material respects and do not omit to state a material fact.
2.13.2 TRANSACTIONS CONTEMPLATED HEREIN. The Company has
all corporate power and authority to enter into this Agreement and to carry out
the provisions and conditions hereof, and all consents, authorizations,
approvals and orders required in connection therewith have been obtained. No
consent, approval, authorization or order of, and no filing with, any court,
government agency or other body is required for the valid authorization,
issuance, sale and delivery, of the Securities and the consummation of the
transactions and agreements contemplated by this Agreement, the Warrant
Agreement, the Representative's Purchase Option, the Merger and Acquisition
Agreement and the Prospectus, except with respect to applicable federal and
state securities laws.
2.14 TITLE TO PROPERTY; INSURANCE. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than (i) those referred to
in the Prospectus, (ii) liens for taxes not yet due and payable or (iii) those
which do not materially effect the value of such property and do not materially
interfere with the use made of such property by the Company. The Company has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar business.
2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as set forth
in the Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of, the Company that might materially and adversely affect the financial
position, value or the operation of the properties or the business of the
Company, or that questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal,
domestic or foreign, naming the Company and enjoining the Company from taking,
or requiring the Company to take, any action, or to which the Company, its
properties or business is bound or subject.
2.16 GOOD STANDING. The Company has been duly organized and is
validly existing as a corporation and is in good standing under the laws of the
state of its incorporation.
8
The Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which ownership or leasing of any properties
or the character of its operations requires such qualification or licensing,
except where the failure to qualify would not have a material adverse effect on
the financial position or value or the operation of the properties or the
business of the Company.
2.17 TAXES. The Company has filed all returns (as hereinafter
defined) required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof. The Company has
paid all undisputed portions of all taxes (as hereinafter defined) shown as due
on such returns that were filed and, except as set forth on SCHEDULE 2.17, has
paid all taxes imposed on or assessed against the Company. The provisions for
taxes payable, if any, shown on the financial statements filed with or as part
of the Registration Statement are sufficient for all accrued and unpaid taxes,
whether or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to the
Underwriter, (i) to the Company's knowledge, no issues have been raised (and are
currently pending) by any taxing authority in connection with any of the returns
or taxes asserted as due from the Company, and (ii) no waivers of statutes of
limitation with respect to the returns or collection of taxes have been given by
or requested from the Company. The term "taxes" mean all federal, state, local,
foreign, and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments,
or charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto. The term "returns"
means all returns, declarations, reports, statements, and other documents
required to be filed in respect to taxes.
2.18 EMPLOYEES' OPTIONS. Except as set forth on SCHEDULE 2.18,
no shares of Common Stock (underlying outstanding options to purchase Common
Stock) are eligible for sale pursuant to Rule 701 promulgated under the Act in
the 12-month period following the Effective Date.
2.19 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.
2.19.1 FINDER'S FEES. Except as set forth on SCHEDULE
2.19.1, the Company has not received any notice of claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's,
consulting or origination fee with respect to the introduction of the Company to
the Underwriters or the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company that may affect the Underwriters' compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
2.19.2 PAYMENTS WITHIN TWELVE MONTHS. Except as set forth
on SCHEDULE 2.19.2, and other than payments to the Representative set forth in
this Agreement, the Company has not made any direct or indirect payments (in
cash, securities or otherwise) to (i) any person, as a finder's fee, investing
fee or otherwise, in consideration of such person raising capital for the
Company or introducing to the Company persons who provided capital to the
Company, (ii) any NASD member, or (iii) any person or entity that has any direct
or indirect affiliation or association with any NASD member within the 12-month
period prior to the date on which the Registration Statement was filed with the
Commission ("Filing Date") or thereafter, assuming
9
the accuracy of the information contained in the NASD questionnaires received
from each of the Company's security holders.
2.19.3 USE OF PROCEEDS. None of the net proceeds of the
offering will be paid by the Company to any participating NASD member or any
affiliate or associate of any participating NASD member, except as specifically
authorized herein.
2.19.4 INSIDERS' NASD AFFILIATION. Except as set forth on
SCHEDULE 2.19.4, no officer or director of the Company or owner of any of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member. The Company will advise the Representative and
the NASD if prior to the Closing Date or Option Closing Date, if any, it learns
that any officer, director or stockholder of the Company is or becomes an
affiliate or associated person of an NASD member participating in the offering.
2.20 FOREIGN CORRUPT PRACTICES ACT. None of the Company or any
of its officers, directors, or, to its knowledge, any of its employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or any political party or candidate for office (domestic or foreign)
or other person who was, is, or may be in a position to help or hinder the
business of the Company (or assist it in connection with any actual or proposed
transaction) that (i) might subject the Company to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Prospectus or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
2.21 BULLETIN BOARD ELIGIBILITY. As of the Effective Date, the
Public Securities will have been approved for quotation on the American Stock
Exchange ("AMEX").
2.22 INTANGIBLES. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patents and patent applications, copyrights and other rights
(collectively, "Intangibles") described as being licensed to or owned by it in
the Registration Statement. Except as described in the Prospectus, there is no
claim or action by any person pertaining to, or proceeding pending or, to the
Company's knowledge, threatened relating to, and the Company has not received
any notice of conflict with the asserted rights of others, that challenges the
exclusive right of the Company with respect to, any Intangibles used in the
conduct of the Company's business. To the Company's knowledge, after due
inquiry, the Intangibles and the Company's current products, services and
processes do not infringe on any Intangibles held by any third party. To the
Company's knowledge, no others have infringed upon the Intangibles of the
Company.
10
2.23 RELATIONS WITH EMPLOYEES.
2.23.1 EMPLOYEE MATTERS. The Company is in compliance in
all material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. To the Company's
knowledge, there are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state and local laws and regulations. Except as set
forth in the Registration Statement and the Prospectus, to the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any predecessor entity, and none has ever occurred.
To the Company's knowledge, no question concerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 EMPLOYEE BENEFIT PLANS. Other than as set forth in
the Registration Statement and the Prospectus, the Company neither maintains,
sponsors nor contributes to, nor is it required to contribute to, any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a, "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute to, and has at no time maintained or contributed to, a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended ("Code"), that could subject the Company to any material tax penalty for
prohibited transactions and that has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan that is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multi-employer
plan."
2.24 OFFICERS' CERTIFICATE. Any certificate signed by any duly
authorized officer of the Company and delivered directly to you or to your
counsel shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby and as of the date given.
2.25 WARRANT AGREEMENT. The Company has entered into a warrant
agreement with respect to the Warrants and the Representative's Warrants
substantially in the form filed as an exhibit to the Registration Statement
("Warrant Agreement") with Continental Stock Transfer & Trust Company, providing
for, among other things, (i) no redemption of the Warrants without the consent
of the Representative and (ii) for the payment of a warrant solicitation fee as
contemplated by Section 3.9 hereof.
2.26 LOCK-UP AGREEMENTS. Except as set forth on Schedule 2.26,
the Company has caused to be duly executed legally binding and enforceable
agreements pursuant to
11
which all of the officers and directors of the Company and all holders of the
outstanding Common Stock of the Company or warrants or options to purchase, or
other securities convertible into, shares of Common Stock (including their
family members and affiliates) (collectively, the "Insiders"), agree not to sell
any shares of Common Stock or warrants or options to purchase, or other
securities convertible into Common Stock owned by them (either pursuant to Rule
144 of the Regulations or otherwise) for a period of 12 months following the
Effective Date except with the prior written consent of the Representative, and
provided further that the officers of the Company and their family members and
affiliates have agreed to a lock-up period of 18 months, instead of the
aforementioned 12 months.
2.27 SUBSIDIARIES. Except as set forth on SCHEDULE 2.27, the
Company does not own, in whole or in part, an interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
entity (each a "Subsidiary" and collectively the "Subsidiaries"). The
Subsidiaries set forth on SCHEDULE 2.27 are each duly organized and validly
existing under the laws of the jurisdiction of its incorporation or formation.
The Company owns all of the capital stock or other ownership interest of the
Subsidiaries free and clear of all liens, security interests and other
encumbrances of any nature whatsoever, except as set forth on SCHEDULE 2.27 and
in the Prospectus. The representations and warranties made by the Company in
this Agreement shall also apply and be true with respect to each Subsidiary,
taken as a whole with the Company and all other Subsidiaries, as if each
representation and warranty contained herein made specific reference to the
Subsidiaries each time the term "Company" is used.
2.28 ENVIRONMENTAL MATTERS. The Company has complied in all
material respects with all applicable environmental laws.
2.29 PRODUCT LIABILITY INSURANCE. The Company maintains
product liability insurance of the type and in the amounts typically maintained
by similar companies operating in the industry in which the Company operates.
2.30 CONVERSION OF 7 1/4% NOTES. As of the Effective Date, all
of the principal and interest due on the Company's outstanding 7 1/4%
convertible promissory notes (the original aggregate principal amount of
$300,000) held by Xxxxxx Xxxxx, Xxxxxx Xxxxxx and Xxxxxxx Xxxxx will have
automatically converted into [ ] shares of Common Stock by such notes' terms.
2.31 RELATED PARTY TRANSACTIONS. There are no business
relationships or related party transactions involving the Company or any other
person required to be described in the Registration Statement and Prospectus
that have not been described as required.
2.32 STANDARD & POOR'S LISTING. The Company has secured
coverage in Standard & Poor's Corporation Records Corporate Description,
effective as of the Effective Date.
2.33 REGULATORY COMPLIANCE. The Company's products, operations
and ownership interests are in compliance in all material respects with all
federal, state and agency standards, rules, regulations and requirements that
are applicable to the Company as of the Effective Date, including but not
limited to those promulgated by the Federal Communications Commission, and
comparable standards and agencies in the countries in which the Company
operates.
12
2.34 BOARD OF DIRECTORS. The Board of Directors of the Company
is comprised of the persons set forth on SCHEDULE 2.33. The qualifications of
the persons serving as Board members and the overall composition of the Board
comply with the Xxxxxxxx-Xxxxx Act of 2002 and the rules promulgated thereunder
and with the listing requirements of the American Stock Exchange (including
those requirements that have been finalized or issued as of the date hereof with
a date certain for effectiveness, but which are not yet effective). At least one
member of the Board qualifies as a "financial expert" as such term is defined
under the Xxxxxxxx-Xxxxx Act of 2002 and the rules promulgated thereunder.
2.35 NO STOP ORDERS. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or Prospectus or
any part thereof.
2.36 NON NON-COMPETITION OBLIGATIONS. No director, officer or
other employee of the Company is subject to any noncompetition agreement or
non-solicitation agreement with any employer or prior employer that could
materially affect his ability to be an employee, officer and/or director of the
Company.
2.37 XXXXXXXX-XXXXX COMPLIANCE.
2.37.1 DISCLOSURE CONTROLS. The Company has developed and
currently maintains disclosure controls and procedures that will comply with
Rule 13a-15 or 15d-15 of the Exchange Act, and such controls and procedures are
effective to ensure that all material information concerning the Company will be
made known on a timely basis to the individuals responsible for the preparation
of the Company's Exchange Act filings and other public disclosure documents.
2.37.2 COMPLIANCE. The Company and each of its directors
and its senior financial officers has consulted with the Company's independent
auditors and outside counsel with respect to, and is familiar in all material
respects with, the requirements of the Xxxxxxxx-Xxxxx Act of 2002. The Company
is in, or will be on the Effective Date, compliance with the provisions of the
Xxxxxxxx-Xxxxx Act of 2002 applicable to it, and has implemented or will
implement such programs and taken reasonable steps to ensure the Company's
future compliance (not later than the relevant statutory and regulatory
deadlines therefore) with all the provisions of the Xxxxxxxx-Xxxxx Act of 2002.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company will
deliver to the Representative, prior to filing, any amendment or supplement to
the Registration Statement or Prospectus proposed to be filed after the
Effective Date and not file any such amendment or supplement to which the
Representative shall reasonably object in writing.
3.2 FEDERAL SECURITIES LAWS.
3.2.1 COMPLIANCE. During the time when a Prospectus is
required to be delivered under the Act, the Company will use all best efforts to
comply with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to time
in force, so far as necessary to permit the continuance of sales of or dealings
in the Public Securities in accordance with the provisions hereof, and
13
the Prospectus. If at any time when a Prospectus relating to the Public
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Underwriters, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 FILING OF FINAL PROSPECTUS. The Company will file
the Prospectus (in form and substance reasonably satisfactory to the
Representative) with the Commission pursuant to the requirements of Rule 424 of
the Regulations.
3.2.3 EXCHANGE ACT REGISTRATION. For a period of five
years from the Effective Date, the Company will use its best efforts to maintain
the registration of the Common Stock and Warrants under the provisions of
Section 12 of the Exchange Act.
3.3 BLUE SKY FILINGS. The Company will endeavor in good
faith, in cooperation with the Representative, at or prior to the time the
Registration Statement becomes effective, to qualify the Public Securities for
offering and sale under the securities laws of such jurisdictions as the
Representative may reasonably designate, provided that no such qualification
shall be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the Representative
agrees that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such times as
are or may be required by the laws of such jurisdiction.
3.4 DELIVERY TO THE UNDERWRITERS OF PROSPECTUSES. The Company
will deliver to each of the several Underwriters, without charge, from time to
time during the period when the Prospectus is required to be delivered under the
Act or the Exchange Act such number of copies of each Preliminary Prospectus and
the Prospectus as such Underwriter may reasonably request.
3.5 EVENTS REQUIRING NOTICE TO THE REPRESENTATIVE. The
Company will notify the Representative immediately and confirm the notice in
writing (i) of the effectiveness of the Registration Statement and any amendment
thereto, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding for that purpose, (iii) if it
becomes aware of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Public Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the mailing and delivery to the
Commission for filing of any amendment or supplement to the Registration
Statement or Prospectus, (v) of the receipt of any comments or request for any
additional information from the Commission, and (vi) of the happening of any
event during the period described in Section 3.4 hereof that, in the judgment of
the Company, makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes in
the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If
14
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
3.6 REVIEW OF FINANCIAL STATEMENTS. For a period of five
years from the Effective Date, the Company, at its expense, shall cause its
regularly engaged independent certified public accountants to participate to
review (as described in Statement on Audited Standards No. 71 -- Interim
Financial Information) (but not audit) the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's Form 10-Q or Form 10-QSB
quarterly reports and the mailing of any quarterly financial information to
stockholders.
3.7 EXCHANGE MAINTENANCE. For a period of five years from the
date hereof, the Company will use its best efforts to maintain the listing by
the AMEX of the Common Stock, and, if outstanding, the Warrants.
3.8 STANDARD & POOR'S AND SECONDARY MARKET TRADING. The
Company will take all necessary action to maintain coverage in Standard & Poor's
Corporation Records Corporate Descriptions for a period of three years from the
Effective Date, including the payment of any necessary fees and expenses and the
delivery to Standard & Poor's of updated quarterly information. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market trading exemption in such states as may be reasonably
requested by the Representative, including the payment of any necessary fees and
expenses and the filing of requisite forms (e.g., Form 25101(b) for secondary
market trading in the State of California) on the Effective Date.
3.9 WARRANT SOLICITATION AND REGISTRATION OF COMMON STOCK
UNDERLYING THE WARRANTS.
3.9.1 WARRANT SOLICITATION FEES. The Company hereby
engages Xxxxxx, on a non-exclusive basis, as its agent for the solicitation of
the exercise of the Warrants. The Company, at its cost, will (i) assist Xxxxxx
with respect to such solicitation, if requested by Xxxxxx and will (ii) provide
to Xxxxxx, and direct the Company's transfer and warrant agent to provide to
Xxxxxx, lists of the record and, to the extent known, beneficial owners of the
Company's Warrants. Commencing one year from the Effective Date, the Company
will pay to Xxxxxx a commission of five (5%) percent of the Warrant exercise
price for each Warrant exercised, payable on the date of such exercise, on the
terms provided for in the Warrant Agreement, if allowed under the rules and
regulations of the NASD and only if Xxxxxx has provided bona fide services to
the Company in connection with the exercise of Warrants and has received written
confirmation from the holder that Xxxxxx has solicited such exercise. In
addition to soliciting the exercise of Warrants, either orally or in writing,
such services also may include disseminating information supplied to Xxxxxx by
the Company, either orally or in writing, to Warrantholders about the Company or
the market for the Company's securities, and assisting in the processing of the
exercise of Warrants. Xxxxxx may engage sub-agents reasonably acceptable to the
Company in its solicitation efforts. The Company will disclose the arrangement
to pay such solicitation fees to Xxxxxx in any prospectus used by the Company in
connection with the registration of the shares of Common Stock underlying the
Warrants.
15
3.9.2 REGISTRATION OF COMMON STOCK. The Company agrees
that so long as the Warrants are exercisable, it shall file with the Commission
post-effective amendments to the registration statement as necessary to maintain
effectiveness of the Registration Statement (or new Registration Statements
covering the Warrants and the Common Stock issuable upon exercise thereof) and
it shall take such action as is necessary to qualify and/or maintain
qualification for sale, in those states in which the Warrants were initially
offered by the Company, the Common Stock issuable upon exercise of the Warrants.
The Company shall maintain the effectiveness of such registration statement and
keep current a prospectus thereunder and maintain such qualification until the
expiration of the Warrants in accordance with the provisions of the Warrant
Agreement. The provisions of this Section 3.9.2 may not be modified, amended or
deleted without the prior written consent of the Underwriter.
3.10 REPORTS TO THE REPRESENTATIVE.
3.10.1 PERIODIC REPORTS, ETC. For a period of five years
from the Effective Date, the Company will promptly furnish to the Representative
copies of such financial statements and other periodic and special reports as
the Company from time to time files with any governmental authority or furnishes
generally to holders of any class of its securities, and promptly furnish to the
Representative (i) a copy of each periodic report the Company shall be required
to file with the Commission, (ii) a copy of every press release and every news
item and article with respect to the Company or its affairs that was released by
the Company and (iii) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or
13E-4 received or prepared by the Company.
3.10.2 TRANSFER SHEETS AND WEEKLY POSITION LISTINGS.
Until the earlier of (i) the date the Company's securities are listed on the New
York Stock Exchange or the Nasdaq National Market, and (ii) the third
anniversary of the Closing Date, the Company will furnish to the Representative
at the Company's sole expense such transfer sheets and position listings of the
Company's securities as the Representative may request, including the daily,
weekly and monthly consolidated transfer sheets of the transfer agent of the
Company and the weekly position listings of the Depository Trust Company.
3.10.3 SECONDARY MARKET TRADING MEMORANDUM. The Company
hereby requests that the Underwriters' legal counsel deliver to the
Underwriters, at the Effective Date, a written memorandum detailing those states
in which the Common Stock and the Warrants may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Memorandum") and that such counsel update such memorandum as reasonably
requested by the Representative. The Company shall pay to the Underwriters'
legal counsel a one-time fee of $5,000 for such services.
3.11 AGREEMENTS BETWEEN THE REPRESENTATIVE AND THE COMPANY.
3.11.1 MERGER AND ACQUISITION AGREEMENT. On the Closing
Date, the Company will enter into a Merger and Acquisition Agreement with the
Representative in the form filed with the Commission as an exhibit to the
Registration Statement providing for a finder's fee to be paid to the
Representative if the Company participates in any merger, consolidation, or
other transaction in which the Representative introduced the Company to the
other party for a period of three years from the Closing Date ("Merger and
Acquisition Agreement").
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3.11.2 REPRESENTATIVE'S PURCHASE OPTION. On the Closing
Date, the Company will execute and deliver the Representative's Purchase Option
to Xxxxxx or its designees in the form filed as an exhibit to the Registration
Statement.
3.12 DISQUALIFICATION OF FORM SB-2 OR FORM S-1 (OR OTHER
APPROPRIATE FORM). For a period equal to seven (7) years from the date hereof,
the Company will not take any action or actions that may prevent or disqualify
the Company's use of Form SB-2 or Form S-1 (or other appropriate form) for the
registration of the Warrants and the Representative's Securities and the
securities issuable upon exercise of those securities under the Act.
3.13 PAYMENT OF EXPENSES.
3.13.1 GENERAL EXPENSES. The Company hereby agrees to pay
on the Closing Date and, to the extent not paid on the Closing Date, on the
Option Closing Date, all expenses incident to the performance of the obligations
of the Company under this Agreement, including but not limited to (i) the
preparation, printing, filing, delivery and mailing (including the payment of
postage with respect to such mailing) of the Registration Statement, the
Prospectus and the Preliminary Prospectuses and the printing and mailing of this
Agreement and related documents, including the cost of all copies thereof and
any amendments thereof or supplements thereto supplied to the Underwriters in
quantities as may be reasonably required by the Underwriters, (ii) the printing,
engraving, issuance and delivery of the shares of Common Stock, the Warrants and
the Representative's Purchase Option, including any transfer or other taxes
payable thereon, (iii) the qualification of the Public Securities under state or
foreign securities or Blue Sky laws, including the filing fees under such Blue
Sky laws, the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," and all amendments and supplements thereto, the fees (equal to
$15,000) and disbursements of the Underwriters' counsel, and fees and
disbursements of local counsel, if any, retained for such purpose (provided that
all such disbursements have been approved in advance by the Company) and a
one-time fee of $5,000 payable to Underwriters' counsel for the preparation of
the Secondary Market Trading Memorandum pursuant to Section 3.10.3 hereof, (iv)
costs associated with applications for assignments of a rating of the Public
Securities by qualified rating agencies, if applicable, (v) filing fees, costs
and expenses (including fees (of $10,000) and disbursements for the
Underwriters' counsel) incurred in registering the offering with the NASD, (vi)
costs of placing "tombstone" advertisements in THE WALL STREET JOURNAL, THE NEW
YORK TIMES and a third publication to be selected by the Representative, (vii)
fees and disbursements of the transfer and warrant agent, (viii) the Company's
expenses associated with "due diligence" meetings arranged by the
Representative, (ix) the preparation, binding and delivery of two transaction
"bibles" for the Representative, (x) fees and expenses for any listing of the
Public Securities on any securities exchange or any coverage or listing in
Standard & Poor's and (xi) all other costs and expenses incident to the
performance of its obligations hereunder that are not otherwise specifically
provided for in this Section 3.13.1. The Company also agrees to engage and pay
for an investigative search firm of the Representative's choice (International
Business Research (USA), Inc.) to conduct an investigation of the officers and
directors of the Company, which amount will be credited against the
Representative's non-accountable expense allowance if the offering is
consummated as provided herein. The Representative may deduct from the net
proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein and elsewhere in this
Agreement to be paid by the Company to the Representative and/or to third
parties.
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3.13.2 NON-ACCOUNTABLE EXPENSES. The Company further
agrees that, in addition to the expenses payable pursuant to Section 3.13.1, it
will pay to the Representative a non-accountable expense allowance equal to
three (3%) percent of the gross proceeds received by the Company from the sale
of the Firm Securities (but not the Option Securities), of which $100,000 has
been paid to date, and the Company will pay the balance on the Closing Date by
certified or bank cashier's check or, at the election of the Representative, by
deduction from the proceeds of the offering contemplated herein. If the offering
contemplated by this Agreement is not consummated for any reason whatsoever then
the following provisions shall apply: The Company's liability for payment to the
Representative of the non-accountable expense allowance shall be equal to the
sum of the Representative's actual out-of-pocket expenses (including, but not
limited to, counsel fees, "road-show" and due diligence expenses). The
Representative shall retain such part of the non-accountable expense allowance
previously paid as shall equal such actual out-of-pocket expenses. If the amount
previously paid is insufficient to cover such actual out-of-pocket expenses, the
Company shall remain liable for and promptly pay any other actual out-of-pocket
expenses. If the amount previously paid exceeds the amount of actual
out-of-pocket expenses, the Representative shall promptly remit to the Company
any such excess.
3.14 APPLICATION OF NET PROCEEDS. The Company will apply the
net proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use of Proceeds" in the Prospectus. The
Company hereby agrees that, without the express prior written consent of the
Representative, the Company will not apply any net proceeds from the offering to
pay (i) any debt for borrowed funds or (ii) any debt or obligation owed to any
Insider, except as described in the "Use of Proceeds" section of the Prospectus.
3.15 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The
Company will make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the Effective Date, an earnings statement (which need not be
certified by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Rule 158(a) under
Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
3.16 KEY PERSON LIFE INSURANCE. The Company will maintain key
person life insurance in an amount not less than $3,000,000 on the life of
Xxxxxx X. Xxxxx and $3,000,000 on the life of Xxxxxxx X. Xxxxx, to be in effect
as of the Effective Date, and pay the annual premiums therefor and name the
Company as the sole beneficiary thereof for at least three years following the
Effective Date.
3.17 STABILIZATION. Neither the Company, nor, to its
knowledge, any of its employees, directors or stockholders has taken or will
take, directly or indirectly, any action designed to or that has constituted or
that might reasonably be expected to cause or result in, under the Exchange Act,
or otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.18 INTERNAL CONTROLS. The Company maintains and will
continue to maintain a system of internal accounting controls that comply with
the requirements of the Xxxxxxxx-Xxxxx Act of 2002 (and the rules promulgated
thereunder) and which are sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
18
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.19 ACCOUNTANTS AND LAWYERS. For a period of five years from
the Effective Date, the Company shall retain independent public accountants and
securities lawyers reasonably acceptable to the Representative. RKC and Xxxxxxx,
Savage, Kaplowitz, Wolf & Marcus, LLP ("Xxxxxxx, Xxxxxx") are acceptable to the
Representative.
3.20 TRANSFER AGENT. For a period of five years from the
Effective Date, the Company shall retain a transfer agent ("Transfer Agent") for
the Common Stock and Warrants reasonably acceptable to the Representative.
Continental Stock Transfer & Trust Company is acceptable to the Representative.
3.21 NASD. The Company shall advise the Representative if it
is aware that any 5% or greater stockholder of the Company becomes an affiliate
or associated person of an NASD member participating in the distribution of the
Company's Public Securities.
3.22 SALE OF SECURITIES. Subject to Section 2.26 hereof, the
Company agrees not to permit or cause a private or public sale or private or
public offering of any of its securities (in any manner, including pursuant to
Rule 144 under the Act) owned nominally or beneficially by the Insiders for the
time periods set forth in Section 2.26 following the Effective Date without
obtaining the prior written consent of the Representative.
3.23 FORM S-8. The Company shall not file a registration
statement on Form S-8 (or successor form) for a period of two years after the
Effective Date, without the prior written consent of the Representative.
3.24 EMPLOYEE BENEFIT PLANS. The Company shall not increase
the number of shares of common stock eligible for awards under any general
employee benefit plan or adopt a new employee benefit plan for stock-based
awards for a period of two years after the Effective Date, without the prior
written consent of the Representative.
4. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy (in all material respects) of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Date and the Option Closing Date, if any, to the accuracy of
the statements of officers of the Company made pursuant to the provisions hereof
and to the performance by the Company of its obligations hereunder and to the
following conditions:
4.1 REGULATORY MATTERS.
4.1.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The
Registration Statement has been declared effective on the date of this Agreement
and, at each of the Closing Date and the Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for such purpose shall have been instituted
19
or shall be pending or, to the Company's knowledge, contemplated by the
Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Xxxxxxxx Xxxxxx, counsel to the Underwriters.
4.1.2 NASD CLEARANCE. By the Effective Date, the
Representative shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement.
4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the
sale of the Securities in any jurisdiction designated by the Representative
pursuant to Section 3.3 hereof shall have been issued on or before either the
Closing Date or the Option Closing Date, and no proceedings for that purpose
shall have been instituted or, to the Company's knowledge, shall be
contemplated.
4.2 COMPANY COUNSEL MATTERS.
4.2.1 EFFECTIVE DATE OPINION OF COUNSEL. On the Effective
Date, the Representative shall have received the opinions of Gersten, Savage,
general counsel to the Company, dated the Effective Date, addressed to the
Representative and in form and substance satisfactory to Xxxxxxxx Xxxxxx,
counsel to the Representative.
4.2.2 CLOSING DATE AND OPTION CLOSING DATE OPINION OF
COUNSELS. On each of the Closing Date and the Option Closing Date, if any, the
Representative shall have received the opinion of Gersten, Savage, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Representative and in form and substance satisfactory to Xxxxxxxx Xxxxxx,
counsel to the Underwriters, confirming as of the Closing Date and, if
applicable, the Option Closing Date, the respective statements made by it in its
opinion delivered on the Effective Date.
4.2.3 RELIANCE. In rendering such opinion, such counsel
may rely (i) as to matters involving the application of laws other than the laws
of the United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and substance reasonably satisfactory
to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriter's counsel, familiar with the applicable laws, and (ii) as to matters
of fact, to the extent they deem proper, on certificates or other written
statements of officers of departments of various jurisdiction having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' counsel if requested. The opinion of counsel for the Company
shall include a statement to the effect that it may be relied upon by counsel
for the Underwriters in its opinion delivered to the Underwriters.
4.3 COLD COMFORT LETTER. At the time this Agreement is
executed, and at each of the Closing Date and the Option Closing Date, if any,
you shall have received a letter, addressed to the Representative and in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to you and
to Xxxxxxxx Xxxxxx, counsel for the Underwriters, from RKC, dated, respectively,
as of the date of this Agreement and as of the Closing Date and the Option
Closing Date, if any:
20
(i) confirming that they are independent accountants
with respect to the Company within the meaning of the Act and the applicable
Regulations;
(ii) stating that, based on the performance of
procedures specified by the American Institute of Certified Public Accountants
for a review of the latest available unaudited interim financial statements of
the Company (as described in Statement on Auditing Standards ("SAS") No. 100 --
"Interim Financial Information"), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
that would lead them to believe that at a date not later than five days prior to
the Effective Date, Closing Date or Option Closing Date, as the case may be,
there was any change in the capital stock or long-term debt of the Company, or
any decrease in the stockholders' equity of the Company as compared with amounts
shown in the [June 30, 2004] balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any decrease, setting forth the amount of such
decrease, and (c) during the period from [June 30, 2004] to a specified date not
later than five days prior to the Effective Date, Closing Date or Option Closing
Date, as the case may be, there was any decrease in revenues, net earnings or
net earnings per share of Common Stock, in each case as compared with the
corresponding period in the preceding year and as compared with the
corresponding period in the preceding quarter, other than as set forth in or
contemplated by the Registration Statement, or, in the case of clauses (b) and
(c), if there was any such change or decrease, setting forth the amount of such
decrease;
(iii) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
and work sheets, of the Company with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(iv) statements as to such other matters incident to
the transaction contemplated hereby as you may reasonably request and as are
typically included in auditor's "comfort letters" to underwriters.
4.4 OFFICERS' CERTIFICATES.
4.4.1 OFFICERS' CERTIFICATE. At each of the Closing Date
and the Option Closing Date, if any, the Representative shall have received a
certificate, that is true and correct in fact, of the Company signed by the
Chairman of the Board or the President and the Secretary of the Company, dated
the Closing Date or the Option Closing Date, as the case may be, respectively,
to the effect that the Company has performed all covenants and complied with all
conditions (subject to any materiality qualifications in any such covenants and
conditions and in the representations and warranties) required by this Agreement
to be performed or complied with by the Company prior to and as of the Closing
Date, or the Option Closing Date, as the case may be, and that the conditions
set forth in Section 4.4 hereof have been satisfied as of such date and
21
that, as of Closing Date and the Option Closing Date, as the case may be, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct. In addition, the Representative will have received such other
and further certificates of officers of the Company as the Representative may
reasonably request, including a certificate certifying without any
qualifications that no shareholder, officer or director of the Company has any
affiliation with a member or affiliate of a member of the NASD, which
certificate will be signed by each of the CEO, COO, CFO and Secretary of the
Company.
4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing
Date and the Option Closing Date, if any, the Representative shall have received
a certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation of the Company are true
and complete, have not been modified and are in full force and effect, (ii) that
the resolutions relating to the public offering contemplated by this Agreement
are in full force and effect and have not been modified, (iii) all
correspondence between the Company or its counsel and the Commission and (iv) as
to the incumbency of the officers of the Company. The documents referred to in
such certificate shall be attached to such certificate.
4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing
Date and the Option Closing Date, if any, (i) there shall have been no material
adverse change or development involving a prospective material change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company, taken as a whole, (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or any Initial Stockholders or affecting any of
the Company's property or business before or by any court or federal or state
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus, (vi) no stop order shall
have been issued under the Act and no proceedings therefor shall have been
initiated or threatened by the Commission, and (vii) the Registration Statement
and the Prospectus and any amendments or supplements thereto contain all
material statements that are required to be stated therein in accordance with
the Act and the Regulations and conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.6 DELIVERY OF AGREEMENTS. The Company has delivered
to the Representative an executed copy of the Representative's Purchase Option.
4.7 OPINION OF COUNSEL FOR THE UNDERWRITERS. All proceedings
taken in connection with the authorization, issuance or sale of the Securities
as herein contemplated shall
22
be reasonably satisfactory in form and substance to you and to Xxxxxxxx Xxxxxx,
counsel to the Underwriters, and you shall have received from such counsel a
favorable opinion, dated the Closing Date and the Option Closing Date, if any,
with respect to such of these proceedings as you may reasonably require. On or
prior to the Effective Date, the Closing Date and the Option Closing Date, as
the case may be, counsel for the Underwriters shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Section 4.7, or in order to evidence the accuracy, completeness or satisfaction
of any of the representations, warranties or conditions herein contained.
4.8 UNAUDITED FINANCIALS. The Company shall have furnished to
the Underwriter a copy of the latest available unaudited interim financial
statements for the period ended June 30, 2004 ("Unaudited Financials") of the
Company which have been read by RKC as stated in their letter dated as of the
Closing Date to be furnished pursuant to Section 4.3 hereof.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION OF UNDERWRITERS.
5.1.1 GENERAL. Subject to the conditions set forth below,
the Company agrees to indemnify and hold harmless each of the Underwriters,
their respective directors, officers and employees and each person, if any, who
controls any such Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all
loss, liability, claim, damage and expense whatsoever (including but not limited
to any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, whether arising out of any action between any of the
Underwriters and the Company or between any of the Underwriters and any third
party or otherwise) to which they or any of them may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in (i) the
Registration Statement or the Prospectus (as from time to time each may be
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Representative's Purchase
Option; or (iii) any application or other document or written communication (in
this Section 5 collectively called "application") executed by the Company or
based upon written information furnished by the Company in any jurisdiction in
order to qualify the Units under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Nasdaq or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished (or not furnished in the case of an omission)
to the Company with respect to an Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereof, or in any
application, as the case may be. The Company agrees promptly to notify the
Representative of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the Registration
Statement or Prospectus.
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5.1.2 PROCEDURE. If any action is brought against an
Underwriter or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, such Underwriter shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and fees of
counsel (subject to the reasonable approval of such Underwriter) and payment of
actual expenses. Such Underwriter or controlling person shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the employment of such counsel at the expense of the Company
shall have been authorized in writing by the Company in connection with the
defense of such action, or (ii) the Company shall not have employed counsel to
have charge of the defense of such action, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the reasonable fees and expenses of not more than one additional
firm of attorneys selected by the Underwriter and/or controlling person shall be
borne by the Company. Notwithstanding anything to the contrary contained herein,
if the Underwriter or controlling person shall assume the defense of such action
as provided above, the Company shall have the right to approve the terms of any
settlement of such action, except where such settlement provides for the full
release of the Company.
5.1.3 INDEMNIFICATION OF THE COMPANY. Each Underwriter,
severally and not jointly, agrees to indemnify and hold harmless the Company,
its directors, officers and employees and agents who control the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any and all loss, liability, claim, damage and expense described in the
foregoing indemnity from the Company to the several Underwriters, as incurred,
but only with respect to untrue statements or omissions, or alleged untrue
statements or omissions made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto or in any
application, in reliance upon, and in strict conformity with, written
information furnished (or not furnished in the case of an omission or alleged
omission) to the Company with respect to such Underwriter by or on behalf of the
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto or in any such
application. In case any action shall be brought against the Company or any
other person so indemnified based on any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
any application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the several Underwriters by the provisions of Section
5.1.2.
5.2 CONTRIBUTION.
5.2.1 CONTRIBUTION RIGHTS. In order to provide for just
and equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in
24
such case, or (ii) contribution under the Act, the Exchange Act or otherwise may
be required on the part of any such person in circumstances for which
indemnification is provided under this Section 5, then, and in each such case,
the Company and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by said
indemnity agreement incurred by the Company and the Underwriters, as incurred,
in such proportions that the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the initial offering price appearing
thereon and the Company is responsible for the balance; provided, that, no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 5.2.1, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Public Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay in respect of such losses, liabilities, claims, damages and
expenses. For purposes of this Section, each director, officer and employee of
an Underwriter or the Company, as applicable, and each person, if any, who
controls an Underwriter or the Company, as applicable, within the meaning of
Section 15 of the Act shall have the same rights to contribution as the
Underwriters or the Company, as applicable.
5.2.2 CONTRIBUTION PROCEDURE. Within fifteen days after
receipt by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
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 contribution provisions contained in
this Section are intended to supersede, to the extent permitted by law, any
right to contribution under the Act, the Exchange Act or otherwise available.
The Underwriters' obligations to contribute pursuant to this Section 5.2 are
several and not joint.
6. DEFAULT BY AN UNDERWRITER.
6.1 DEFAULT NOT EXCEEDING 10% OF FIRM SECURITIES OR OPTION
SECURITIES. If any Underwriter or Underwriters shall default in its or their
obligations to purchase the Firm Securities or the Option Securities, if the
over-allotment option is exercised, hereunder, and if the number of the Firm
Securities or Option Securities with respect to which such default relates does
not exceed in the aggregate 10% of the number of Firm Securities or Option
Securities that all Underwriters have agreed to purchase hereunder, then such
Firm Securities or Option Securities to which the default relates shall be
purchased by the non-defaulting Underwriters in proportion to their respective
commitments hereunder.
25
6.2 DEFAULT EXCEEDING 10% OF FIRM SECURITIES OR OPTION
SECURITIES. In the event that the default addressed in Section 6.1 above relates
to more than 10% of the Firm Securities or Option Securities, you may in your
discretion arrange for yourself or for another party or parties to purchase such
Firm Securities or Option Securities to which such default relates on the terms
contained herein. If within one business day after such default relating to more
than 10% of the Firm Securities or Option Securities you do not arrange for the
purchase of such Firm Securities or Option Securities, then the Company shall be
entitled to a further period of one business day within which to procure another
party or parties satisfactory to you to purchase said Firm Securities or Option
Securities on such terms. In the event that neither you nor the Company arrange
for the purchase of the Firm Securities or Option Securities to which a default
relates as provided in this Section 6, this Agreement may be terminated by you
or the Company without liability on the part of the Company (except as provided
in Sections 3.15 and 5 hereof) or the several Underwriters (except as provided
in Section 5 hereof); provided, however, that if such default occurs with
respect to the Option Securities, this Agreement will not terminate as to the
Firm Securities; and provided further that nothing herein shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for damages occasioned by its default hereunder.
6.3 POSTPONEMENT OF CLOSING DATE. In the event that the Firm
Securities or Option Securities to which the default relates are to be purchased
by the non-defaulting Underwriters, or are to be purchased by another party or
parties as aforesaid, you or the Company shall have the right to postpone the
Closing Date or Option Closing Date for a reasonable period, but not in any
event exceeding five business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus that in the
opinion of counsel for the Underwriter may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 6 with like effect as if it had originally been a party to
this Agreement with respect to such Securities.
7. RIGHT TO APPOINT REPRESENTATIVE. For a period of five years from the
Effective Date, upon notice from Xxxxxx to the Company, Xxxxxx shall have the
right to send a representative (who need not be the same individual from meeting
to meeting) to observe each meeting of the Board of Directors of the Company;
provided that such representative shall sign a Regulation FD compliant
confidentiality agreement which is reasonably acceptable to Xxxxxx and its
counsel in connection with such representative's attendance at meetings of the
Board of Directors; and provided further that upon written notice to Xxxxxx, the
Company may exclude the representative from meetings (i) for the portions of the
meeting held in "executive session" and (ii) where, in the written opinion of
counsel for the Company, the representative's presence would jeopardize the
attorney-client privilege. The Company agrees to give Xxxxxx written notice of
each such meeting and to provide Xxxxxx with an agenda and minutes of the
meeting no later than it gives such notice and provides such items to the other
directors, and reimburse the representative of Xxxxxx for its reasonable
out-of-pocket expenses incurred in connection with its attendance at the
meeting, including but not limited to, food, lodging and transportation.
8. ADDITIONAL COVENANTS.
8.1 BOARD COMPOSITION AND BOARD DESIGNATIONS. For a period
of five years from the Effective Date, the Company shall ensure that (i) the
qualifications of the persons
26
serving as board members and the overall composition of the board comply with
the Xxxxxxxx-Xxxxx Act of 2002 and the rules promulgated thereunder and with the
listing requirements of the AMEX and (ii) at least one member of the board of
directors qualifies as a "financial expert" as such term is defined under the
Xxxxxxxx-Xxxxx Act of 2002 and the rules promulgated thereunder.
8.2 EMPLOYMENT AND COMPENSATION MATTERS. Prior to the
Effective Date, the Company will have entered into a three-year employment
agreement with Xxxxxxx X. Xxxxx, including a covenant not to compete for a
period of two years after termination of employment, the terms of which shall be
satisfactory to the Representative, and will have entered into a six-month
employment agreement and five-year non-competition agreement with Xxxxxx X.
Xxxxx, the terms of which will be satisfactory to the Representative. The
Company agrees that for a period of three years from the Effective Date, all
compensation and other arrangements between the Company and its officers,
directors and affiliates shall be approved by the Compensation Committee of the
Company's Board of Directors, a majority of the members of which shall have no
affiliation or other relationship with the Company other than as directors.
8.3 PRESS RELEASES. The Company will not issue a press
release or engage in any other publicity until 25 days after the Effective Date
without the Representative's prior written consent.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates and such representations, warranties and
agreements of the Underwriters and Company, including the indemnity agreements
contained in Section 5 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Underwriters,
the Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the several
Underwriters until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of the later of the Closing Date or the
Option Closing Date, if any, at which time the representations, warranties and
agreements shall terminate and be of no further force and effect.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
10.1 EFFECTIVE DATE. This Agreement shall become effective on
the Effective Date at the time that the Registration Statement is declared
effective.
10.2 TERMINATION. The Underwriters shall have the right to
terminate this Agreement at any time prior to any Closing Date, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Representative's opinion will in the immediate future materially
disrupt, general securities markets in the United States; or (ii) if trading on
the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been fixed, or maximum ranges for prices for securities shall have
been required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction, or (iii) if
the United States shall have become involved in a war other than in Afghanistan
or Iraq or there are other major hostilities in or outside those countries, or
(iv) if a banking moratorium has been declared
27
by a New York State or federal authority, or (v) if a moratorium on foreign
exchange trading has been declared which materially adversely impacts the United
States securities market, or (vi) if the Company shall have sustained a material
loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will, in your opinion, make it inadvisable to proceed with the delivery
of the Securities, or (vii) if either Xxxxxx X. Xxxxx or Xxxxxxx X. Xxxxx shall
no longer serve the Company in his present capacity, or (viii) if the Company
has breached any of its representations, warranties or obligations hereunder
(subject to any materiality qualifications contained therein), or (ix) if the
Underwriter shall have become aware after the date hereof of such a material
adverse change in the condition (financial or otherwise), business, or prospects
of the Company, or such adverse material change in general market conditions as
in the Representative's reasonable judgment would make it impracticable to
proceed with the offering, sale and/or delivery of the Securities or to enforce
contracts made by the Underwriters for the sale of the Securities.
10.3 NOTICE. If you elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be notified on the same day as such election is made by
you by telephone or telecopy, confirmed by letter.
10.4 EXPENSES. In the event that this Agreement shall not
be carried out for any reason whatsoever, within the time specified herein or
any extensions thereof pursuant to the terms hereof, the obligations of the
Company to pay the expenses related to the transactions contemplated herein
shall be governed by Section 3.13 hereof.
10.5 INDEMNIFICATION. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Section 5 shall not be in any way effected by, such election
or termination or failure to carry out the terms of this Agreement or any part
hereof.
11. MISCELLANEOUS.
11.1 NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telecopied and confirmed
If to the Representative:
Xxxxxx Securities, Inc.
0000 Xxxxxxx Xxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
Copy to:
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxx Xxxxxx, Esq.
Telecopier: (000) 000-0000
28
If to the Company:
Fusion Telecommunications International, Inc.
000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx
Telecopier: (000) 000-0000
Copy to:
Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000
11.2 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
11.3 AMENDMENT. This Agreement may be amended only by a
written instrument executed by each of the parties hereto.
11.4 ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
11.5 BINDING EFFECT. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Representative, the other Underwriter,
the Company and the controlling persons, directors and officers referred to in
Section 5 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained.
11.6 GOVERNING LAW, JURISDICTION. This Agreement shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflicts of law. The Company hereby
agrees that any action, proceeding or claim against it arising out of or
relating in any way to this Agreement shall be brought and enforced in the
courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any such process or summons to be served upon the Company may be served
by transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
11.1 hereof. Such mailing shall be deemed personal service and shall be legal
and binding upon the Company in any action, proceeding or claim. The parties
agree that the prevailing party(ies) in any such action shall be entitled to
recover from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
29
11.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
11.8 WAIVER, ETC. The failure of any of the parties hereto at any
time to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto thereafter to enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
30
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Accepted as of the date first above written.
New York, New York
XXXXXX SECURITIES, INC.
By:
---------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Co-Chief Executive Officer
31
SCHEDULE I
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
Underwriter Number of Firm Securities to be Purchased
----------- -----------------------------------------
Xxxxxx Securities, Inc.
32
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, ____________ ___, 2009.
PURCHASE OPTION
FOR THE PURCHASE OF UP TO
[ ] SHARES OF COMMON STOCK
AND/OR
[ ] COMMON STOCK PURCHASE WARRANTS
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
1. PURCHASE OPTION.
THIS CERTIFIES THAT, in consideration of $100.00 duly paid by or on
behalf of ____________________________ ("Holder"), as registered owner of this
Purchase Option, to Fusion Telecommunications International, Inc. ("Company"),
Holder is entitled, at any time or from time to time at or after __________
____, 2005 ("Commencement Date"), and at or before 5:00 p.m., Eastern Time,
___________ ____, 2009 ("Expiration Date"), but not thereafter, to subscribe
for, purchase and receive, in whole or in part, up to [ ] ([ ]) shares of Common
Stock of the Company, $.01 par value ("Common Stock") and/or [ ] ([ ])
Redeemable Common Stock Purchase Warrants, each to purchase one share of Common
Stock ("Warrants"). Each Warrant is the same as the Redeemable Common Stock
Purchase Warrants ("Public Warrants") that have been registered by the Company
for sale to the public pursuant to the Registration Statement on Form SB-2
(No.333-___________) ("Registration Statement"), which was declared effective on
_________ ____, 2004 ("Effective Date"). The shares of Common Stock and Warrants
are sometimes collectively referred to herein as the "Securities." The Holder
can purchase, upon exercise of the Purchase Option, either shares of Common
Stock or Warrants or both. If the Expiration Date is a day on which banking
institutions are authorized by law to close, then this Purchase Option may be
exercised on the next succeeding day that is
not such a day in accordance with the terms herein. This Purchase Option is
initially exercisable at $[ ] per share of Common Stock and $[ ] per Warrant
purchased; provided, however, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Purchase Option,
including the exercise price and the number of shares of Common Stock and
Warrants to be received upon such exercise, shall be adjusted as therein
specified. The term "Exercise Price" shall mean the initial exercise price or
the adjusted exercise price, depending on the context of a share of Common Stock
or a Warrant.
2. EXERCISE.
2.1 EXERCISE FORM. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price in cash or by certified check or official bank check for the Securities
being purchased. If the subscription rights represented hereby shall not be
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this
Purchase Option shall become and be void without further force or effect, and
all rights represented hereby shall cease and expire.
2.2 LEGEND. Each certificate for Securities purchased under this
Purchase Option shall bear a legend as follows (or a substantially similar
legend) unless such Securities have been registered under the Securities Act of
1933, as amended:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act") or applicable state law. The securities may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act,
or pursuant to an exemption from registration under the Act
and applicable state law."
2.3 CONVERSION RIGHT.
2.3.1 DETERMINATION OF AMOUNT. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to convert any exercisable but unexercised
portion of this Purchase Option into Common Stock and/or Warrants ("Conversion
Right") as provided in this Section 2 below.
2.3.2 COMMON STOCK. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any of the
Exercise Price in cash) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the "Stock Value" (as defined below), at the
close of trading on the next to last trading day immediately preceding the
exercise of the Conversion Right, of the portion of the Purchase Option being
converted by (y) the Market Price at that same time. The "Stock Value" of the
portion of the Purchase Option being converted shall equal the remainder derived
from subtracting (a) the
2
Exercise Price multiplied by the number of shares of Common Stock underlying
that portion of the Purchase Option being converted from (b) the Market Price of
the Common Stock multiplied by the number of shares of Common Stock underlying
that portion of the Purchase Option being converted. As used in this Section
2.3.2, the term "Market Price" at any date shall be deemed to be the average of
the last reported sale price of the Common Stock for the three consecutive
trading days ending on such date, as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading,
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or if any such exchange on which the Common Stock is listed
is not its principal trading market, the last reported sale price for the three
consecutive trading days ending on such date as furnished by the NASD through
the Nasdaq National Market or SmallCap Market, or, if applicable, the American
Stock Exchange, or if the Common Stock is not listed or admitted to trading on
any of the foregoing markets, or similar organization, as determined in good
faith by resolution of the Board of Directors of the Company, based on the best
information available to it.
2.3.3 WARRANTS. Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any of the
Exercise Price in cash) that number of Warrants equal to the quotient obtained
by dividing (x) the "Warrant Value" (as defined below), at the close of trading
on the next to last trading day immediately preceding the exercise of the
Conversion Right, of the portion of the Purchase Option being converted by (y)
the Market Price at that same time. The "Warrant Value" of the portion of the
Purchase Option being converted shall equal the remainder derived from
subtracting (a) the Exercise Price multiplied by the number of Warrants
underlying that portion of the Purchase Option being converted from (b) the
Market Price of the Warrants multiplied by the number of Warrants underlying
that portion of the Purchase Option being converted. As used in this Section
2.3.3, the term "Market Price" at any date shall be deemed to be the last
reported sale price of the Warrants for the three consecutive trading days
ending on such date, or, in case no such reported sale takes place on such day,
the last reported sale price for the immediately preceding trading day, in
either case as officially reported by the principal securities exchange on which
the Warrants are listed or admitted to trading, or, if the Warrants are not
listed or admitted to trading on any national securities exchange or if any such
exchange on which the Warrants are listed is not its principal trading market,
the last reported sale price for the three consecutive trading days ending as
furnished by the NASD through the Nasdaq National Market or SmallCap Market, or,
if applicable, the American Stock Exchange, or if the Warrants are not then
traded on any of the foregoing markets, or similar organization, then the
"Market Price" shall equal the remainder derived from subtracting (a) the
exercise price of the underlying Warrant from (b) the "Market Price" of the
Common Stock as determined in Section 2.3.2.
2.3.4 MECHANICS OF CONVERSION. The Conversion Right may be
exercised by the Holder on any business day on or after the Commencement Date
and not later than the Expiration Date by delivering the Purchase Option with a
duly executed exercise form attached hereto with the conversion right section
completed to the Company, exercising the Conversion Right and specifying the
total number of shares of Common Stock and/or Warrants that the Holder will
purchase pursuant to such Conversion Right.
3
3. TRANSFER.
3.1 GENERAL RESTRICTIONS. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option prior to the Commencement Date to
anyone other than (i) an officer or partner of such Holder, (ii) an officer of
Xxxxxx Securities, Inc. ("Underwriter") or an officer or partner of any Selected
Dealer or member of the underwriting syndicate in connection with the Company's
public offering with respect to which this Purchase Option has been issued, or
(iii) any Selected Dealer or member of the underwriting syndicate. On and after
the Commencement Date, transfers to others may be made subject to compliance
with or exemptions from applicable securities laws. In order to make any
permitted assignment, the Holder must deliver to the Company the assignment form
attached hereto duly executed and completed, together with the Purchase Option
and payment of all transfer taxes, if any, payable in connection therewith. The
Company shall immediately transfer this Purchase Option on the books of the
Company and shall execute and deliver a new Purchase Option or Purchase Options
of like tenor to the appropriate assignee(s) expressly evidencing the right to
purchase the aggregate number of shares of Common Stock and Warrants purchasable
hereunder or such portion of such number as shall be contemplated by any such
assignment.
3.2 RESTRICTIONS IMPOSED BY THE ACT. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel for the Holder that
this Purchase Option or the Securities, as the case may be, may be transferred
pursuant to an exemption from registration under the Act and applicable state
law, the availability of which is established to the reasonable satisfaction of
the Company (the Company hereby agreeing that an opinion of Xxxxxxxx Xxxxxx in
form and substance reasonably satisfactory to the Company or its counsel shall
be deemed satisfactory evidence of the availability of an exemption), or (ii) a
registration statement relating to such Purchase Option or Securities, as the
case may be, has been filed by the Company and declared effective by the
Securities and Exchange Commission and compliance with applicable state law.
4. NEW PURCHASE OPTIONS TO BE ISSUED.
4.1 PARTIAL EXERCISE OR TRANSFER. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, upon
surrender of this Purchase Option for cancellation, together with the duly
executed exercise or assignment form and funds sufficient to pay any Exercise
Price and/or transfer tax, the Company shall cause to be delivered to the Holder
without charge a new Purchase Option of like tenor to this Purchase Option in
the name of the Holder evidencing the right of the Holder to purchase the
aggregate number of shares of Common Stock and Warrants purchasable hereunder as
to which this Purchase Option has not been exercised or assigned.
4
4.2 LOST CERTIFICATE. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual obligation
on the part of the Company.
5. REGISTRATION RIGHTS.
5.1 DEMAND REGISTRATION.
5.1.1 GRANT OF RIGHT. The Company, upon written demand
("Initial Demand Notice") of the Holder(s) of at least 51% of the Purchase
Options and/or the underlying shares of Common Stock and Warrants ("Majority
Holders"), agrees to register on one occasion, all of the Securities underlying
such Purchase Options, including the Common Stock, the Warrants and the Common
Stock underlying the Warrants (collectively the "Registrable Securities"). On
such occasion, the Company will file a registration statement covering the
Registrable Securities within sixty (60) days after receipt of the Initial
Demand Notice and use its reasonable best efforts to have the registration
statement declared effective promptly thereafter. If the Company fails to comply
with the provisions of this Section 5.1.1, the Company shall, in addition to any
other equitable or other relief available to the Holder(s), be liable for any
and all incidental, special and consequential damages sustained by the
Holder(s). The demand for registration may be made at any time during a period
of four years beginning one year from the Effective Date; provided that the
Registrable Securities are not already covered by an effective registration
statement. The Company covenants and agrees to give written notice of its
receipt of any Initial Demand Notice by any Holder(s) to all other registered
Holders of the Purchase Options and/or the Registrable Securities within ten
days from the date of the receipt of any such Initial Demand Notice.
5.1.2 TERMS. The Company shall bear all fees and expenses
attendant to registering the Registrable Securities, but the Holders shall pay
any and all underwriting and brokerage commissions discounts and fees, the
expenses of any legal counsel selected by the Holders to represent them in
connection with the sale of the Registrable Securities. The Company agrees to
use its reasonable best efforts to cause the filing required herein to become
effective promptly and to qualify or register the Registrable Securities in such
States as are reasonably requested by the Holder(s); provided, however, that in
no event shall the Company be required to register the Registrable Securities in
a State in which such registration would cause (i) the Company to be obligated
to register or license to do business in such State or submit to general service
of process in such State, or (ii) the principal stockholders of the Company to
be obligated to escrow their shares of capital stock of the Company. The Company
shall cause any registration statement filed pursuant to the demand right
granted under Section 5.1.1 to remain effective for a period of at least twelve
consecutive months from the date that the Holders of the
5
Registrable Securities covered by such registration statement are first given
the opportunity to sell all of such securities.
5.2 "PIGGY-BACK" REGISTRATION.
5.2.1 GRANT OF RIGHT. In addition to the demand right of
registration, the Holders of the Purchase Options shall have the right for a
period of six (6) years commencing one year from the Effective Date, to include
the Registrable Securities as part of any other registration of securities filed
by the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8 or any equivalent
form); provided, however, that if, in the determination of the Company's
managing underwriter or underwriters, if any, for such offering, the inclusion
of the Registrable Securities, when added to the securities being registered by
the Company or the selling stockholder(s), will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without adversely affecting the entire
offering, the Company shall not be obligated to register such Registrable
Securities.
5.2.2 TERMS. The Company shall bear all fees and expenses
attendant to registering the Registrable Securities, but the Holders shall pay
any and all underwriting and brokerage commissions, discounts and fees and the
expenses of any legal counsel and other experts selected by the Holders to
represent them in connection with the sale of the Registrable Securities. In the
event of such a proposed registration, the Company shall furnish the then
Holders of outstanding Registrable Securities with not less than ten (10) days
written notice prior to the proposed date of filing of such registration
statement. Such notice to the Holders shall continue to be given for each
registration statement filed by the Company until such time as the Holder has
sold all of the Registrable Securities. The holders of the Registrable
Securities shall exercise the "piggy-back" rights provided for herein by giving
written notice, within ten (10) days of the receipt of the Company's notice of
its intention to file a registration statement.
5.3 GENERAL TERMS.
5.3.1 INDEMNIFICATION. The Company shall indemnify the
Holder(s) of the Registrable Securities to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such Holders within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 5 of the
Underwriting Agreement between the Underwriter and the Company, dated the
Effective Date (but not with respect to information furnished (or not furnished
in the case of an omission) by the Holders). The Holder(s) of the Registrable
Securities to be sold pursuant to
6
such registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, against all loss, claim, damage, expense
or liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished (or not furnished in the case of
an omission or alleged omission) by or on behalf of such Holders, or their
successors or assigns, in writing, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 5 of the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company.
5.3.2 EXERCISE OF WARRANTS. Nothing contained in this Purchase
Option shall be construed as requiring the Holder(s) to exercise their Purchase
Options or Warrants prior to or after the initial filing of any registration
statement or the effectiveness thereof.
5.3.3 DOCUMENTS DELIVERED TO HOLDERS. Subject to the execution
of appropriate confidentiality agreements, the Company shall deliver promptly to
each Holder participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times as any such Holder
shall reasonably request, provided that all such persons sign a confidentiality
agreement.
5.3.4 DOCUMENTS TO BE DELIVERED BY HOLDER(S). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders as a
condition to the inclusion of such Holder's Registrable Securities in any
registration statement.
6. ADJUSTMENTS.
6.1 ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. The
Exercise Price and the number of shares of Common Stock underlying the Purchase
Option and underlying the Warrants underlying the Purchase Option shall be
subject to adjustment from time to time as hereinafter set forth:
6.1.1 STOCK DIVIDENDS - RECAPITALIZATION, RECLASSIFICATION,
SPLIT-UPS. If after the date hereof, and subject to the provisions of Section
6.3 below, the number of outstanding
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shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up, recapitalization or reclassification of shares of
Common Stock or other similar event, then, on the effective date thereof, the
number of shares of Common Stock issuable on exercise of the Purchase Option and
the Warrants underlying the Purchase Option shall be increased in proportion to
such increase in outstanding shares; provided, however, that nothing in this
Section 6.1 is intended to provide for an adjustment with respect to the
Warrants beyond that provided for in the Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company. [For example, if the Company
declares a two-for-one stock dividend and at the time of such dividend the
Purchase Option is for the purchase of 1,000 shares of Common Stock at $5.555
per share and 1,000 Warrants at $0.055 per Warrant (each Warrant exercisable for
$5.05 per share), upon effectiveness of the dividend, the Purchase Option will
be adjusted (disregarding for purposes of this example that adjustments shall be
rounded to the nearest cent, as provided in Section 6.1.3) to allow for the
purchase of 2,000 shares at $2.7775 per share and 2,000 Warrants at $0.0275
(each Warrant exercisable for $2.525 per share).]
6.1.2 AGGREGATION OF SHARES. If after the date hereof, and
subject to the provisions of Section 6.3, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date
thereof, the number of shares of Common Stock issuable on exercise of the
Purchase Option and the Warrants underlying the Purchase Option shall be
decreased in proportion to such decrease in outstanding shares.
6.1.3 ADJUSTMENTS IN EXERCISE PRICE. Whenever the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option is
adjusted, as provided in this Section 6.1, the Exercise Price shall be adjusted
(to the nearest cent) by multiplying such Exercise Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter. If
it is determined that such Exercise Price and number of shares of Common Stock
must be adjusted, then the Exercise Price of the Purchase Option with respect to
the underlying Warrants and the number of Warrants purchasable hereunder shall
also be similarly adjusted.
6.1.4 REPLACEMENT OF SECURITIES UPON REORGANIZATION, ETC. In
case of any reclassification or reorganization of the outstanding shares of
Common Stock other than a change covered by Section 6.1.1 hereof or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or reorganization
of the outstanding shares of Common Stock), or in the case of any sale or
conveyance to another corporation or entity of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Purchase Option shall have the right thereafter
(until the expiration of the right of exercise of this Purchase Option) to
receive upon
8
the exercise hereof, for the same aggregate Exercise Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any
such sale or other transfer, by a Holder of the number of shares of Common Stock
of the Company obtainable upon exercise of this Purchase Option immediately
prior to such event; and if any reclassification also results in a change in
shares of Common Stock covered by Section 6.1.1, then such adjustment shall be
made pursuant to Sections 6.1.1, 6.1.3 and this Section 6.1.4. The provisions of
this Section 6.1.4 shall similarly apply to successive reclassifications,
reorganizations, mergers or consolidations, sales or other transfers.
6.1.5 CHANGES IN FORM OF PURCHASE OPTION. This form of Purchase
Option need not be changed because of any change pursuant to this Section, and
Purchase Options issued after such change may state the same Exercise Price and
the same number of shares of Common Stock and Warrants as are stated in the
Purchase Options initially issued pursuant to this Agreement. The acceptance by
any Holder of the issuance of new Purchase Options reflecting a required or
permissive change shall not be deemed to waive any rights to a prior adjustment
or the computation thereof.
6.2 ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or Warrants upon the exercise or transfer of the Purchase Option, nor shall it
be required to issue scrip or pay cash in lieu of any fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up or down to the nearest whole number of
Warrants, shares of Common Stock or other securities, properties or rights.
7. RESERVATION AND LISTING. The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon exercise of the Purchase Options or the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Purchase Options and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid and non-assessable and not
subject to preemptive rights of any stockholder. The Company further covenants
and agrees that upon exercise of the Warrants underlying the Purchase Options
and payment of the respective Warrant exercise price therefor, all shares of
Common Stock and other securities issuable upon such exercises shall be duly and
validly issued, fully paid and non-assessable and not subject to preemptive
rights of any stockholder. As long as the Purchase Options shall be outstanding,
the Company shall use its reasonable best efforts to cause all (i) shares of
Common Stock issuable upon exercise of the Purchase Options and the Warrants,
and (ii) the Warrants underlying the Purchase Options to be listed (subject to
official notice of issuance) on all securities exchanges (or, if applicable on
Nasdaq) on which the Common Stock or the Public Warrants issued to the public in
connection herewith are then listed and/or quoted.
9
8. CERTAIN NOTICE REQUIREMENTS.
8.1 HOLDER'S RIGHT TO RECEIVE NOTICE. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Purchase Options and their exercise, any of the
events described in Section 8.2 shall occur, then, in one or more of said
events, the Company shall give written notice of such event at least ten (10)
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of the
closing of the transfer books, as the case may be.
8.2 EVENTS REQUIRING NOTICE. The Company shall be required to give
the notice described in this Section 8 upon one or more of the following events:
(i) if the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business shall be
proposed.
8.3 NOTICE OF CHANGE IN EXERCISE PRICE. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 TRANSMITTAL OF NOTICES. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgement of receipt to the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Purchase Option, to the address of such Holder as shown
on the books of the Company, or (ii) if to the Company, to its principal
executive office.
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9. MISCELLANEOUS.
9.1 AMENDMENTS. The Company and the Underwriter may from time to time
supplement or amend this Purchase Option without the approval of any of the
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem shall not
adversely affect the interest of the Holders. All other modifications or
amendments shall require the written consent of the party against whom
enforcement of the modification or amendment is sought.
9.2 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Purchase
Option.
9.3 ENTIRE AGREEMENT. This Purchase Option (together with the other
agreements and documents being delivered pursuant to or in connection with this
Purchase Option) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
9.4 BINDING EFFECT. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Purchase Option or any provisions
herein contained.
9.5 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
8 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The Company and the
Holder, by acceptance hereof, agree that the prevailing party(ies) in any such
action shall be entitled to recover from the other party(ies) all of its
reasonable attorneys' fees and expenses relating to such action or proceeding
and/or incurred in connection with the preparation therefor.
11
9.6 WAIVER, ETC. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of the ____ day of _____, 2004.
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
By:
----------------------------------
Xxxxxx X. Xxxxx
Chief Executive Officer
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Form to be used to exercise Purchase Option:
Fusion Telecommunications International, Inc.
Date:_________________, 200__
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase ____ shares of Common Stock and/or
Warrants to purchase shares of Common Stock of Fusion Telecommunications
International, Inc. and hereby makes payment of $____________ (at the rate of
$_________ per share of Common Stock and $ per Warrant) in payment of the
Exercise Price pursuant thereto. Please issue the Common Stock and Warrants as
to which this Purchase Option is exercised in accordance with the instructions
given below.
OR
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase _________ shares of Common Stock by
surrender of the unexercised portion of the within Purchase Option (with a
"Stock Value" of $_______ based on a "Market Price" of $__________. Please issue
the Common Stock as to which this Purchase Option is exercised in accordance
with the instructions given below.
------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
--------------------------------------------------------
(Print in Block Letters)
Address
--------------------------------------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer
of the within Purchase Option):
FOR VALUE RECEIVED,__________________________________ does
hereby sell, assign and transfer unto _______________________ the right to
purchase _______________________ shares of Common Stock and/or Warrants to
purchase ______ shares of Common Stock of Fusion Telecommunications
International, Inc. ("Company") evidenced by the within Purchase Option and does
hereby authorize the Company to transfer such right on the books of the Company.
Dated:___________________, 200_
------------------------------
Signature
------------------------------
Signature Guaranteed
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY OR BY A
FIRM HAVING MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
14
