EXHIBIT 1.1
2,300,000 SHARES OF
COMMON STOCK
CUMETRIX DATA SYSTEMS CORP.
UNDERWRITING AGREEMENT
New York, New York
March, 1998
XXXXXX XXXXXXX & COMPANY, INC.
ROYCE INVESTMENT GROUP, INC.
c/o Xxxxxx Xxxxxxx & Company, Inc.
00 Xxxxxx Xxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
CUMETRIX DATA SYSTEMS CORP., a California corporation (the "Company"),
confirms its agreement with Xxxxxx Xxxxxxx & Company, Inc. ("JSC") and Royce
Investment Group, Inc. ("Royce")(collectively, JSC and Royce are hereinafter
referred to as "you" or the "Underwriters"), with respect to the sale by the
Company and the purchase by the Underwriters of 2,300,000 shares of common
stock, no par value (the "Common Stock"). Such 2,300,000 shares of Common Stock
are hereinafter referred to as the "Firm Shares." Upon the Underwriters'
request, as provided in Section 2(b) of this Agreement, the Company shall also
issue and sell to the Underwriters up to an additional 345,000 shares for the
purpose of covering over allotments, if any. Such 345,000 shares are
hereinafter collectively referred to as the "Option Shares." The Underwriters,
who are acting severally and not jointly, agree to purchase the respective
number of Firm Shares and Option Shares set forth opposite their respective
names in Schedule A attached hereto. The Company also proposes to issue and
sell to the Underwriters or its designees warrants (the "Underwriters'
Warrants"), pursuant to the Underwriters' Warrant Agreement (the "Underwriters'
Warrant Agreement"), for the purchase of an additional 230,000 shares of Common
Stock (the "Underwriters' Shares"). The Firm Shares, the Option Shares, the
Underwriters' Warrants and the Underwriters' Shares are hereinafter collectively
referred to as the "Securities" and are more fully described in the Registration
Statement and the Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, the Underwriters as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form S-1 (Registration No. 333-43151), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "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 of the Commission under the Act. The Company will not
file any other amendment to such registration statement which the Underwriters
shall have objected to in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any Preliminary
Prospectus, the Registration Statement or the Prospectus, and no proceedings for
a stop order suspending the effectiveness of the Registration Statement or any
of the Company's securities have been instituted or are pending or threatened.
Each of the Preliminary Prospectus, the Registration Statement and the
Prospectus, at the respective times of filing thereof, conformed with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement nor the Prospectus, at the
respective times of filing thereof, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; PROVIDED, HOWEVER, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in such Preliminary Prospectus, the Registration Statement or the
Prospectus. The Company has filed all reports, forms or other documents
required to be filed under the Act and the Exchange Act and the respective Rules
and Regulations thereunder, and all such reports, forms or other documents, when
so filed or as subsequently amended, complied in all material respects with the
Act and the Exchange Act and the respective Rules and Regulations thereunder.
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(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; PROVIDED, HOWEVER,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or the Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing, except where the failure to be so qualified or be in good standing
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company,
taken as a whole ("Material Adverse Effect"). Except as set forth in the
Prospectus, the Company does not own, directly or indirectly, an interest in any
corporation, partnership, trust, joint venture or other business entity. The
Company has all requisite power and authority (corporate and other), and has
obtained any and all authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), necessary and material to the Company's
owning or leasing its properties and conducting its business as described in the
Prospectus; the Company is and has been doing business in compliance with all
such authorizations, approvals, orders, licenses, certificates, franchises and
permits and with all federal, state, local and foreign laws, rules and
regulations to which it is subject; and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The disclosure in
the Registration Statement concerning the effects of federal, state, local and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated is correct in all material respects and does not
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have
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the adjusted capitalization set forth therein on the Closing Date and the Option
Closing Date, if any, based upon the assumptions set forth therein, and the
Company is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement and the Underwriters'
Warrant Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company on or prior to the Closing
Date and each Option Closing Date, if any, conform or, when issued and paid for,
will conform, in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holder of any security of the Company or any similar
contractual right granted by the Company. The Securities to be sold by the
Company hereunder and pursuant to the Underwriters' Warrant Agreement are not
and will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities, when delivered by the Company, will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof and the Underwriters' Warrant Agreement of the Securities to be sold by
the Company hereunder and thereunder to the Underwriters, the Underwriters will
acquire good and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the Company.
(f) The financial statements of the Company together with the related
notes thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply and the
pro forma financial information included in the Registration Statement and
Prospectus presents fairly on a basis consistent with that of the audited
financial statement therein, what the Company's pro forma capitalization and
balance sheet data would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. There has been no
material adverse change or development involving a prospective change in the
condition, financial or otherwise, or in the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company, whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement and the
Prospectus; and the outstanding debt, the property, both tangible and
intangible, and the business of the Company conform in all material respects to
the descriptions thereof contained in the Registration Statement and the
Prospectus. The financial information set forth in the Prospectus under the
headings "Summary
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Financial Data," "Capitalization," "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation" fairly
presents, on the basis stated in the Prospectus, the information set forth
therein and such financial information has been derived from or compiled on a
basis consistent with that of the audited financial statements included in the
Prospectus.
(g) The Company (i) has paid all federal, state, local and foreign
taxes for which it is liable and which are required to have been paid,
including, but not limited to, withholding taxes and amounts payable under
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed or assessed against it, except in the cases of each
clauses (i) through (iii) where the failure to do so would not have a Material
Adverse Effect..
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Securities from
the Company, (iii) the consummation by the Company of any of its obligations
under this Agreement or the Underwriters' Warrant Agreement, or (iv) resales of
the Firm Shares or the Option Shares in connection with the distribution
contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds, nor has
failed to pay any premiums due and payable thereunder, or (iii) has not failed
to comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic or
foreign, pending or, to the best knowledge of the Company, threatened against
(or circumstances that may give rise to the same), or involving the properties
or business of, the Company which (i) questions the validity of the capital
stock of the Company, this Agreement, the Underwriters' Warrant Agreement or the
Consulting Agreement (as defined in Section 1(ff) hereof) or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement,
the Underwriters' Warrant Agreement or the Consulting Agreement, (ii) is
required to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects), or (iii) might materially and
adversely affect the condition, financial or
5
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriters' Warrant Agreement and the Consulting Agreement and to
consummate the transactions provided for in such agreements; each of this
Agreement, the Underwriters' Warrant Agreement and the Consulting Agreement have
been duly and properly authorized, executed and delivered by the Company.
Assuming due authorization, execution and delivery by the Underwriters or JSC,
as the case may be, this Agreement, the Underwriters' Warrant Agreement and the
Consulting Agreement constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). None of the Company's issue and sale of the Securities,
execution or delivery of this Agreement, the Underwriters' Warrant Agreement or
the Consulting Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein or the conduct
of its business as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company,
(ii) any material license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or credit agreement
or other material 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 it is or may be bound or to which its properties or assets
(tangible or intangible) are or may be subject, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company of any arbitrator,
court, regulatory body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction over
the Company or any of its activities or properties, except where such breach or
violation would not have a Material Adverse Effect.
(l) No consent, approval, authorization or order of, and no filing
with, any arbitrator, court, regulatory body, administrative agency, government
agency or other body, domestic or foreign, is required for the issuance of the
Securities pursuant to the Prospectus and the Registration Statement, this
Agreement and the Underwriters' Warrant Agreement, the performance of this
Agreement, the Underwriters' Warrant Agreement and the Consulting Agreement and
the transactions contemplated hereby and thereby, except such as have been
obtained under the Act, the rules of the National Association of Securities
Dealers, Inc. (the "NASD"), the rules of the Nasdaq Stock Market, or under State
or other securities or Blue Sky Laws.
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(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company enforceable
against the Company, in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form S-1; and there are no agreements, contracts or
other documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required; and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information is set
forth 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, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may be otherwise disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities or any material change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, 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 is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local and foreign laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving the Company by the
United States Department of Labor or any other governmental agency responsible
for the enforcement of any federal, state, local or foreign laws, rules and
regulations relating to employment. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or any strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving the Company, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees
of the
7
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. No labor dispute with the employees of the Company
exists or, to the best of the Company's knowledge, is imminent.
(q) The Company does not, now or at any time previously, maintain,
sponsor or contribute to any "employee benefit plan" as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended.
(r) Neither the Company nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations), has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company, whether to facilitate
the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the trademarks,
trade names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are in conflict with the right of
any other person or entity. The Company (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever, all
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and licenses and rights with respect to the foregoing, used
in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any trademark, trade name, service xxxx,
service name, copyright, patent or patent application except as set forth in the
Registration Statement or the Prospectus. There is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, pending or, to the best of the Company's
knowledge, threatened (or circumstances that may give rise to the same) against
the Company which challenges the rights of the Company with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the conduct
of its business.
(t) Except as set forth in the Registration Statement or the
Prospectus, the Company owns or has the right to use all trade secrets, know how
(including all unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), inventions, technology, designs, processes,
works of authorship, computer programs and technical data and information that
are material to the development, manufacture, operation and sale of all products
and services sold or proposed to be sold by the Company, free and clear of and
without violating any right, lien, or claim of others, including, without
limitation, former employers of its employees.
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(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable and except where failure by the Company to hold good and
marketable to, or valid and enforceable leasehold estates in such real or
personal property, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities would not
have a Material Adverse Effect.
(v) Xxxxxx Xxxxxxxx LLP, whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required within the meaning of the Act and the Rules and
Regulations.
(w) The holders of all of the shares of Common Stock of the Company,
including each director, officer and principal shareholder of the Company, but
excluding the Bridge Investors (as such term is defined below), have executed an
agreement (collectively, the "Management Lock-Up Agreements") pursuant to which
he, she or it has agreed, for a period extending eighteen (18) months following
the effective date of the Registration Statement (the "Lock-Up Period"), not to
directly or indirectly, offer, offer to sell, sell, grant an option for the
purchase or sale of, transfer, pledge, assign, hypothecate or otherwise encumber
(whether pursuant to Rule 144 of the Rules and Regulations or otherwise) any
securities issued or issuable by the Company, whether or not owned by or
registered in the name of such persons, or dispose of any interest therein,
without the prior written consent of JSC; provided, however, that the Lock-Up
Period shall immediately terminate if the average closing bid price of the
Common Stock, if the Common Stock is quoted on the Nasdaq system, or the Nasdaq
SmallCap Market, or the average closing sale price of the Common Stock, if the
Common Stock is listed on the American Stock Exchange or New York Stock
Exchange, equals or exceeds $10.00 per share (subject to customary adjustments
for stocksplits, combinations, consolidations and similar transactions) for any
30 consecutive calendar days. Such persons have all further agreed in the
Management Lock-Up Agreements that, for a period extending twenty-four (24)
months following the effective date of the Registration Statement, all sales of
such securities of the Company shall be made through JSC in accordance with its
customary brokerage policies. The investors (collectively, the "Bridge
Investors"), who purchased securities of the Company in the Company's bridge
financing (the "Bridge Financing") pursuant to the confidential private
placement memorandum dated October 29, 1997, have agreed ("Bridge Lock-Up
Agreement"; collectively, the Bridge Lock-Up Agreements and the Management
Lock-Up Agreements shall be referred to as the "Lock-Up Agreements") not to
directly or indirectly, issue, offer to sell, grant an option for the sale of,
transfer, assign, hypothecate, pledge, distribute or otherwise dispose of or
encumber (either pursuant to Rule 144 of the regulations under the Securities
Act or otherwise) the units, the shares of common stock, the warrants or the
shares of common stock underlying such warrants acquired or sold in the Bridge
Financing for a period extending twelve (12) months following the effective date
of the Registration Statement and thereafter for an additional six (6) months,
without the prior written consent of JSC. The Bridge Investors have further
agreed that for a period extending twenty-four (24) months following the
effective date of the Registration Statement, all sales of such securities shall
be made through JSC in accordance with its customary
9
brokerage policies. The Company will cause its transfer agent to make an
appropriate legend on the face of stock certificates representing all such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriters' compensation, as determined by the NASD.
(y) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market.
(z) Neither the Company nor any of its respective directors,
officers, stockholders, 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 any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, and no affiliate or associate (as these terms are
defined in the Rules and Regulations) of any of the foregoing persons or
entities, has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director or any person listed in the "Principal Shareholders"
section of the Prospectus or any affiliate or associate of any of the foregoing
persons or entities which are required to be disclosed in the Prospectus
pursuant to the Act and the Rules and Regulations.
10
(bb) The minute books of the Company have been made available to the
Underwriters, contain a complete summary of all meetings and actions of the
directors and stockholders of the Company since the time of its incorporation,
and reflect all transactions referred to in such minutes accurately in all
respects.
(cc) Except and to the extent described in the Prospectus, no holder
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(dd) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(ee) The Company has entered into a financial advisory and consulting
agreement substantially in the form filed as Exhibit 10.16 to the Registration
Statement (the "Consulting Agreement") with JSC, with respect to the rendering
of consulting services by JSC to the Company. The Consulting Agreement provides
that JSC shall be retained by the Company commencing on the consummation of the
proposed public offering and ending 24 months thereafter, at a monthly retainer
of $2,000, all of which is payable on consummation of the proposed public
offering. The Consulting Agreement has been duly and validly authorized by the
Company and assuming due execution by the parties thereto other than the
Company, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law).
(ff) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Securities and such Form 8-A
has been declared effective by the Commission.
(gg) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Max Toghraie,
Xxxxx Xxx and Xxx Xxxx in the forms filed as Exhibit 10.4, 10.2 and 10.3,
respectively, to the Registration Statement and (ii) has obtained term key-man
insurance on the lives of each of Xxxxx Xxx and Max Toghraie in the amount of
$1,000,000 which policy names the Company as sole beneficiary.
11
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, the Firm Shares at a price equal to
$__________ [90.75% of the initial public offering price] per Share.
(b) In addition, on the basis of the representations, warranties,
covenants and agreement, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase all or any part of the Option Shares at a price equal
to $__________ [90.75% of the initial public offering price] per Share. The
option granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by JSC to the Company
setting forth the number of Option Shares as to which the Underwriters are then
exercising the option and the time and date of payment and delivery for any such
Option Shares. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Underwriters, but shall not be later than seven (7)
full business days after the exercise of said option, nor in any event prior to
the Closing Date, unless otherwise agreed upon by the Underwriters and the
Company. Nothing herein contained shall obligate the Underwriters to exercise
the option granted hereby. No Option Shares shall be delivered unless the Firm
Shares shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of JSC at 00 Xxxxxx Xxxx, Xxx
Xxxx, Xxx Xxxx 00000, or at such other place as shall be agreed upon by the
Underwriters and the Company. Such delivery and payment shall be made at 10:00
a.m. (New York City time) on __________ __, 1998 or at such other time and date
as shall be agreed upon by the Underwriters and the Company, but not less than
three (3) nor more than seven (7) full business days after the effective date of
the Registration Statement (such time and date of payment and delivery being
herein called the "Closing Date"). In addition, in the event that any or all of
the Option Shares are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Shares shall be made at
the above mentioned office of JSC or at such other place as shall be agreed upon
by the Underwriters and the Company. Delivery of the certificates for the Firm
Shares and the Option Shares, if any, shall be made to the Underwriters against
payment by the Underwriters of the purchase price for the Firm Shares and the
Option Shares, if any, to the order of the Company by wire transfer.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Underwriters at such offices or such other place as the Underwriters may
12
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriters or their designees the Underwriters' Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the holders
thereof to purchase an aggregate of an additional 230,000 Shares. The
Underwriters' Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and sixty-five percent (165%) of the initial public
offering price of the Shares. The Underwriters' Warrant Agreement and the form
of the certificates for the Underwriters' Warrants shall be substantially in the
form filed as Exhibit 1.2 to the Registration Statement. Payment for the
Underwriters' Warrants shall be made on the Closing Date.
3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration
Statement becomes effective as the Underwriters deem advisable, the Underwriters
shall make a public offering of the Firm Shares and such of the Option Shares as
the Underwriters may determine (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Underwriters may from time to time increase or decrease the public offering
price after distribution of the Shares has been completed to such extent as the
Underwriters, in their sole discretion, deem advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in their sole discretion,
deem advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or the
Exchange Act before termination of the offering of the Securities to the public
by the Underwriters of which the Underwriters shall not previously have been
advised and furnished with a copy, or to which the Underwriters shall have
objected or which is not in compliance with the Act, the Exchange Act and the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriters and confirm the same in writing, (i)
when the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A, (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the suspension
of the effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of any
13
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriters) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriters, pursuant to Rule 424(b)(4)
of the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriters, Rule 424(b)(4)).
(d) The Company will give the Underwriters notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use in
connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriters
or Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, its counsel ("Underwriters' Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriters, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriters may reasonably designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution contemplated hereby, and shall make such
applications, file such documents and furnish such information as may be
required for such purpose; PROVIDED, HOWEVER, the Company shall not be required
to qualify as a foreign corporation or file a general or limited consent to
service of process in any such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the Underwriters agree
that such action is not at the time necessary or advisable, use all reasonable
efforts to file and make such statements or reports at such times as are or may
reasonably be required by the laws of such jurisdiction to continue such
qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, the Exchange Act and the Rules and
Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and
14
the Prospectus, or any amendments or supplements thereto. If, at any time when
a prospectus relating to the 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 Underwriters' Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, or if it is necessary at any time to amend or
supplement the prospectus to comply with the Act, the Company will notify the
Underwriters promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty
five (45) days after the end of the 12 month period beginning on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
will deliver to the Underwriters:
i) unaudited quarterly reports of earnings as certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of the Company's
independent certified public accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
15
v) every press release and every material news item or article
of interest to the financial community in respect of the Company, or
its respective affairs which was released or prepared by or on behalf
of the Company; and
vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its respective business which
the Underwriters may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for the Common Stock.
(j) The Company will furnish to the Underwriters, without charge and
at such place as the Underwriters may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-effective
amendments thereto (one of which will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Underwriters may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Underwriters with originally executed copies of
duly executed, legally binding and enforceable Lock-Up Agreements, which are in
form and substance satisfactory to the Underwriters. On or before the Closing
Date, the Company shall deliver instructions to its transfer agent authorizing
such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for the duration of the Lock-Up Period
(as defined in SECTION 1(w), it and its future subsidiaries will not, without
the prior written consent of JSC (i) issue, sell, contract or offer to sell,
grant an option for the purchase or sale of, assign, transfer, pledge,
hypothecate, distribute or otherwise dispose of, directly or indirectly, any
shares of capital stock or any option, right or warrant with respect to any
shares of capital stock or any security convertible, exchangeable or exercisable
for capital stock, provided, that the Company may, without consent of JSC, issue
securities (a) upon the exercise of any outstanding stock options or warrants
granted or issued on or prior to the date hereof, and (b) subject to the terms
of Section 4(u) of this Agreement, up to an additional 116,283 shares of Common
Stock issuable upon the exercise stock options which may be granted pursuant to
the Company's 1997 Stock Option Plan, or (ii) file any registration statement
for the offer or sale of securities issued or to be issued by the Company or any
present or future subsidiaries.
16
(m) Neither the Company nor any of its officers or directors will
take, directly or indirectly, any action designed to stabilize or manipulate the
price of any securities of the Company, or which might in the future reasonably
be expected to cause or result in the stabilization or manipulation of the price
of any such securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required from time to time under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents will
comply as to form and substance with the applicable requirements under the Act,
the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
SECTION 6(j) hereof.
(q) The Company shall cause the Common Stock to be quoted on the
Nasdaq SmallCap Market and, for a period of five (5) years from the date hereof,
use its best efforts to maintain quotation of the Common Stock to the extent
outstanding on the Nasdaq SmallCap Market or the Nasdaq National Market.
(r) For a period of three (3) years from the Closing Date, the
Company shall at the request of the Underwriters, furnish or cause to be
furnished to the Underwriters and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and (ii) a list of
holders of all of the Company's securities.
(s) For a period of three (3) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriters, upon any and all requests of the Underwriters, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty (30)
days after the effective date of the Registration Statement, the Company agrees
to take all necessary and appropriate actions to be included in Standard and
Poor's Corporation Descriptions and Xxxxx'x OTC Manual and to continue such
inclusion for a period of not less than three (3) years.
17
(u) Without the prior written consent of JSC, the Company hereby
agrees that it will not, for the duration of the Lock-Up Period, adopt, propose
to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement (i) permitting the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (a) at an exercise or sale price per share that is less
than the greater of the initial public offering price of the Shares set forth
herein or the fair market value per share of the Common Stock on the date of
grant or sale, or (b) upon payment of less than the full purchase or exercise
price for such shares of Common Stock or other securities of the Company on the
date of grant or issuance; or (ii) permitting the existence of stock
appreciation rights, phantom options or similar arrangements; or (iii)
permitting the payment for such securities with any form of consideration other
than cash; or (iv) permitting the maximum number of shares of Common Stock or
other securities of the Company purchasable at any time pursuant to options,
warrants or other contract rights to exceed 545,000 (excluding the Underwriters'
Warrants, the 100,000 warrants issued to the Bridge Investors and the
Underwriters' Option to purchase 230,000 shares to cover-allotments, if any); or
(v) to any direct or indirect beneficial holder on the date hereof of more than
10% of the issued and outstanding shares of Common Stock.
(v) Until the completion of the distribution of the Securities to the
public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of JSC,
issue, directly or indirectly, any press release or other communication or hold
any press conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in the ordinary
course of the Company's business consistent with past practices with respect to
the Company's operations.
(w) The Company agrees that:
i) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual
selected by JSC, subject to the good faith approval of the Company, to
be elected to the Board of Directors of the Company (the "Board"), if
requested by JSC.
ii) In the event JSC elects not to exercise the right as set
forth above, then it may designate one person to attend all meetings
of the Company's Board of Directors for a period of five (5) years.
Such person shall be entitled to attend all such meetings and to
receive all notices and other correspondence and communications sent
by the Company to members of its Board of Directors.
iii) The Company shall reimburse JSC's designee for his or her
out-of-pocket expenses incurred in connection with his or her
attendance of the Board meetings.
iv) In the event JSC shall not have designated such individual
at the time of any meeting of the Board or such person has not been
elected or is unavailable to serve, the Company shall notify JSC of
each meeting of the Board.
18
(x) For a period equal to the lesser of (i) five (5) years from the
date hereof, and (ii) the sale to the public of the Underwriters' Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 for the registration under the Act of the
Underwriters' Securities.
(y) For the duration of the Lock-Up Period, the Company shall not
restate, amend or alter any term of any written employment, consulting or
similar agreement entered into between the Company and any officer, director or
key employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of JSC.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five (5) years after
the date hereof.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay (such payment to be made, at the
discretion of the Underwriters, on the Closing Date and any Option Closing Date
(to the extent not paid on the Closing Date or a previous Option Closing Date))
all expenses and fees (other than fees of Underwriters' Counsel, except as set
forth in clause (iv) below), incident to the performance of the obligations of
the Company under this Agreement and the Underwriters' Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Underwriters' Warrant
Agreement and agreements with selected dealers, and related documents, including
the cost of all copies thereof and of each Preliminary Prospectus and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in such
quantities as the Underwriters may request, (iii) the printing, engraving,
issuance and delivery of the Securities, including transfer taxes, if any, (iv)
the qualification of the Securities under state or foreign securities or "blue
sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements, expenses and fees of counsel in
connection therewith, (v) advertising costs and expenses, including, but not
limited to costs and expenses in connection with "road shows," information
meetings and presentations, bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses, (vi) costs and expenses in connection with
due diligence investigations, including, but not limited to, the fees of any
independent counsel or consultants, (vii) fees and expenses of a transfer and
warrant agent and registrar for the Securities, (viii) applications for
assignments of a rating of the Securities by qualified rating agencies, (ix) the
fees payable to the Commission and the NASD, and (x) the fees
19
and expenses incurred in connection with the quotation of the Securities on the
Nasdaq SmallCap Market and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of SECTION 6 or SECTION 10(a) hereof, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to SECTION 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to SECTION 5(a) hereof, it will pay to JSC on the Closing Date
by certified or bank cashier's check, or, at the election of JSC, by deduction
from the proceeds of the offering of the Firm Shares, a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Firm Shares, thirty thousand dollars ($30,000) of
which has been paid to date by the Company. In the event the Underwriters elect
to exercise the overallotment option described in SECTION 2(b) hereof, the
Company further agrees to pay to JSC on each Option Closing Date, by certified
or bank cashier's check, or, at JSC's election, by deduction from the proceeds
of the Option Shares purchased on such Option Closing Date, a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of such Option Shares.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date and each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date and each Option Closing Date, if
any, of the statements of officers of the Company made pursuant to the
provisions hereof; the performance by the Company on and as of the Closing Date
and each Option Closing Date, if any, of its covenants and obligations
hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 p.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Underwriters, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriters of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
20
(b) The Underwriters shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriters' opinion, is material, or omits to state a
fact which, in the Underwriters' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances in which they were made not misleading, or that the Prospectus, or
any supplement thereto, contains an untrue statement of fact which, in the
Underwriters' opinion, is material, or omits to state a fact which, in the
Underwriters' opinion, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriters shall have
received from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and such other related matters as the Underwriters may
request and Underwriters' Counsel shall have received such papers and
information as they may request in order to enable them to pass upon such
matters.
(d) On the Closing Date, the Underwriters shall have received the
favorable opinion of Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, counsel to the
Company dated the Closing Date, addressed to the Underwriters, in form and
substance substantially as set forth in Exhibit A hereto and in form and
substance satisfactory to Underwriters' Counsel.
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, counsel
to the Company dated the relevant Option Closing Date, addressed to the
Underwriters, and in form and substance satisfactory to Underwriters' Counsel
confirming as of the Option Closing Date, the statements made by Troop Xxxxxxxxx
Xxxxxxx & Xxxxxx, LLP, in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished with 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
SECTION 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or the
earnings, stockholders' equity, value, operations, properties, business or
results of operations of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such matters are set forth in the
Registration Statement and the 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 the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock
21
of any class and there shall not have been any change in the capital stock, debt
(long or short term) or liabilities or obligations of the Company (contingent or
otherwise) from the latest dates as of which such matters are set forth in the
Registration Statement and the Prospectus; (v) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company taken
as a whole, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act with respect to the
Registration Statement and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial officer of the Company,
dated the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that each of such persons has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as
the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, are contemplated or
threatened under the Act;
iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus or any amendment or supplement
thereto includes 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 in which
they were made, not misleading and neither the Preliminary Prospectus
nor any supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
22
iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (A) the
Company has not incurred any material liabilities or obligations,
direct or contingent; (B) the Company has not paid or declared any
dividends or other distributions on its capital stock; (C) the Company
has not entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other
than any increase in short-term borrowings in the ordinary course of
business) of the Company (E) the Company has not sustained any
material loss or damage to its property or assets, whether or not
insured; (F) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G) there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this SECTION 6(g)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters and the
Board of Directors of the Company 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 the Underwriters and Underwriters'
Counsel, from Xxxxxx Xxxxxxxx LLP.
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations and
that the Underwriters may rely upon the opinion of Xxxxxx Xxxxxxxx LLP
with respect to such financial statements and supporting schedules
included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest unaudited interim financial
statements of the Company, a reading of the latest available minutes
of the stockholders and board of directors and the various committees
of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and
23
accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the unaudited financial statements and supporting schedules
of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included in the
Registration Statement, (B) the pro forma financial information
contained in the Registration Statement and the Prospectus does not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or is
not fairly presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the audited
financial statements of the Company or the unaudited financial
information included in the Registration Statement and Prospectus or
(C) at a specified date no more than five (5) days prior to the
effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in the December
31, 1997 balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the amount of
such change or decrease, and (D) during the period from December 31,
1997 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease
in net revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning December 31, 1996, other than as set forth in or
contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5) days prior
to the effective date of the Registration Statement, the amount of
liabilities of the Company (including a break down of commercial paper
and notes payable to banks);
v) 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, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an audit in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
and
24
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Xxxxxx Xxxxxxxx LLP a letter, dated as of
the Closing Date or the relevant Option Closing Date, as the case may be, to the
effect that (i) it reaffirms the statements made in the letter furnished
pursuant to SECTION 6(i), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Xxxxxx Xxxxxxxx LLP has
carried out procedures as specified in clause (v) of SECTION 6(j) hereof with
respect to certain amounts, percentages and financial information as specified
by the Underwriters and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(l) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Underwriters the appropriate number of
Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to SECTION 4(e) hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the effective date of the Registration Statement,
the Company shall have executed and delivered to the Underwriters, the
Underwriters' Warrant Agreement, substantially in the form filed as Exhibit 1.2
to the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriters the Underwriters' Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(o) On or before Closing Date, the Common Stock shall have been duly
approved for quotation on the Nasdaq SmallCap Market, subject to official notice
of issuance.
(p) On or before Closing Date, there shall have been delivered to the
Underwriters all of the Lock-Up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
(q) On or before the Closing Date, the Company shall have (i)
executed and delivered to JSC the Consulting Agreement, substantially in the
form filed as Exhibit 10.16 to the Registration Statement and (ii) paid to JSC
$48,000 representing the retainer fee pursuant to the Consulting Agreement.
(r) At least two (2) full business days prior to the date hereof, the
Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriters the
25
unaudited interim financial statements required to be so delivered pursuant to
SECTION 4(p) of this Agreement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or at any Option Closing Date, as the
case may be, is not so fulfilled, the Underwriters may terminate this Agreement
or, if the Underwriters so elect, they may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this SECTION 7, "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriters, and each person, if any, who controls the Underwriters
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriters or such controlling
person 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 (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in the Registration Statement, any Preliminary
Prospectus, or the Prospectus (as from time to time 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 Securities; or (iii) in any application or
other document or written communication (in this SECTION 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) Each of the Underwriters agree, severally but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration
26
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriters but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to any Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
relating to the transactions effected by the Underwriters in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition
to any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against one or more indemnifying
parties under this SECTION 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure to so
notify an indemnifying party shall not relieve it from any liability which it
may have under this SECTION 7 (except to the extent that it has been prejudiced
in any material respect by such failure) or from any liability which it may have
otherwise). In case any such action, investigation, inquiry, suit or proceeding
is brought against any indemnified party, and it notifies an indemnifying party
or parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it or they may elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in connection
with the defense of such action at the expense of the indemnifying party, (ii)
the indemnifying parties shall not have employed counsel reasonably satisfactory
to such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to one
or all of the indemnifying parties (in which event the indemnifying parties
shall not have the right to direct the defense of such action, investigation,
inquiry, suit or proceeding on behalf of the indemnified party or parties), in
any of which events such fees and expenses of one additional counsel shall be
borne by the indemnifying parties. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action, investigation, inquiry, suit or proceeding or
separate
27
but similar or related actions, investigations, inquiries, suits or proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle, compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this SECTION 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for indemnification
pursuant to this SECTION 7, 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
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to in the first (1st) sentence of this
SECTION 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, claim, investigation, inquiry suit or proceeding.
Notwithstanding the provisions of this SECTION 7(d), the Underwriters shall not
be required to contribute any amount in excess of the
28
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 12(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
SECTION 7(d), each person, if any, who controls the Company or the Underwriters
within the meaning of the Act, each officer of the Company who has signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company or the Underwriters, as the case may be,
subject in each case to this SECTION 7(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit,
inquiry, investigation or proceeding, against such party in respect to which a
claim for contribution may be made against another party or parties under this
SECTION 7(d), notify such party or parties from whom contribution may be sought,
but the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have hereunder or otherwise than under this SECTION 7(d), or to the extent
that such party or parties were not adversely affected by such omission.
Notwithstanding anything in this SECTION 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party may
have at common law or otherwise.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company contained in this Agreement, or contained in certificates of officers of
the Company submitted pursuant hereto, shall be deemed to be representations,
warranties, covenants and agreements at the Closing Date and each Option Closing
Date, if any, and such representations, warranties, covenants and agreements of
the Company, and the respective indemnity and contribution agreements contained
in SECTION 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any of the Underwriters,
the Company, any controlling person of any of the Underwriters or the Company,
and shall survive the termination of this Agreement or the issuance and delivery
of the Securities to the Underwriters.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriters, in their discretion, shall release the Securities
for sale to the public; PROVIDED, however, that the provisions of SECTIONS 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
SECTION 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriters of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriters for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) Subject to SECTION 10(b) hereof, the Underwriters shall have the
right to terminate this Agreement: (i) if any domestic or international event or
act or occurrence has materially adversely disrupted, or in the Underwriters'
opinion will in the immediate future
29
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
NASD, the Boston Stock Exchange, the Commission or any governmental authority
having jurisdiction over such matters; or (iv) if trading of any of the
securities of the Company shall have been suspended, or if any of the securities
of the Company shall have been delisted, on any exchange or in any
over-the-counter market; or (v) if the United States shall have become involved
in a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities, or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium shall have been
declared by any state or federal authority; or (vii) if the Company shall have
sustained a material or substantial 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 the Underwriters' opinion, make
it inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have occurred any outbreak or escalation of hostilities or any calamity or
crisis or there shall have been such a material adverse change in the conditions
or prospects of the Company, or if there shall have been such a material adverse
change in the general market, political or economic conditions, in the United
States or elsewhere, as in the Underwriters' judgment would make it inadvisable
to proceed with the offering, sale and/or delivery of the Securities; or (x) if
Xx. Xxxxx Xxx or Xx. Xxx Xxxxxxxx shall no longer serve the Company in their
present respective capacities.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of SECTION 6 or SECTION 10(a) hereof the Company shall
promptly reimburse and indemnify the Underwriters for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less amounts previously paid pursuant to SECTION 5(c) hereof. In
addition, the Company shall remain liable for all "blue sky" counsel fees and
expenses and "blue sky" filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to SECTIONS 6 and 10(a)
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of SECTION 5 and SECTION 7 shall not be in any way be affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Shares to be purchased on an Option Closing Date, the Underwriters may,
at their option, by notice from the Underwriters to the Company, terminate the
Underwriters' obligation to purchase Option Shares from the Company on such
date) without any liability on the part of any non-defaulting party other than
pursuant to SECTION 5, SECTION 7 and SECTION 10 hereof. No action taken
pursuant to this SECTION 11 shall relieve the Company from liability, if any, in
respect of such default.
12. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters
30
shall be directed to the Underwriters at Xxxxxx Xxxxxxx & Company, Inc., 00
Xxxxxx Xxxx, 0xx Xxxxx, Xxx Xxxx, XX 00000, Attention: Xx. Xxxxxx Xxxxxxx;
and to Royce Investment Group, Inc. ________________________________________;
with a copy to Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, Attention: Xxxx Xxxxxxxxxxx, Esq. Notices to the
Company shall be directed to the Company at CUMETRIX DATA SYSTEMS CORP., 000
Xxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000, with a copy to Troop Xxxxxxxxx
Xxxxxxx & Xxxxxx, LLP Attention: Xxxxxx Xxxxxxxx, Esq.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in SECTION 7 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. No purchaser of Shares from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
14. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
giving effect to choice of law or conflict of laws principles.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Underwriters'
Warrant Agreement and the Consulting Agreement constitute the entire agreement
of the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof and
thereof. This Agreement may not be amended except in a writing signed by the
Underwriters and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
CUMETRIX DATA SYSTEMS CORP.
By:
------------------------------------
Max Toghraie
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
XXXXXX XXXXXXX & COMPANY, INC.
By:
----------------------------------------
Name:
Title:
ROYCE INVESTMENT GROUP, INC.
By:
----------------------------------------
Name:
As Attorney-in-Fact for Royce Investment Group, Inc.
32
SCHEDULE A
NUMBER OF SHARES
Xxxxxx Xxxxxxx & Company, Inc.
Royce Investment Group, Inc.
33
