EXHIBIT 1.0
THE HAVANA GROUP, INC.
0000 Xxxxxx Xxxxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxxx, Xxxx 00000
UNDERWRITING AGREEMENT
----------------------
, 1998
VTR Capital, Inc.
00 Xxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Gentlemen:
The Havana Group, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to VTR Capital, Inc. ("VTR" or the "Representative") and to
each of the other underwriters named in Schedule I hereto (the
"Underwriters"), for each of whom you are acting as Representative, an
aggregate of 460,000 Units (the "Units"), each Unit consisting of one share
of Common Stock, par value $.001 ("Common Stock"), and Two Redeemable Class A
Common Stock Purchase Warrants (the "Warrants") of the Company at a public
offering price of $6.00 per Unit. Each Warrant shall entitle the holder to
purchase one share of Common Stock at a price of $5.25 per share as disclosed
in the Registration Statement. The Warrants will be detachable from the
Common Stock on the earlier of six months from the Effective Date or the date
selected by the Representative in writing for separation. The Warrants may
be called by the Company in accordance with the terms of the Prospectus. The
Units are hereinafter referred to as the "Firm Units." Upon the request of
the Representative, and as provided in Section 3 hereof, Xxxxxx Xxxx, Inc.,
the Company's sole stockholder, will issue and sell to the Underwriters up to
a maximum of an additional 69,000 Units for the purpose of covering
over-allotments. Such additional Units are hereinafter sometimes referred to
as the "Optional Units." Both the Firm Units and the Optional Units are
sometimes collectively referred to herein as the "Units." All of the
securities which are the subject of this Agreement are more fully described
in the Prospectus of the Company described below. In the event that the
Representative does not form an underwriting group but decides to act as the
sole Underwriter, then all references to VTR herein as Representative shall
be deemed to be to it as such sole Underwriter and Section 14 hereof shall be
deemed deleted in its entirety.
In an alternate Prospectus, the Registration Statement also covers
certain additional securities for sale by certain Stockholders and Class A
Warrant holders hereinafter referred to as the "Selling Security Holders".
Such reoffering by Selling Security Holders is not the subject of this
Underwriting Agreement.
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The
Company hereby confirms its agreement with the Representative and the other
Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities
contemplated hereby is permitted to commence, under the Securities Act of
1933, as amended (the "Act"), and at the Closing Date (hereinafter defined)
and the terms of the Warrants and other securities will be as set forth in
the Prospectus (hereinafter defined), subject to the terms and conditions
contained in Section 6(m) herein.
SECTION 2. Representations and Warranties of the Company. The
Company hereby represents and warrants to, and agrees with, the Underwriters
as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto
(No. 333-45863) with respect to the Units, including a form of Prospectus
relating thereto, copies of which have been previously delivered to you, have
been prepared by the Company in conformity with the requirements of the Act,
and the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, and has been filed
with the Commission under the Act. The Company, subject to the provisions of
Section 6(a) hereof, may file one or more amendments to such Registration
Statement and Prospectus. The Underwriters will receive copies of each such
amendment.
The date on which such Registration Statement is declared
effective under the Act and the public offering of the Units as contemplated
by this Agreement is therefore authorized to commence, is herein called the
"Effective Date." The Registration Statement and Prospectus, as finally
amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations which differs from the Prospectus, the term
"Prospectus" shall also include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the Rules and Regulations, and will not contain an untrue statement of a
material fact and will not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties contained
in this subsection (b) shall extend to the Underwriters in respect of any
statements in or omissions from the Registration Statement and/or the
Prospectus, based upon information furnished in writing to the Company by the
Underwriters specifically for use in connection with the preparation thereof.
In this regard, the information contained in the disclosures under the
caption "Investigations Involving VTR Capital, Inc." in the "Risk Factors"
and "Underwriting" sections of the Prospectus with regard to the Commission's
and National Association of Securities Dealers, Inc.'s ("NASD") investigation.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware,
2
having all required corporate power and authority to own its properties and
conduct its business as described in the Prospectus. The Company is now, and
on the Closing Date will be, duly qualified to do business as a foreign
corporation in good standing in all of the jurisdictions in which it conducts
its business or the character or location of its properties requires such
qualifications except where the failure to so qualify would not materially
adversely affect the Company's business, properties or financial condition.
The Company has no subsidiaries, except as are set forth in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present
fairly the financial position and results of operations and changes in
financial condition of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and are in accordance
with the books and records of the Company.
(e) Xxxxxxx + Xxxxxx LLP, independent auditors, who have given
their report on certain financial statements which are included as a part of
the Registration Statement and the Prospectus are independent public
accountants as required under the Act and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus: (i) the Company has not incurred,
nor will it incur, any material liabilities or obligations, direct or
contingent, nor has it, nor will it have entered into any material
transactions, in each case not in the ordinary course of business; (ii) there
has not been, and will not have been, any material change in the Company's
Certificate of Incorporation or in its capital stock or funded debt; and
(iii) there has not been, and will not have been, any material adverse change
in the business, net worth or properties or condition (financial or
otherwise) of the Company whether or not arising from transactions in the
ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company by
good and marketable title free and clear of all liens and encumbrances,
except those specifically referred to in the Prospectus, and except those
which do not materially adversely affect the use or value of such assets and
except the lien for current taxes not now due, or are held by the Company by
valid leases, none of which is in default. Except as disclosed in the
Prospectus and Registration Statement, the Company in all material respects
has full right and licenses, permits and governmental authorizations required
to maintain and operate its business and properties as the same are now
operated and, to its best knowledge, none of the activities or business of
the Company is in material violation of, or causes the Company to violate any
laws, ordinances and regulations applicable thereto, the violation of which
would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
3
(h) The Company has no material contingent obligations, nor are
its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge,
threatened against the Company which are not adequately covered by insurance,
which might result in a material adverse change in the condition (financial
or otherwise), properties or net worth of the Company, and there are no
proceedings pending or, to the knowledge of the Company, threatened against
the Company before or by any Federal or State Commission, regulatory body, or
administrative agency or other governmental body, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
properties or net worth or financial condition or income of the Company,
which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and preferred
stock are duly authorized and validly issued and outstanding, fully paid,
non-assessable, and do not have any and were not issued in violation of any
preemptive rights. All of the Common Stock as described in the Prospectus
when paid for shall be duly authorized and validly issued and outstanding,
fully paid, non-assessable, and will not have any and will not be issued in
violation of any preemptive rights. The Common Stock issuable upon exercise
of the Warrants when issued and paid for in accordance with the Warrant
Agreement shall be duly authorized and validly issued and outstanding, fully
paid, non-assessable, and will not have any and will not be issued in
violation of any preemptive rights. The Common Stock and Warrants will be
delivered in accordance with this Agreement and the Warrant Agreement between
the Company and Xxxxxx Trust Company. The Underwriters will receive good and
marketable title to the Units purchased by them from the Company, free and
clear of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever. Except as set forth
in the Prospectus, there are no outstanding options, warrants, or other
rights, providing for the issuance of, and no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the
Company, or any security convertible into, or exchangeable for, any shares of
any class of capital stock of the Company. All of the Units of the Company
to which this Agreement relates conform to the statements relating to them
that are contained in the Registration Statement and Prospectus.
(k) The certificate or certificates required to be furnished to
the Underwriters pursuant to the provisions of Section 11 hereof will be true
and correct.
(l) The execution and delivery by the Company of this Agreement,
the Warrant Agreement (as hereinafter defined) and the Financial Advisory
Agreement (as hereinafter defined) have been duly authorized by all necessary
corporate action and they are valid and binding obligations of the Company,
enforceable against it in accordance with their terms except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors' rights generally.
4
(m) Except as disclosed in the Prospectus, no default exists, and
no event has occurred which, with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any material
term, covenant or condition by the Company or any other party, of any
material indenture, mortgage, deed of trust, note or any other material
agreement or instrument to which the Company is a party or by which it or its
business or its properties may be bound or affected, except: (i) as disclosed
in the Prospectus; (ii) such defaults as have been waived by all parties who
would otherwise have a remedy or right with respect thereto; or (iii) such
defaults which will not cause any material adverse change in the business,
net worth, properties or conditions (financial or otherwise), of the Company.
The Company has full power and lawful authority to authorize, issue and sell
the Units to be sold by it hereunder on the terms and conditions set forth
herein and in the Registration Statement and in the Prospectus. No consent,
approval, authorization or other order of any regulatory authority is
required for such authorization, issue or sale, except as may be required
under the Act or State securities laws. The execution and delivery of this
Agreement, the Warrant Agreement (as hereinafter defined) and the Financial
Advisory Agreement (as hereinafter defined), the consummation of the
transactions herein and therein contemplated, and compliance with the terms
hereof and thereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument
to which the Company is now a party or by which it or its business or its
properties may be bound or affected; the Certificate of Incorporation and any
amendments thereto; the by-laws of the Company, as amended; or any law,
order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or its business or properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or
indirectly, any action designed to stabilize or manipulate the price of the
Units, the Common Stock or the Warrants in the open market following the
Closing Date or any other type of action designed to, or that may reasonably
be expected to cause or result in such stabilization or manipulation, or that
may reasonably be expected to facilitate the initial sale, or resale, of any
of the securities which are the subject of this Agreement.
(o) The Warrants to be issued to the Representative (the
"Underwriters' Unit Warrants") hereunder will be, when issued, duly and
validly authorized and executed by the Company and will constitute valid and
binding obligations of the Company, legally enforceable in accordance with
their terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining
to creditors rights generally), and the Company will have duly authorized,
reserved and set aside the shares of its Common Stock issuable upon exercise
of the Underwriters' Unit Warrants and the underlying Warrants, (hereinafter
called the "Underwriters' Class A Warrants") and such stock, when issued and
paid for upon exercise of the Underwriters' Unit Warrants and the
Underwriters' Class A Warrants in accordance with the provisions thereof,
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements, and
warranties shall survive delivery of, and payment for, the Units.
5
SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units and the Underwriters' Unit Warrants.
(a) Upon the basis of the representations, warranties, covenants
and agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue to the several
Underwriters, and the Underwriters, severally and not jointly, agree to
purchase from the Company, the number of the Firm Units set forth opposite
the respective names of the Underwriters in Schedule I hereto, plus any
additional Units which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 14 hereof.
The purchase price of the Units to be paid by the several
Underwriters shall be $5.40 per Unit ($6.00 per Unit less a ten percent
discount equal to $.60 per Unit).
In addition, and upon the same basis, and subject to the same
terms and conditions, Xxxxxx Xxxx, Inc., the Company's sole stockholder,
hereby grants an option to you to purchase, but only for the purpose of
covering over-allotments, upon not less than two days' notice from the
Representative, the Optional Units, or any portion thereof, at the same price
per Unit as that set forth in the preceding sentence; and each Underwriter
agrees, severally and not jointly, to purchase Optional Units in the same
proportion in which it has agreed to purchase Firm Units. Notwithstanding
anything contained herein to the contrary, you individually and not as
Representative may provide in the Agreement Among Underwriters for the
Representative to purchase all or any part of the Optional Units and are not
obligated to offer the Optional Units to the other Underwriters. The
Optional Units may be exercised at any time, and from time to time,
thereafter within a period of 30 calendar days following the Effective Date.
The time(s) and date(s) (if any) so designated for delivery and payment for
the Optional Units shall be set forth in the notice to the Company. Such
dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order
of the Company at the offices of the Representative, or its clearing agent,
or at such other place as shall be agreed upon by the Representative and the
Company, upon delivery of the Firm Units to the Representative for the
respective accounts of the Underwriters. In making payment to the Company
with respect to the Firm Units, the Representative may first deduct all sums
due to it for the balance of the non-accountable expense allowance and under
the Financial Advisory Agreement (as hereinafter defined). Such delivery and
payment shall be made at 9:30 A.M., New York City Time on ,
1998 (unless postponed in accordance with the provisions of Section 14
hereof) or at such other time as shall be agreed upon by the Representative
and the Company. The time and date of such delivery and payment are hereby
defined as the Closing Date. It is understood that each Underwriter has
authorized the Representative, for the account of such Underwriter, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Firm Units which it has agreed to purchase. You, individually, and not as
Representative may (but shall not be obligated to) make payment of the
purchase price for the Firm Units to be purchased by any Underwriter whose
check shall not have been received by the Closing Date, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter
from its obligations hereunder.
6
(c) Payment for the Optional Units shall be made at the offices of
the Representative, or its clearing agent or at such other place as shall be
agreed upon by the Representative and the Company, in accordance with the
notice delivered pursuant to Section 3(a) which shall be no later than seven
business days from the expiration of the 30-day option period.
(d) Certificates for the Firm Units and for the Optional Units
shall be registered in such name or names and in such authorized
denominations as the Representative may request in writing at least two
business days prior to the Closing Date, and the Additional Closing Date(s)
(if any). The Company shall permit the Representative to examine and package
said certificates for delivery at least one full business day prior to the
Closing Date and prior to the Additional Closing Date(s). The Company shall
not be obligated to sell or deliver any of the Firm Units except upon tender
of payment by the Underwriters for all of the Firm Units agreed to be
purchased by them hereunder. The Representative, however, shall have the
sole discretion to determine the number of Optional Units, if any, to be
purchased.
(e) At the time of making payment for the Firm Units, the Company
also hereby agrees to sell to the Representative, Warrants to purchase 46,000
Units for an aggregate purchase price of $46 (hereinafter referred to as the
"Underwriters' Unit Warrants"). The 46,000 Units underlying the
Underwriters' Unit Warrants shall be identical to the Units sold to the
public except that the exercise price of the Underwriters' Class A Warrant
shall be at 150% of the then effective public exercise price of the Class A
Warrant included in the Units which is initially $7.875 per share (i.e. 150%
of $5.25). Each Underwriters' Unit Warrant shall entitle the owner thereof
to purchase one Unit of the Company at an exercise price of $9.00 per Unit
equal to 150% of the initial offering price of $6.00 per Unit. Such
Underwriters' Unit Warrants are to become exercisable one year from the
Effective Date, and shall remain exercisable for a period of four years
thereafter. From the Effective Date and until one (1) year thereafter, such
warrants may be transferred only to officers or partners of the Underwriters
and selling group members and their officers or partners.
The Underwriters' Unit Warrants shall contain customary
clauses protecting the holders thereof in the event the Company pays stock
dividends, effects stock splits, or effects a sale of assets, merger or
consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent and Depository Trust Company
to deliver to the Representative (at the Company's expense) for a period of
five years from the Closing Date, daily transfer sheets showing any transfers
of the Units, Common Stock and Warrants and in the case of the transfer
agent, from time to time during the aforesaid period a complete stockholders'
list will be promptly furnished by the Company when requested by the
Representative on not more than two occasions per year.
SECTION 4. Public Offering. The several Underwriters agree, subject
to the terms and provisions of this Agreement, to offer the Units to the
public as soon as practicable after the Effective Date, at the initial
offering price of $6.00 per Unit and upon the terms described in the
Prospectus. The Representative may, from time to time, decrease the public
offering price, after the initial public
7
offering, to such extent as the Representative may determine, however, such
decreases will not affect the price payable to the Company hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for
distribution to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed
copies of a Preliminary Prospectus and of the Prospectus as the
Representative may request for the purposes contemplated by this Agreement.
If, while the Prospectus is required to be delivered under the Act or the
Rules and Regulations, any event known to the Company relating to or
affecting the Company shall occur which should be set forth in a supplement
to or an amendment of the Prospectus in order to comply with the Act (or
other applicable law) or with the Rules and Regulations, the Company will
forthwith prepare, furnish and deliver to the Representative and to each of
the other Underwriters and to others whose names and addresses are designated
by the Representative, in each case at the Company's expense, a reasonable
number of copies of such supplement or supplements to or amendment or
amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected
dealers, if any, in connection with the distribution of the Units and all
dealers to whom any of the Units may be sold by the Underwriters or by any
participating broker-dealer ("Selected Dealer") to use the Prospectus, as
from time to time amended or supplemented, in connection with the offering
and sale of the Units and in accordance with the applicable provisions of the
Act and the applicable Rules and Regulations and applicable State securities
laws.
SECTION 6. Covenants of the Company. The Company covenants and
agrees with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the Prospectus, or any supplement to the
Prospectus, of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative or the
Underwriters' counsel shall have reasonably objected in writing on the ground
that it is not in compliance with the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective (provided, however, the Company
shall not cause the Registration Statement to become effective without the
written consent of VTR) and will advise the Representative: (i) when the
Registration Statement shall have become effective and when any amendment
thereto shall have become effective, and when any amendment of or supplement
to the Prospectus shall be filed with
8
the Commission; (ii) when the Commission shall make request or suggestion for
any amendment to the Registration Statement or the Prospectus or for
additional information and the nature and substance thereof; and (iii) of the
issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of such an
order, or if such an order shall be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, such amendments, or
supplements to the Registration Statement or Prospectus, in form and
substance satisfactory to counsel to the Company, as in the reasonable
opinion of Xxxxx & Gold LLP, as counsel to the Underwriters, may be necessary
or advisable in connection with the offering or distribution of the Units,
and will diligently use its best efforts to cause the same to become
effective.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required, in
the opinion of the Underwriters' counsel, to qualify the Units or such part
thereof as the Representative may determine, for sale under the so-called
"Blue Sky" Laws of such states as the Representative shall designate, and to
continue such qualification in effect so long as required for the purposes of
the distribution of the Units, provided, however, that the Company shall not
be required to qualify as a foreign corporation or dealer in securities or to
file a consent to service of process in any state in any action other than
one arising out of the offering or sale of the Units.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies
of the States in which the Units may be qualified for sale, for so long as
required by applicable law, rule or regulation and will provide the
Representative with copies of all such registrations, filings and reports on
a timely basis.
(f) During the period of five years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter: (i) within 50 days after the
end of each of the Company's first three quarter-yearly fiscal periods, a
balance sheet of the Company as at the end of such quarter-yearly period,
together with a statement of its income and a statement of changes in its
cash flow for such period (Form 10-Q or 10-QSB), all in reasonable detail,
signed by its principal financial or accounting officer; (ii) within 105 days
after the end of each fiscal year, a balance sheet of the Company as at the
end of such fiscal year, together with a statement of its income and
statement of cash flow for such fiscal year (Form 10-K or 10-KSB), such
balance sheet and statement of cash flow for such fiscal year to be in
reasonable detail and to be accompanied by a certificate or report of
independent public accountants, (who may be the regular accountants for the
Company); (iii) as soon as available a copy of every other report (financial
or other) mailed to the stockholders; and (iv) as soon as available a copy of
every non-confidential report and financial statement furnished to or filed
with the Commission or with any securities exchange pursuant to requirements
by or agreement with such exchange or the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any
regulations of the Commission thereunder. If and for so long as the Company
has one or more active
9
subsidiaries, the financial statements required by (i) and (ii) above shall
be furnished on a consolidated basis in respect of the Company and all of the
Company's subsidiaries. The financial statements referred to in (ii) shall
also be furnished to all of the stockholders of the Company as soon as
practicable after the 105 days referred to therein.
(g) Following the Effective Date, the Company shall comply with all
periodic reporting requirements imposed by the Commission pursuant to the
1934 Act, and shall promptly furnish you with copies of all material filed
with the Commission pursuant to the 1934 Act or otherwise furnished to
shareholders of the Company.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after
the Effective Date, an earnings statement of the Company (which need not be
audited) in reasonable detail, covering a period of at least twelve months
beginning after the Effective Date, which earnings statement shall satisfy
the provisions of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply
for (or maintain) listing in Standard and Poor's Corporation Records and
Standard & Poor's Monthly Stock Guide and shall use its best efforts to have
the Company listed in such reports for a period of not less than five (5)
years from the Closing Date. The Company will request accelerated treatment
in the Daily News Supplement of Standard and Poor's Corporation Records.
(j) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement
and shall continue to appoint such auditors or such other auditors as are
reasonably acceptable to the Representative for a period of five (5) years
following the Effective Date of the Registration Statement. Said financial
statements shall be prepared in accordance with Regulation S-X and/or S-B, as
applicable, under the General Rules and Regulations of the 1933 Act. The
firm of Xxxxxxx + Xxxxxx LLP are deemed acceptable to the Underwriter. The
Company shall appoint Xxxxxx Trust Company transfer agent (the "Transfer
Agent") for the Common Stock and as Warrant Agent for the Warrants.
(k) As soon as practicable after the Closing Date, the Company
will deliver to the Representative and its counsel a total of two bound
volumes of copies of all documents relating to the public offering which is
the subject of this Agreement.
(l) The Company's officers, directors and Xxxxxx Xxxx, Inc. have
agreed not to sell, transfer, hypothecate or otherwise dispose of any Common
Stock, Warrants or other securities of the Company for a period of twenty
four (24) months following the Effective Date without the prior written
consent of the Representative. Notwithstanding the foregoing, as disclosed
in the Prospectus, Xxxxxxx Xxxxxx shall be permitted to resell 200 Warrants
and/or the shares of Common Stock issuable upon their exercise, and Xxxxxx
Xxxx, Inc., shall be permitted to sell up to 69,000 Xxxxx.
00
(x) Prior to the Effective Date, the Company shall have an
outstanding capitalization consisting of no more than 1,000,000 shares of
Common Stock, 5,000,000 shares of Series A Non-convertible Preferred Stock,
1,100,000 shares of Series B Preferred Stock convertible into an aggregate of
1,100,000 shares of Common Stock, notes automatically convertible into
400,000 shares of Common Stock and 1,400,000 Class A Warrants upon completion
of this Offering, Warrants automatically convertible into 338,000 Class A
Warrants upon the completion of this Offering, options to purchase 260,000
shares of Common Stock and zero options granted under the Company's 1997
Long-Term Stock Incentive Plan. From the Effective Date until two years
after the Closing Date, the Company shall not without the Representative's
prior written consent, which consent shall not be unreasonably withheld,
issue additional shares of stock, Common or Preferred, Options exercisable
into shares of stock, Common or Preferred, or Debentures or other debt
securities which are convertible into stock, Common or Preferred except as
follows: (i) securities issuable in connection with the Form SB-2
Registration Statement (file no. 333-45863); (ii) shares of Common Stock
issuable upon exercise of presently outstanding Class A Warrants; (iii)
shares of Common Stock and Warrants issuable upon conversion of an
outstanding bridge lender convertible note; (iv) shares of Common Stock
issuable pursuant to the Company's current stock option plan; and (v) shares
of Common Stock issuable in connection with mergers and acquisitions and up
to 50,000 shares that may be granted to employees provided that none of the
shares pursuant to this exception (v) may be sold or otherwise transferred
until two (2) years after the Effective Date.
(n) Prior to the Effective Date, the Company: (i) shall have
obtained key person life insurance on the life of Xxxxxxx Xxxxxx in the
amount of $1,000,000, payable to the Company, to be kept in effect for at
least three (3) years following the Effective Date; and (ii) the employment
agreement with Xx. Xxxxxx disclosed in the Registration Statement shall be in
full force and effect.
(o) The Representative shall have the right to designate one (1)
person to serve on the Company's Board of Directors and upon such nomination
the Board shall take the action necessary to cause the representative's
nominee to be elected to the Board for a period of three (3) years following
the Effective Date. If the Representative does not exercise this right, it
may appoint an advisor, who will be entitled to attend all meetings of the
Board of Directors for a period of three (3) years following the Effective
Date.
SECTION 7. Expenses of the Company.
The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Registration
Statement and amendments thereto, including NASD and SEC filing fees,
preliminary and final Prospectus and the printing of the Underwriting
Agreement, the Agreement Among the Underwriters and the Selected Dealers'
Agreement, a Blue Sky Memorandum and material to be circulated to the
Underwriters by us; (ii) the placement of "tombstone" advertisements; (iii)
the issuance and delivery of certificates representing the Common Stock and
Warrants including original issue and transfer taxes, if any; (iv) the
qualifications of the Company's Units (covered by the "firm commitment"
offering) under State securities or "Blue Sky" laws, including counsel fees
of Xxxxx & Gold, LLP relating thereto in the sum of Thirty Thousand ($30,000)
Dollars ($15,000 of which has been paid, together with appropriate state
filing fees) plus disbursements relating to, but
11
not limited to, long-distance telephone calls, photocopying, messengers,
excess postage, overnight mail and courier services; (v) the fees and
disbursements of counsel for the Company and the accountants for the Company;
and (vi) the listing of the securities being offered herein on the OTC
Bulletin Board. Upon the commencement of the necessary state Blue Sky
filings by our counsel, the Company shall supply them at their request, all
necessary state filing fees.
SECTION 8. Payment of Underwriters' Expenses.
On the Closing Date and Additional Closing Date(s) (if any)
the Company will pay to you an expense allowance equal to three (3%) percent
of the total gross proceeds derived from the public offering contemplated by
this Agreement for the fees and disbursements of counsel to the Underwriters
and for costs of otherwise unreimbursed advertising, traveling, postage,
telephone and telegraph expenses and other miscellaneous expenses incurred by
or on behalf of the Representative and the Underwriters in preparation for,
or in connection with the offering and sale and distribution of the Units;
and you shall not be obligated to account to the Company for such
disbursements and expenses.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages, expenses, or liabilities, joint or several, to which they or
any of them may become subject under the Act or any other statute or at
common law or otherwise, and to reimburse persons indemnified as above for
any reasonable legal or other expense (including the cost of any
investigation and preparation) incurred by them (as incurred), or any of
them, in connection with investigating, defending against or appearing as a
third party witness in connection with any claim or litigation, whether or
not resulting in any liability, but only insofar as such losses, claims,
liabilities, expenses or litigation arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented, if
amended or supplemented), or in any "Blue Sky" application, or arising out of
or based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading; provided, however, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in
settlement of any such claims or litigation if such settlement is effected
without the consent of the Company, nor shall it apply to the Underwriters or
any person controlling the Underwriters in respect of any such losses,
claims, damages, expenses, liabilities or litigation arising out of, or based
upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in
reliance upon and in conformity with written information furnished in writing
to the Company by such Underwriter, or on its behalf, specifically for use
in connection with the preparation of the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto or any such
"Blue Sky" application.
(b) Each of the Underwriters severally agrees, in the same manner
and to the same extent as set forth in subsection (a) above, to indemnify and
hold harmless the Company, each of the
12
directors and officers who have signed the Registration Statement and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act, with respect to any statement in or omission from the Registration
Statement, or the Prospectus (as amended or as supplemented, if amended or
supplemented), or in any "Blue Sky" application, if such statement or
omission was made in reliance upon and in conformity with written information
furnished in writing to the Company by such Underwriter, or on its behalf,
specifically for use in connection with the preparation of the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto, or any such application. An Underwriter shall not be liable for
amounts paid in settlement of any such claim or litigation if such settlement
was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action
commenced against it in respect of which indemnity may be sought hereunder.
The omission to so notify an indemnifying party shall relieve such party of
its obligation to indemnify pursuant to this Agreement, but failure to so
notify an indemnifying party shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses
of such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that the fees and
expenses of such counsel shall be at the expense of the indemnifying party
if: (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party; or (ii) the defendants in any such action
include both the indemnified and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be a conflict between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party or parties), it being understood,
however, that the indemnifying party shall not, in connection with any one
such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys for the indemnified party which firm shall be
designated in writing by the indemnified party.
(d) The respective indemnity agreements between the Underwriters
and the Company contained in subsections (a) and (b) above, and the
representations and warranties of the Company set forth in Section 2 hereof
or elsewhere in this Agreement, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the
Underwriters or by
13
or on behalf of any controlling person of the Underwriters or the Company or
any such officer or director or any controlling person of the Company, and
shall survive the delivery of the Units. Any successor of the Company, or of
the Underwriters, or of any controlling person of the Underwriters or the
Company, as the case may be, shall be entitled to the benefit of such
respective indemnity agreements.
(e) In order to provide for just and equitable contribution under
the Act in any case in which: (i) any person entitled to indemnification
under this Section 9 makes claim for indemnification pursuant hereto but it
is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides
for indemnification in such case; or (ii) contribution under the Act may be
required on the part of any such person in circumstances for which
indemnification is provided under this Section 9, then, and in each such
case, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages, expenses or liabilities to which they may be subject
(after any contribution from others) in such proportions so that the
Underwriters are responsible in the aggregate for the proportion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discounts and commissions appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon, and the
Company is responsible for the remaining portion; provided, that, in any such
case, no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Within twenty days after receipt by any party to this Agreement (or its
representative) of notice of the commencement of any action, suit or
proceeding, such party will, if a claim for contribution in respect thereof
is to be made against another party (the "contributing party"), notify the
contributing party, in writing, of the commencement thereof, but the omission
so to notify the contributing party will not relieve it from any liability
which it may have to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party, and
such party so notifies a contributing party or his or its representative of
the commencement thereof within the aforesaid twenty days, the contributing
party will be entitled to participate therein with the notifying party and
any other contributing party similarly notified. Any such contributing party
shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section 9 are in addition to any
other rights or remedies which either party hereto may have with respect to
the other or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective: (i) at 10:00 A.M., New York Time, on the first full business day
after the Effective Date; or (ii) at the time of the initial public offering
by the Underwriters of the Units, whichever shall first occur. The time of
the initial public offering by the Underwriters of the Units for the purposes
of this Section 10, shall mean the time, after the Registration Statement
becomes effective, of the release by the Representative for publication of
the first newspaper advertisement which is subsequently published relating to
the Units, or the time, after the Registration Statement becomes effective,
when the Units are first released by the Representative for offering by the
Underwriters or dealers by letter or
14
telegram, whichever shall first occur. The Representative agrees to notify
the Company immediately after it shall have taken any action, by release or
otherwise, whereby this Agreement shall have become effective. This
Agreement shall, nevertheless, become effective at such time earlier than the
time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Units
which the Underwriters have agreed to purchase hereunder are subject to: the
accuracy, as of the date hereof and as of the Closing Date and the Additional
Closing Date(s), if any, (together, the "Closing Dates"), of all of the
representations and warranties of the Company contained in this Agreement;
the Company's compliance with, or performance of, all of its covenants,
undertakings and agreements contained in this Agreement that are required to
be complied with or performed on or prior to each of the Closing Dates and to
the following additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to
the knowledge of the Company, shall be threatened by the Commission; any
request for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of the Commission; and neither
the Registration Statement nor any amendment thereto shall have been filed to
which counsel to the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of
a fact which, in the opinion of counsel to the Underwriters, is material, or
omits to state a fact which, in the opinion of such counsel, is material and
is required to be stated therein, or is necessary to make the statements
therein not materially misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or other cause, of such character as materially adversely
affects its business or property, whether or not such loss is covered by
insurance.
(d) Between the date hereof and the Closing Date, there shall be
no material litigation instituted or threatened against the Company, and
there shall be no proceeding instituted or, to the knowledge of the Company,
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic
or foreign, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, licenses, permits, operations or
financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary
15
course of its business, the Company shall not have incurred any material
liabilities or obligations (direct or contingent), or disposed of any of its
assets, or entered into any material transaction, and (C) the Company shall
not have suffered or experienced any material adverse change in its business,
affairs or in its condition, financial or otherwise. On the Closing Date, the
capital stock and surplus accounts of the Company shall be substantially as
great as at its last financial report without considering the proceeds from
the sale of the Units except to the extent that any decrease is disclosed in
or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the
Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed
to you, of its counsel in the form attached hereto as Exhibit A.
In rendering such opinion, such counsel may rely upon certificates
of any officer of the Company or public officials as to matters of fact.
(h) The Company shall have furnished to the Representative
certificates of the President of the Company, dated as of the Closing Date,
and Additional Closing Date(s), to the effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof is true and correct in all material respects at
and as of such Closing Date, and the Company has performed or complied with
all of its agreements, covenants and undertakings contained in this Agreement
and has performed or satisfied all the conditions contained in this Agreement
on its part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and
the Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither
the Registration Statement nor the Prospectus nor 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 not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been so set forth
except changes which the Registration Statement and Prospectus indicate might
occur.
16
(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods
for which, information is given in the Registration Statement and Prospectus
and prior to the date of such certificate: (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise),
of the Company (in each case whether or not arising in the ordinary course of
business); and (B) the Company has not incurred any material liabilities,
direct or contingent, or entered into any material transactions, otherwise
than in the ordinary course of business other than as referred to in the
Registration Statement or Prospectus and except changes which the
Registration Statement and Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any
statement in the Registration Statement or the Prospectus, or in any
amendment or supplement thereto; the representations and warranties of the
Company herein; the performance by the Company of its obligations hereunder;
or the fulfillment of the conditions concurrent and precedent to the
obligations of the Underwriters hereunder, which are required to be performed
or fulfilled on or prior to the Closing Date.
(j) At the time this Agreement is executed, and on each Closing
Date you shall have received a letter from Xxxxxxx + Xxxxxx LLP addressed to
the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the Representative, to the
effect that:
(i) They are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations of the
Commission;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures in accordance with
standards established by the American Institute of Certified Public
Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that: (a)
the unaudited financial statements and related schedules of the Company
included in the Registration Statement and Prospectus do not comply as to
form in all material
17
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder, or were
not prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby; (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company; or (c) during
the period from the date of the latest balance sheet and related statements
of operations, changes in stockholders' equity and changes in financial
position included in the Prospectus and covered by their reports contained
therein to the date of the letter, there has been any material adverse change
in the financial condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in their
reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are derived from
the general accounting records of the Company which appear in the Prospectus
under the captions "Capitalization", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Executive Compensation",
"Certain Transactions", "Selected Financial Data," "Dilution," and "Risk
Factors," as well as such other financial and/or numerical information as may
be specified by the Representative, and that they have compared such amounts,
percentages and financial information with the accounting records of the
Company and have found them to be in agreement.
All the opinions, letters, certificates and evidence mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel to the Underwriters, whose approval shall not be
unreasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriters hereunder may be terminated
and canceled by the Representative by notifying the Company of such
termination and cancellation in writing or by telegram at any time prior to,
or on, the Closing Date and any such termination and cancellation shall be
without liability of any party hereto to any other party, except with respect
to the provisions of Sections 7 and 8 hereof. The Representative may, of
course, waive, in writing, any conditions which have not been fulfilled or
extend the time for their fulfillment.
SECTION 12. Termination.
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
18
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the
Representative and an opportunity to cure, shall have failed or been unable
to comply with any of the material terms, conditions or provisions of this
Agreement on the part of the Company to be performed, complied with or
fulfilled within the respective times herein provided for, including without
limitation Section 6(g) hereof, unless compliance therewith or performance or
satisfaction thereof shall have been expressly waived by the Representative
in writing. This Agreement may also be terminated if: (i) qualifications are
received or provided by the Company's independent public accountants or
attorneys to the effect of either inabilities in furnishing certifications as
to material items including, without limitation, information contained within
the footnotes to the financial statements, or as affecting matters incident
to the issuance and sale of the securities contemplated or as to corporate
proceedings or other matters; or (ii) there is any action, suit or
proceeding, threatened or pending, at law or equity against the Company, or
by any Federal, State or other commission, board or agency wherein any
unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because: (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New
York Stock Exchange or trading in securities generally on such exchange shall
have been suspended or a general banking moratorium shall have been
established by Federal or New York State authorities; (ii) the condition of
the market for securities in general shall have materially and adversely
changed; or (iii) the condition of any undisclosed matter materially
affecting the Company or its business or business prospects, is such that it
would be undesirable, impractical or inadvisable to proceed with, or
consummate, this Agreement or the public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any
party hereto, except that the Company shall remain obligated to pay the costs
and expenses provided to be paid by it specified in Sections 6, 7 and 8, to
the extent therein provided. In addition, the Underwriter shall account to
the Company for any advance and shall reimburse the Company for any portion
of the advance not expended for actual out-of-pocket expenses.
SECTION 13. Finder. The Company and the Underwriters mutually
represent that they know of no person who rendered any service in connection
with the introduction of the Company to the Underwriters and that they know
of no claim by anyone for a "finder's fee" or similar type of fee, in
connection with the public offering which is the subject of this Agreement.
Each party hereby indemnifies the other against any such claims by any person
known to it, and not known to the other party hereto, who shall claim to have
rendered services in connection with the introduction of the Company to the
Underwriters and/or to have such a claim.
19
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Units hereunder and if the aggregate
amount of such Units which all Underwriters so defaulting have agreed to
purchase does not exceed 10% of the aggregate number of Units constituting
the Units, the non-defaulting Underwriters shall have the right and shall be
obligated severally to purchase and pay for (in addition to the Units set
forth opposite their names in Schedule I) the full amount of the Units agreed
to be purchased by all such defaulting Underwriters and not so purchased, in
proportion to their respective commitments hereunder. In such event the
Representative, for the accounts of the several non-defaulting Underwriters,
may take up and pay for all or any part of such additional Units to be
purchased by each such Underwriter under this subsection (a), and may
postpone the Closing Date to a time not exceeding seven full business days;
or
(b) If one or more Underwriters (other than the Representative)
default in its or their obligations to purchase and pay for the Units
hereunder and if the aggregate amount of such Units which all Underwriters so
defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Units, or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Units
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter
called the "Remaining Underwriters") shall have the right, but shall not be
obligated to purchase such Units in such proportion as may be agreed among
them, at the Closing Date. If the Remaining Underwriters do not purchase and
pay for such Units at such Closing Date, the Closing Date shall be postponed
for one business day and the remaining Underwriters shall have the right to
purchase such Units, or to substitute another person or persons to purchase
the same or both, at such postponed Closing Date. If purchasers shall not
have been found for such Units by such postponed Closing Date, the Closing
Date shall be postponed for a further two business days and the Company shall
have the right to substitute another person or persons, satisfactory to you
to purchase such Units at such second postponed Closing Date. If the Company
shall not have found such purchasers for such Units by such second postponed
Closing Date, then this Agreement shall automatically terminate and neither
the Company nor the remaining Underwriters (including the Representative)
shall be under any obligation under this Agreement (except that the Company
shall remain liable to the extent provided in Section 7 hereof). As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 14. Nothing in this subparagraph (b) will
relieve a defaulting Underwriter from its liability, if any, to the other
Underwriters for damages occasioned by its default hereunder (and such
damages shall be deemed to include, without limitation, all expenses
reasonably incurred by each Underwriter in connection with the proposed
purchase and sale of the Units) or obligate any Underwriter to purchase or
find purchasers for any Units in excess of those agreed to be purchased by
such Underwriter under the terms of Sections 3 and 14 hereof.
SECTION 15. Registration of the Underwriters' Unit Warrants and
Underwriters' Class A Warrants. The Company agrees that it will, upon
request by the Representative or the
20
holders of a majority of the Underwriters' Unit Warrants and Underlying
Securities (i.e. Underwriters' Class A Warrants and shares of Common Stock
issuable upon exercise thereof) within the period commencing one year after
the Effective Date, and for a period of five years from the Effective Date,
on one occasion only at the Company's sole expense, cause the Underwriters'
Unit Warrants and/or the Underlying Securities issuable upon exercise of the
Underwriters' Unit Warrants, to be the subject of a post-effective amendment,
a new Registration Statement, if appropriate (hereinafter referred to as the
"Demand Registration Statement"), so as to enable the Representative and/or
its assigns to offer publicly the Underwriters' Unit Warrants and/or the
Underlying Securities. The Company agrees to register such securities
expeditiously and, where possible, within forty-five (45) business days after
receipt of such requests. The Company agrees to use its "best efforts" to
cause the post-effective amendment, new Registration Statement to become
effective and for a period of nine (9) months thereafter to reflect in the
post-effective amendment, new Registration Statement, financial statements
which are prepared in accordance with Section 10(a)(3) of the Act and any
facts or events arising which, individually or in the aggregate, represent a
fundamental and/or material change in the information set forth in such
post-effective amendment or new Registration Statement. The holders of the
Underwriters' Unit Warrants may demand registration without exercising such
Warrants and, in fact, are never required to exercise same.
The Company understands and will agree that if, at any time within
the period commencing one year after the Effective Date and ending seven
years after the Effective Date of the Company's Registration Statement, it
should file a Registration Statement with the Commission pursuant to the
Securities Act, regardless of whether some of the holders of the
Underwriters' Unit Warrants and Underlying Securities shall have theretofore
availed themselves of the right provided above, the Company, at its own
expense, will offer to said holders the opportunity to register the
Underwriters' Unit Warrants and Underlying Securities. This paragraph is not
applicable to a Registration Statement filed by the Commission with the
Commission on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the Company will
cooperate with the then holders of the Underwriters' Unit Warrants and
Underlying Securities in preparing and signing a Registration Statement, on
one occasion only in addition to the Registration Statements discussed above,
required in order to sell or transfer the aforesaid Underwriters' Unit
Warrants and Underlying Securities and will supply all information required
therefor, but such additional Registration Statement shall be at the then
Holders' cost and expense unless the Company elects to register additional
shares of the Company's Common Stock in which case the cost and expense of
such Registration Statement will be prorated between the Company and the
Holders of the Underwriters' Unit Warrants and Underlying Securities
according to the aggregate sales price of the securities being issued. The
Holders of the Underwriters' Unit Warrants may include such Warrants in any
such filing without exercising the Underwriters' Unit Warrants, and in fact,
are never required to exercise same. The Company can, at any time for any
reason, withdraw any such registration except in connection with a
Registration Statement filed pursuant to the Company's demand Registration
Statement.
SECTION 16. Other Agreements.
21
(a) On the Effective Date, the Company will enter into an
agreement (the "Financial Advisory Agreement") retaining the Representative
as a financial advisor pursuant to which the Representative shall receive a
consulting fee in an amount equal to $50,000 per year or a total of $100,000
for services for two (2) year from the Effective Date, payable in full in
advance on the Closing Date, which shall include, but not be limited to,
advising the Company in connection with possible acquisition opportunities,
advising the Company regarding shareholder relations including the
preparation of the annual report and other releases, assisting in long-term
financial planning, advice in connection with corporate re-organizations and
expansion and capital structure, and other financial assistance.
(b) The Company agrees to file with the NASD all post-effective
amendments or prospectus supplements, if any, disclosing actual price and
selling terms by the selling security holders at the same time they are filed
with the Commission and in the event a portion of the securities being
registered on behalf of selling security holders become underwritten, that
prior to commencement of the distribution: (i) copies of all underwriting
documents proposed for use will be submitted to the NASD for review by the
Underwriter; and (ii) the maximum compensation to be paid will be approved by
the Department. To the extent the Company receives notification from a
related shareholder, the Company will notify the Representative and the NASD
if subsequent to the filing of this offering any 5% or greater shareholder of
the Company is or becomes an affiliate or associated person of an NASD member
participating in the distribution in this offering.
(c) If the Company shall within five (5) years from the Effective
Date, enter into any agreement or understanding with any person or entity
introduced by the Representative involving: (i) the sale of all or
substantially all of the assets and properties of the Company; (ii) the
merger or consolidation of the Company (other than a merger or consolidation
effected for the purpose of changing the Company's domicile); or (iii) the
acquisition by the Company of the assets or stock of another business entity,
which agreement or understanding is thereafter consummated, whether or not
during such five (5) year period, the Company, upon such consummation, shall
pay to the Representative an amount equal to the following percentages of the
consideration paid by the Company in connection with such transaction:
5% of the first $4,000,000 or portion thereof, of such consideration;
4% of the next $1,000,000 or portion thereof, of such consideration;
3% of the next $1,000,00 or portion thereof, of such consideration;
and
2% of such consideration in excess of the first $6,000,000 of such
consideration.
The fee payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any
such transactions.
(d) Commencing twelve months after the Effective Date, the Company
will pay the Representative as its Warrant solicitation agent an amount equal
to five percent (5%) of the aggregate exercise price of each Class A Warrant
exercised provided: (1) the market price of the Common Stock on the date
the Warrant was exercised was greater than the Warrant exercise price
22
on that date; (2) exercise of the Warrant was solicited by a member of the
NASD and the NASD member is designated in writing by the Warrant holder; (3)
the Warrant was not held in a discretionary account or prior specific written
approval was obtained from the related customer ; (4) disclosure of
compensation arrangements was made both at the time of the offering and at
the time of exercise of the Warrant; (5) the solicitation of the exercise of
the Warrant was not in violation of Regulation M promulgated under the
Exchange Act; and (6) solicitation is in compliance with NASD Notice to
Members 81-38. The Company agrees to pay over to the Representative any fees
due it within five business days after receipt by the Company of Warrant
proceeds. Within ten (10) days of the last day of each month commencing one
year from the Effective Date, the Company will instruct the Warrant Agent to
notify the Representative of each Warrant certificate which has been properly
completed and delivered for exercise by holders of Warrants during each such
month. The Company will instruct the Transfer Agent that the Representative
may at any time during business hours upon reasonable advance written notice,
at its expense, examine the records of the Company and the Warrant Agent
which relate to the exercise of the Warrants.
SECTION 17. Notice. Except as otherwise expressly provided in this
Agreement: (a) whenever notice is required by the provisions hereof to be
given to the Company, such notice shall be given in writing, by certified
mail, return receipt requested, addressed to the Company at the address set
forth herein on the first page, copy to Xxxxxx Xxxxx, Esq., Xxxxxx Xxxxx
P.C., Suite 420, 000 Xxxxx Xxxx Xxxx, Xxxxx Xxxx, XX 00000; and (b) whenever
notice is required by the provisions hereof to be given to the Underwriters,
such notice shall be in writing addressed to the Representative at VTR, at
the address set forth herein on the first page copy to Xxxxxx Xxxx, Esq.,
Xxxxx & Gold LLP, 000 Xxxx Xxxxxx Xxxxx, Xxx Xxxx, XX 00000. Any party may
change the address for notices to be sent by giving written notice to the
other persons.
SECTION 18. Representations and Agreements to Survive Delivery.
Except as the context otherwise requires, all representations, warranties,
covenants, and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof
and as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or any of their controlling persons, and shall survive any
termination of this Agreement (whensoever made) and/or delivery of the Units
to the several Underwriters.
SECTION 19. Miscellaneous. This Agreement is made solely for the
benefit of the Underwriters and the Company and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successor" or the term "successors and
assigns" as used in this Agreement shall not include any purchaser, as such,
of any of the Units. This Agreement shall not be assignable by any party
without the other party's prior written consent. This Agreement shall be
binding upon, and shall inure to the benefit of, our respective successors
and permitted assigns. The foregoing represents the sole and entire
agreement between us with respect to the subject matter hereof and supersedes
any prior agreements between us with respect thereto. This Agreement may not
be modified, amended or waived except by a written instrument signed by the
party to be charged. The validity, interpretation and construction
23
of this Agreement, and of each part hereof, shall be governed by the internal
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall be
deemed to be one and the same instrument. If a party signs this Agreement
and transmits an electronic facsimile of the signature page to the other
party, the party who receives the transmission may rely upon the electronic
facsimile as a signed original of this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement
between the Company and the Underwriters in accordance with its terms.
Very truly yours,
THE HAVANA GROUP, INC.
By:
---------------------------------
(authorized officer)
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
By:
----------------------------------------------
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
CONFIRMED AND ACCEPTED, as of the
date first above written with regard to Section 3(a) of this Agreement:
XXXXXX XXXX, INC.
By:
----------------------------------------------
24
SCHEDULE I
Number of Units to be
Underwriters Purchased
------------ ---------------------
VTR Capital, Inc.
----------
Total 460,000
----------
----------
25
