Exhibit 1.1
DIVERSIFIED SECURITY SOLUTIONS, INC.
UNDERWRITING AGREEMENT
1,500,000 Shares of Common Stock
(Par Value $.01 Per Share)
New York, New York
July __, 2001
GunnAllen Financial, Inc.
0000 Xxxxxxxxx Xxxx.
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Dear Sirs:
Diversified Security Solutions, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to GunnAllen Financial, Inc. ("GunnAllen"
or the "Underwriter") pursuant to this Underwriting Agreement (the "Agreement"),
One Million Five Hundred Thousand (1,500,000) Firm Shares (as hereinafter
defined) of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), and to grant to the Underwriter the option referred to in Section 2(b)
hereof to purchase all or any part of an additional Two Hundred and Twenty Five
Thousand (225,000) Option Shares (as hereinafter defined) or such other number
as may be permitted thereunder, for the purpose of covering over-allotments. It
is understood that the Underwriter proposes to offer the Shares to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement (as hereinafter defined) after the Effective Date (as
hereinafter defined) of the Registration Statement. As used in this Agreement,
the term "Firm Shares" shall mean the One Million Five Hundred Thousand
(1,500,000) shares of Common Stock to be issued and sold to the Underwriter at
the First Closing Date referred to in Section 2(a) hereof; the term "Option
Shares" shall mean such of the additional Two Hundred and Twenty Five Thousand
(225,000) shares of Common Stock as are purchased pursuant to the option
referred to in Section 2(b) hereof; and the term "Shares" shall mean the Firm
Shares and the Option Shares collectively. The Company will also issue and sell
to GunnAllen, for its own account and the accounts of its designees for an
aggregate price of One Hundred Dollars ($100.00), warrants (the "Underwriter's
Warrants") to purchase up to an aggregate of One Hundred and Seventy Two
Thousand Five Hundred (172,500) shares of Common Stock (the "Warrant Shares") at
an exercise price of $______ per share, which sale will be consummated in
accordance with the terms and conditions of the form of Underwriter's Warrant
substantially in the form of Exhibit ____ to the Registration Statement.
1. Representations and Warranties. The Company, and each of its
subsidiaries, represents and warrants to, and agrees with, the Underwriter that
as of the Effective Date, the First Closing Date and each Option Closing Date as
follows. All references in this Agreement to the
Company, including without limitation the representations and warranties of this
Section 1, shall also be deemed to include references the Company's
subsidiaries, whether or not specifically referenced in each particular
instance.
(a) The conditions for use of a registration statement on Form SB-2,
set forth in the General Instructions to Form SB-2, have been satisfied with
respect to the Company, the transactions contemplated herein and in the
Registration Statement (as defined below). A Registration Statement on Form SB2
(File No. 33394477), including a preliminary form of Prospectus (the
"Registration Statement"), relating to the offering of the Shares, the
Underwriter's Warrants and the Warrant Shares (all of which collectively are
referred to as the "Securities") has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
Registration Statement has been filed with the Commission under the Act. One or
more amendments to said Registration Statement has or have, as the case may be,
been similarly prepared and filed with the Commission covering the registration
of the Securities under the Act including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus"), each of which has been furnished to the Underwriter. Each
Preliminary Prospectus was endorsed with the legend required by Item 501(a) of
Regulation S-B and, if applicable, Rule 430A of the Rules and Regulations. The
Company has prepared and proposes to file on or prior to the Effective Date (as
defined below) of said Registration Statement an additional amendment thereto
which will include the final Prospectus (as defined below). The Company will
not, so long as any portion of the Underwriter's Warrants remain outstanding and
exercisable, file any amendment to the Registration Statement or any amendment
or supplement to the Preliminary Prospectus or the Prospectus unless the Company
has given reasonable and prior notice thereof to the Underwriter and counsel for
the Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to and
means said Registration Statement, including any documents incorporated by
reference therein, all exhibits, financial statements and schedules and the
Prospectus included therein, as finally amended and revised on or prior to the
Effective Date (as defined below) and, in the event of any post-effective
amendment thereto or any Rule 462(b) Registration Statement becomes effective
prior to the Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended or such Rule 462(b) Registration Statement,
as the case may be. The term "Registration Statement" shall also include any
Rule 430A Information deemed to be included therein as the Effective Date as
provided by Rule 430A. The term "Effective Date" shall mean each date and time
that the Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become effective.
The term "Preliminary Prospectus" refers to and means any preliminary prospectus
filed with the Commission and included in said Registration Statement before the
Effective Date and any preliminary prospectus included in the Registration
Statement at the Effective Date that omits Rule 430A Information; the term "Rule
430A Information" shall mean information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A; and, the term "Prospectus" refers to
and means the prospectus relating to Securities that is first filed pursuant to
Rule 424(b) or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Securities included in the Registration
Statement at the Effective Date. If the Registration Statement is amended or
such Prospectus is supplemented after the Effective Date and prior to the Option
Closing Date (as defined in Section 2), then the terms "Registration Statement"
and "Prospectus" shall include such documents as so amended or supplemented. The
terms used herein shall have the same meaning as in the Prospectus unless the
context hereof otherwise requires.
(b) Neither the Commission nor, to the Company's knowledge after due
investigation, any state regulatory authority has issued an order preventing or
suspending the use of any Preliminary Prospectus nor has the Commission or any
such authority instituted or, to the best of the Company's knowledge, threatened
to institute any proceedings with respect to such an order.
(c) The Registration Statement, as of the Effective Date, the
Prospectus (and any amendments or supplements thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of First Closing Date
and any Option Closing Date referred to below, will contain all statements which
are required to be stated therein in accordance with the Act and the Rules and
Regulations and will conform in all material respects to the requirements of the
Act and the Rules and Regulations, and at such times 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
not misleading in light of the circumstances in which they were made, except
that the representations and warranties in this Section 1(c) do not apply to
statements or omissions made in the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter, expressly for use therein.
(d) The Company has been duly incorporated and is now, and at the
Closing Dates (defined below) will be, validly existing and in good standing as
a corporation under the laws of the State of Delaware, and has full power and
authority, corporate and other, to own or lease, as the case may be, its
properties, whether tangible or intangible, and conduct its business as
presently conducted and as described in, or contemplated by, the Registration
Statement and Prospectus and to execute, deliver and perform this Agreement and
the Underwriter's Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company is duly qualified to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of the business transacted by it or the character or location of its
properties, in each case taken as a whole, makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
upon the condition (financial or otherwise), results of operations, business,
assets or properties of the Company or its subsidiaries, taken as a whole. The
Company holds, or will hold by the First Closing Date, all licenses,
certificates and permits from state, federal or other regulatory authorities
necessary for the conduct of its business as presently conducted and as
described in or contemplated by the Registration Statement and the Prospectus
and is in material compliance with all laws and regulations and all orders and
decrees applicable to it or to such business or assets, and there are no
proceedings pending or, to the knowledge of the Company, threatened, seeking to
cancel, terminate or limit such licenses, approvals or permits. Other than as
described in the Registration Statement and Prospectus, the Company does not
own, directly or indirectly, any capital stock of or other equity interest in
any corporation, partnership or other legal entity whatsoever.
(e) The financial statements of the Company, including the schedules
and related notes filed as part of the Registration Statement and included in
the Prospectus, are complete, correct and present fairly the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and changes in financial position of the Company for the respective
periods indicated therein and comply as to form with the applicable accounting
requirements of the Act. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as otherwise stated in the Registration
Statement and the Prospectus, and all adjustments necessary for a fair
presentation of results for such periods have been made. The selected financial
data set forth in the Registration Statement and the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
that of the audited and unaudited financial statements included in the
Registration Statement and the Prospectus. The Pro Forma and Pro Forma as
Adjusted financial statements included in the Prospectus and the Registration
Statement include assumptions that provide a reasonable basis for presenting the
significant effects directly attributable to the transactions and events
described therein, the related Pro Forma and Pro Forma as Adjusted adjustments
give appropriate effect to those assumptions, and the Pro Forma and Pro Forma as
Adjusted adjustments reflect the proper application of those adjustments to the
historical financial statement amounts in the Pro Forma and Pro Forma as
Adjusted financial statements included in the Prospectus and the Registration
Statement. The Pro Forma and Pro Forma as Adjusted financial statements included
in the Prospectus and the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of Regulation S-X
under the Act and the Pro Forma and Pro Forma as Adjusted adjustments have been
properly applied to the historical amounts in the compilation of those
statements.
(f) The accounting firm of Xxxxxxxxx & Company, LLC, which has
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and Prospectus, are independent
public accountants within the meaning of the Act and the Rules and Regulations.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements, (i) the Company has not incurred any material liability or
obligation, direct or contingent, or entered into any material transactions
whether or not incurred in the ordinary course of business; (ii) the Company has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty (whether or not such loss is insured
against), or from any labor dispute or court or governmental action, order or
decree; (iii) since the respective dates as of which information is given in the
Registration Statement and Prospectus, there have not been, and through and
including the First Closing Date, there will not be, any changes in the capital
stock or any increases in the long-term debt or other securities of the Company
or any material adverse change in the condition (financial or otherwise),
business, operations, income, net worth, assets or properties of the Company;
and (iv) the Company has not paid or declared any dividend or other distribution
on its Common Stock or its other securities or redeemed or repurchased any of
its Common Stock or other securities.
(h) This Agreement and compliance by the Company with the terms
thereof,
has been duly and validly authorized by all necessary corporate action and has
been duly executed and delivered by the Company and constitutes the valid and
binding obligations of the Company enforceable in accordance with its terms,
except to the extent enforceability may be limited by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and, to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought. The Underwriter's Warrant Agreement and
compliance by the Company with the terms thereof, have been duly and validly
authorized by all necessary corporate action and upon execution and delivery
will be duly executed and delivered by the Company and will constitute the valid
and binding obligations of the Company enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by any
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors' rights generally and to the extent that the
remedy of specific performance and injunction or other forms of equitable relief
may be subject to equitable defenses and the discretion of the court before
which any proceeding therefor may be brought. The Company is not presently in
violation of or in default under this Agreement and the Underwriter's Warrant
Agreement and the execution, delivery and performance by the Company of this
Agreement and the Underwriter's Warrant Agreement and the consummation of the
transactions herein and therein contemplated, will not, with or without the
giving of notice or the lapse of time or both, (i) result in a breach of or
constitute default under any of the terms, conditions or provisions of the
Certificate of Incorporation or by-laws of the Company; (ii) result in a breach
of or conflict with any of the terms or provisions of, or constitute a default
under, or result in the modification or termination of, or the creation or
imposition of any lien, security interest, charge or encumbrance upon any
property or asset of the Company pursuant to any note, indenture, mortgage, deed
of trust, contract, commitment or other agreement or instrument to which the
Company is a party or by which the Company or any of its respective properties
or assets may be bound or affected; (iii) violate any existing law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality, agency, body or court, domestic or foreign, having jurisdiction
over the Company or any of its properties or businesses; or (iv) have any effect
on any permit, certification, registration, approval, consent, order license,
franchise or other authorization (collectively, the "Permits") necessary for the
Company to own or lease and operate its properties and to conduct its business
or the ability to make use thereof.
(i) To the Company's knowledge no Permits of any government or
governmental instrumentality, agency, body or court other than under the Act,
the blue sky or securities laws of any state or the rules of the National
Association of Securities Dealers, Inc. ("NASD") (including approval of
underwriting compensation and listing of the Common Stock on The American Stock
Exchange, Inc. or The Nasdaq Stock Market) are required (i) for the valid
authorization, issuance, sale and delivery of the Firm Shares to the
Underwriter, and (ii) the consummation by the Company of the transactions
contemplated by this Agreement and the Underwriter's Warrant Agreement.
(j) Except as disclosed in the Registration Statement and Prospectus
there is neither pending nor, to the knowledge of the Company after due
investigation, threatened, against the Company any claim, action, suit, or
proceeding at law or in equity, arbitration (or circumstances that may give rise
to the same), investigation or inquiry to which the Company or any of its
respective officers, directors or shareholders is a party or involving the
Company's properties or businesses before or by any
court, arbitration tribunal or governmental instrumentality, agency, or body,
which, if determined adversely to the Company, would individually or in the
aggregate result in any material adverse change in the condition (financial or
otherwise), business, management of affairs or business prospects, results of
operations, income, shareholders' equity, net worth, assets or properties or
which question the validity of the capital stock of the Company or prevent
consummation of the transactions contemplated hereby; nor are there any such
actions, suits or proceedings against the Company related to consumer
protection, distribution, rental and sales, or environmental matters or matters
related to discrimination on the basis of age, sex, religion or race; and no
labor disturbance by the employees of the Company exists or to the knowledge of
the Company is imminent which might be expected to materially adversely affect
the conduct of the business, property, operations, financial condition or
earnings of the Company, taken as a whole, or result in any material adverse
change in the condition (financial or otherwise), business, management of
affairs or business prospects, results of operations, income, shareholders'
equity, net worth, assets or properties or which question the validity of the
capital stock of the Company or prevent consummation of the transactions
contemplated hereby.
(k) There is no contract or other document which is required by the
Act or by the Rules and Regulations to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which has not been so described or filed as required and each contract
or document which has been described in the Registration Statement and
Prospectus has been described accurately and presents fairly the information
required to be described and each such contract or document which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at the Closing Date or shall have been terminated in accordance with its terms
or as set forth in the Registration Statement and Prospectus, and no party to
any such contract has given notice to the Company of the cancellation of or, to
the knowledge of the Company, shall have threatened to cancel, any such
contract, and except as described in the Registration Statement and Prospectus,
the Company is not in default thereunder.
(l) The Company does not own any real property. The Company has good
title to all of its personal property (tangible and intangible) and assets,
including any licenses, trademarks and copyrights, described in the Registration
Statement and Prospectus as owned by it, free and clear of all security
interests, liens, charges, mortgages, encumbrances and restrictions other than
(i) such as are not materially significant in relation to the business of the
Company and (ii) other than as described in the Registration Statement and
Prospectus. The leases, subleases and licenses under which the Company is
entitled to lease, hold or use any real or personal property are valid,
subsisting and enforceable only with such exceptions as are not material and do
not interfere with the use of such property made or proposed to be made by the
Company, and all rentals, royalties or other payments accruing thereunder which
become due prior to the date of this Agreement have been duly paid and neither
the Company nor, to the Company's knowledge after due investigation, any other
party is in default in respect of any of the terms or provisions of any such
leases, subleases and licenses, and no claim of any sort has been asserted by
anyone adverse to the rights of the Company under any such leases, subleases or
licenses affecting or questioning the rights of the Company to the continued use
or enjoyment of the rights and property covered thereby. The Company has not
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. The Company
owns or leases all such properties as are necessary to its operations as now
conducted and as proposed to be conducted
as set forth in the Prospectus.
(m) The Company has filed with the appropriate federal, state and
local governmental agencies, and all appropriate foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same have become due; and the provisions
for income taxes payable, if any, shown on the financial statements filed with
or as part of the Registration Statement and Prospectus are sufficient for all
accrued and unpaid foreign and domestic taxes, whether or not disputed, and for
all periods to and including the dates of such consolidated financial
statements. The Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company.
(n) The Company maintains insurance, which is in full force and
effect, including but not limited to personal injury and product liability
insurance, insurance covering all personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against. The Company maintains insurance in amounts as
are usually maintained by companies engaged in the same or similar businesses
located in their geographic area. The Company is not aware of any facts or
circumstances which would require it to notify its insurers of any claim of
which notice has not been made or will not be made in a timely manner. To the
knowledge of the Company, there are no facts or circumstances under any existing
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any existing valid claim of the Company under such
policy or bond.
(o) The Company owns or otherwise possesses adequate, enforceable
and unrestricted rights to use all patents, patent rights, inventions,
trademarks, service marks, trade names and copyrights, rights, trade secrets,
confidential information, processes and formulations (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, works of authorship, computer programs and
technical data and information used or proposed to be used in the conduct of its
business as described in the Registration Statement and Prospectus
(collectively, the "Intangibles"). Except as disclosed in the Registration
Statement and Prospectus, the Company has not infringed nor is it infringing
upon the rights of others with respect to the Intangibles and the Company has
not received any notice that it has or may have infringed or is infringing on
the rights of others with respect to the Intangibles; there is no pending or, to
the Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to, or the validity or scope of, any such
Intangibles, and the Company is unaware of any facts which would form a
reasonable basis for any such claim except where the Company has requested and
obtained a non-infringement opinion from its intellectual property counsel;
there is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others alleging that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim except
where the Company has requested and obtained a non-infringement opinion from its
intellectual property counsel; to the Company's knowledge, no others have
infringed upon the Intangibles of the Company; there is no U.S. patent or
published U.S. patent application which contains claims that dominate any
Intangibles described in the Prospectus as being owned by or licensed to the
Company or that interferes with the issued or pending claims of any such
Intangibles; and there is no prior art of which the Company is aware that may
render any U.S. patent held by the Company invalid or any U.S. patent
application held by the Company unpatentable which has not been disclosed to the
U.S. Patent and Trademark Office. Except as disclosed in the Registration
Statement and Prospectus, the Company is not obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, the Intangibles with respect to the
use thereof or in connection with the conduct of its business or otherwise. The
Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all its Intangibles.
(p) Neither the Company nor any of its affiliates has incurred any
liability for, nor is there is any outstanding claim for services in the nature
of, a finder's fee or similar fee in connection with the transactions herein
contemplated.
(q) No officer or director of the Company, or any affiliate (as such
term is defined in Rule 405 promulgated under the Rules and Regulations) of any
such officer or director, has taken, and each officer or director has agreed
that he will not take, directly or indirectly, any action designed to constitute
or which has constituted or which might reasonably be expected to cause or
result in the stabilization of the price of the Common Stock or a violation of
Regulation M of the Rules and Regulations or in a manipulation of the price of
any security issued by the Company.
(r) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, no officer, director or stockholder of the Company, or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had during the past three (3) years, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
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 it may be bound or affected. There are
no existing agreements, arrangements, or transactions, between or among the
Company and any officer, director of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities which are required to be
described in the Registration Statement and Prospectus and which are not so
described.
(s) The minute books of the Company have been made available to the
Underwriter and 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.
(t) No labor problem exists with any of the Company's employees or
is imminent, nor is the Company aware of any bankruptcy, labor disturbance or
other event affecting any of
its principal suppliers or customers, which could materially adversely affect
the condition, (financial or otherwise), prospects, business, assets, properties
or results of operation of the Company.
(u)The Company had at the date or dates indicated in the Registration
Statement and Prospectus a duly authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. Based on the assumptions
stated in the Registration Statement and the Prospectus, the Company will have
on the Closing Date the adjusted stock capitalization set forth therein. Except
as set forth in the Registration Statement or the Prospectus, on the Effective
Date and on the Closing Date, there will be no options to purchase, warrants or
other rights to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell shares of the Companys
capital stock or any such warrants, convertible securities or obligations.
Except as set forth in the Registration Statement or the Prospectus, no holder
of any of the Company's securities has any rights, demand, piggyback or
otherwise, to have such securities registered under the Act.
(v) The Securities and the other securities of the Company conform
to all statements in relation thereto in the Registration Statement and
Prospectus; the outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable; the outstanding options and
warrants to purchase Common Stock have been duly authorized and validly issued
and constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms; the holders of the outstanding Common Stock are not
subject to personal liability for obligations of the Company solely by reason of
being stockholders; and none of such outstanding shares of Common Stock or
warrants or options to purchase Common Stock were issued in violation of the
pre-emptive rights of any stockholder of the Company. The offers and sales of
the outstanding Common Stock and outstanding options and warrants to purchase
Common Stock were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. Except as forth in the Registration Statement and Prospectus, on
the Effective Date and on the Closing Date(s) there will be no outstanding
options or warrants for the purchase of, or other outstanding rights to purchase
or acquire, Common Stock or securities convertible or exchangeable into Common
Stock.
(w) The issuance and sale of the Shares have been duly authorized
and, upon delivery against payment therefor as contemplated by this Agreement,
the Shares will be validly issued, fully paid and nonassessable, and the holders
thereof will not be subject to personal liability solely by reason of being such
holders. The Shares will not be subject to pre-emptive rights of any stockholder
of the Company.
(x) The issuance and sale of the Underwriter's Warrants has been
duly authorized and when issued and delivered in accordance with the terms
hereof and the Underwriter's Warrant Agreement, shall constitute the valid and
binding obligations of the Company enforceable in accordance with their terms.
The issuance and sale of the Warrant Shares have been duly authorized, and, when
duly delivered against payment therefor as contemplated by the Underwriter's
Warrant Agreement, such Warrant Shares will be validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Registration Statement and Prospectus. Holders of Warrant Shares issuable upon
the exercise of the Underwriter's Warrants will not be subject to personal
liability solely by
reason of being such holders. Neither the Underwriter's Warrants nor the Warrant
Shares issuable upon exercise thereof will be subject to pre-emptive rights of
any stockholder of the Company. The Company has reserved a sufficient number of
shares of Common Stock from its authorized but unissued Common Stock for
issuance upon exercise of the Underwriter's Warrants in accordance with the
provisions of the Underwriter's Warrant Agreement.
(y) During the period of twelve (12) months from the Effective Date
hereof (the "Lock-Up Period") neither the Company nor any of its officers,
directors or one percent (1%) stockholders will offer for sale or sell or
otherwise dispose of, directly or indirectly, any securities of the Company, in
any manner whatsoever, whether pursuant to Rule 144 of the Rules and Regulations
or otherwise without the prior written consent of the Underwriter; provided,
however, (A) each Stockholder, to the extent permitted by law, may sell his
securities in a private transaction during the Lock-Up Period so long as the
acquirer of the securities at the time of acquisition enters into a written
agreement with Underwriter to be bound by the terms of the seller's Lock-Up
Agreement, and (B) each such person desiring to sell securities during the
two-year period commencing on termination of said Lock-Up Period publicly under
Rule 144 or otherwise shall sell his securities through either of the
Underwriter if the price and terms of execution offered by the Underwriter are
at least as favorable as may be obtained from other brokerage firms. No holder
of registration rights relating to securities of the Company will execute any
such registration rights, for a period of twelve (12) months following the
Effective Date, without the prior written consent of the Underwriter. The
Company will deliver to GunnAllen the undertakings as of the date hereof of its
officers, directors and one percent (1%) stockholders to this effect, which such
Lock-Up Letter will be substantially in the form and substance of Exhibit A
annexed hereto.
(z) Neither the Company nor any officer, director or other agent of
the Company has, acting on behalf of the Company, at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, Federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law or (iii) made any payment of
funds of the Company or received or retained any funds in violation of any law,
rule or regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Registration Statement and
Prospectus. The Company's internal accounting controls and procedures are
sufficient to cause the Company to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended. After giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Registration Statement and Prospectus, the Company will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(ab) No securities of the Company have been sold by the Company or
by or on behalf of, or for the benefit of any person or persons controlling,
controlled by or under common control with the Company within the three (3)
years prior to the date hereof, except as disclosed in the Registration
Statement and Prospectus.
(ac) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees and consultants,
described in the Registration Statement and Prospectus are binding and
enforceable obligations upon the respective parties thereto in accordance with
their terms, except to the extent enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought.
(ad) Except as set forth in the Registration Statement and
Prospectus, the Company has no employee benefit plans (including, without
limitation, profit sharing and welfare benefit plans) or deferred compensation
arrangements that are subject to the provisions of the Employee Retirement
Income Security Act of 1974. The Company has fulfilled its obligations, if any,
under the minimum funding standards of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Employee
Retirement Income Security Act of 1974 ("ERISA") and the regulations and
published interpretations thereunder with respect to each "plan" (as defined in
Section 3(3) of ERISA and such regulations and published interpretations) in
which employees of the Company are eligible to participate and each such plan is
in compliance in all material respects with the presently applicable provisions
of ERISA and such regulations and published interpretations. The Company has not
incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other
than for the payment of premiums in the ordinary course) or to any such plan
under Title IV of ERISA.
(ae) There are no voting or other stockholder agreements between the
Company and any stockholders of the Company or between or by and among any
stockholders of the Company.
(af) The Company has filed a registration statement on Form 8-A with
respect to its Common Stock under Section 12(b) of the Securities Exchange Act
of 1934, as amended (the "1934 Act") and such registration statement has been
declared effective by the Commission. The Company has filed a listing
application with respect to its Common Stock with the American Stock Exchange,
Inc. ("AMEX") and such listing application has been accepted by the AMEX,
subject to official notice of issuance.
(ag) The Company is in compliance with all federal, state, local,
and foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company, by the U.S. Department of Labor or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the Company's best knowledge, threatened against or involving the
Company and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or is imminent.
(ah) The Shares have been approved for listing on the AMEX.
(ai) The Company has provided to XxXxxxxxx, Will & Xxxxx, counsel to
the Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information requested by such
counsel's Due Diligence Memorandum dated June 28, 2001.
(aj) Any certificate signed by an officer of the Company in his
capacity as such and delivered to the Underwriter or Underwriter's Counsel shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.
(ak) The Company is and has been doing business in material
compliance with all authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, and local laws, rules and
regulations; 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
adversely affect the business operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company, taken as a whole.
(al) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(am) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.
(an) The Company is (A) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants applicable to its business as
described in the Registration Statement and Prospectus ("Environmental Laws"),
(B) has received and is in compliance with all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its business
and (C) has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or toxic
substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Registration Statement
and Prospectus (exclusive of any supplement thereto). The Company has not
received notice that it has been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended.
2. Purchase, Delivery and Sale of the Shares and the Underwriter's
Warrants.
(a) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company at a purchase price of $_____ per share (net of
commissions) the following Firm Shares:.
GunnAllen....................... 1,500,000
TOTAL........................... 1,500,000
On the First Closing Date, definitive certificates in negotiable
form for the Firm Shares will be delivered by the Company to the Underwriter or
an electronic "fast" transfer of the Firm Shares from the Company's Transfer
Agent (as defined herein) to Depository Trust Company ("DTC") will be made,
against payment of the purchase price by the Underwriter by wire transfer or
certified or official bank check or checks in New York Clearing House funds,
payable to the order of the Company.
Delivery of the Firm Shares (either by regular way or by a "fast"
transfer) against payment therefor shall take place at the offices of GunnAllen,
at 10:00 a.m., local New York Time, on the third business day following the
Effective Date (the fourth business day following the Effective Date in the
event that trading of the Firm Shares commences on the day following the
Effective Date) or at such other location as the Underwriter and the Company may
agree, with such time and date of payment and delivery for the Firm Shares being
herein called the "First Closing Date."
(b) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties and agreements contained herein,
for the purposes of covering any overallotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Registration
Statement and Prospectus, GunnAllen is hereby granted an option to purchase all
or any part of the Optional Shares from the Company. The purchase price to be
paid per share for the Optional Shares will be the same price as the price per
Firm Share set forth in Section 2(a) hereof. The option granted hereby may be
exercised solely by GunnAllen as to all or any part of the Optional Shares at
any time within thirty (30) days after the Effective Date. GunnAllen will not be
under any obligation to purchase any Optional Shares prior to the exercise by
GunnAllen of such option.
The option granted hereby may be exercised by GunnAllen by giving
oral notice to the Company, which must be confirmed by a letter, telex or
telegraph setting forth the number of Optional Shares to be purchased, the date
and time for delivery of and payment for the Optional Shares to be purchased and
stating that the Optional Shares referred to therein are to be used for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First Closing Date, the
date set forth therein for such delivery and payment will not be earlier than
either two (2) full business days thereafter or the First Closing Date,
whichever occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two (2) full business days thereafter. In either event, the date so
set forth will not be more than fifteen (15) full business days after the date
of such notice. The date and time set forth in such notice is herein called the
"Option Closing Date." Upon exercise of such option, through GunnAllen's
delivery of the aforementioned notice, the Company will become obligated to
convey to GunnAllen, and, subject to the terms and conditions set forth in this
Section 2(b) hereof, GunnAllen will become obligated to purchase, the number of
Optional Shares specified in such notice.
Payment for any Optional Shares purchased will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, against delivery of the Optional
Shares purchased to GunnAllen at the offices of GunnAllen (or at such other
location as GunnAllen and the Company may agree).
The obligation of GunnAllen to purchase and pay for any of the
Optional Shares is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in this
Section 2(b), and to the delivery to GunnAllen of opinions, certificates and
letters dated the Option Closing Date substantially similar in scope to those
specified in Section 8(d), (e) and (f) hereof, but with each reference to "Firm
Shares" and "First Closing Date" to be changed, respectively, to the "Optional
Shares" and the "Option Closing Date."
(c) The Company will make the certificates for the Shares to be
purchased by the Underwriter hereunder available to GunnAllen for inspection,
checking and packaging at the office of
the Company's transfer agent or correspondent in New York City, [Continental
Stock Transfer and Trust Company, 0 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, 00000], not
less than one (1) full business day prior to the First Closing Date and the
Option Closing Date, as the case may be (both of which are collectively referred
to herein as the "Closing Dates"). The certificates representing the shares
shall be in such names and denominations as GunnAllen may request at least two
(2) full business days prior to the respective Closing Dates. In the event that
GunnAllen determines to utilize DTC, the parties will use their best efforts to
make the offering of the Shares DTC eligible and to comply with the procedures
thereof.
(d) On the First Closing Date, the Company will issue and sell the
Underwriter's Warrants to GunnAllen or to GunnAllen's designees (limited to
officers and partners of GunnAllen, members of the selling group and/or their
officers or partners, collectively, "GunnAllen's Designees"). The Underwriter's
Warrants will be in the form of, and in accordance with, the provisions of the
Underwriter's Warrant substantially in the form filed as Exhibit ___ to the
Registration Statement. The aggregate purchase price for the Underwriters'
Warrants is One Hundred Dollars ($100.00). The Underwriter's Warrants will be
restricted from sale, transfer, assignment or hypothecation for a period of one
(1) year from the Effective Date, except to GunnAllen's Designees. Payment for
the Underwriter's Warrants will be made to the Company by check or checks
payable to its order on the First Closing Date against delivery of the
certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as GunnAllen may request prior to the Closing Date.
(e) The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in any Preliminary Prospectus or in the Prospectus
relating to the Shares proposed to be filed by the Company (insofar as such
information relates to the Underwriter) as heretofore filed and as presently
proposed to be amended constitutes the only information furnished by the
Underwriter to the Company for inclusion therein, and the Underwriter represents
and warrants to the Company that the statements made therein are correct and do
not include any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
3. Public Offering by the Underwriter. The Underwriter agrees to cause
the Shares to be offered to the public initially at the price and under the
terms set forth in the Registration Statement and Prospectus as soon, on or
after the effective date of this Agreement, as the Underwriter deems advisable,
but no more than five (5) full business days after such effective date. The
Underwriter may allow such concessions and discounts upon sales to other dealers
as set forth in the Registration Statement and Prospectus. The Underwriter
agrees to notify the Company in writing when the offering is first made and when
it is completed. After the completion of the initial public offering, the public
offering price, the concessions and the reallowance may be changed by the
Underwriter.
4. Agreements of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement
to become effective as promptly as possible, and will not at any time, whether
before or after the Effective Date, file any amendment or supplement to the
Registration Statement, (i) which shall not have been previously submitted to,
and approved by, the Underwriter or counsel for the Underwriter a reasonable
time prior to the filing thereof, (ii) to which the Underwriter or counsel for
the Underwriter shall have reasonably objected in writing as not being in
compliance with the Act or the Rules and Regulations or (iii) which is not in
compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it shall
have received notice of the effectiveness of the Registration Statement or any
amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, of the time when the Registration Statement or
any post-effective amendment thereto has become effective or any supplement to
the Prospectus has been filed.
(c) The Company will advise the Underwriter promptly of any request
of the Commission for an amendment or supplement to the Registration Statement
or the Prospectus, or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or of any judgment, order, injunction or decree preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or of the
institution of any proceedings for any of such purposes, of which it has
knowledge, and will use its best efforts to prevent the issuance of any stop
order, and, if issued, to obtain as promptly as possible the lifting thereof.
(d) 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 counsel for the
Underwriter, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to counsel for the
Underwriter, and the Company will furnish to the Underwriter copies of such
amendment or supplement as soon as available and in such quantities as the
Underwriter may reasonably request.
(e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the 1934 Act
or the rules and regulations of the Commission promulgated under the 1934 Act,
each as now or hereafter amended or supplemented, and by any order of the
Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Shares and Warrant Shares.
(f) The Company will furnish to the Underwriter, without charge, a
signed copy of the Registration Statement and of any amendment or supplement
thereto which has been filed prior to the date of this Agreement, together with
two (2) copies of each exhibit filed therewith, and five (5) conformed copies of
such Registration Statement and as many amendments thereto (unsigned and
exclusive of exhibits) as the Underwriter may reasonably request. The signed
copies of the Registration Statement so furnished to the Underwriter will
include signed copies of any and all consents and reports of the independent
public auditors as to the financial statements included in the Registration
Statement and Prospectus, and signed copies of any and all consents and
certificates of any other person whose profession gives authority to statements
made by them and who are named in the Registration Statement or Prospectus as
having prepared, certified or reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of each Preliminary Prospectus filed with
the Commission bearing in red ink the statement required by Item 501 of
Regulation S-B of the Rules and Regulations; (ii) on and from time to time after
the Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be such as the Underwriter may reasonably request. The Company has
consented and hereby consents to the use of each Preliminary Prospectus for the
purposes permitted by the Act and the Rules and Regulations. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Shares and the Warrant Shares, for such period as, in the
opinion of counsel for the Underwriter, delivery of the Prospectus is required
to comply with the applicable provisions of the Act and the Rules and
Regulations.
(h) The Company will take such action as may be necessary to qualify
the Shares and the Warrant Shares for offer and sale under the blue sky or
securities laws of such states or other jurisdictions as is required and as the
Underwriter or counsel for the Underwriter may designate (provided that such
states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process) and to continue
such qualifications in effect so long as may be required for the purposes of the
distribution of the Shares and the Warrant Shares. In each state or jurisdiction
where the Company shall qualify the Shares and the Warrant Shares as above
provided, the Company will prepare and file such statements or reports as may be
required by the laws of such state or jurisdiction, and the Underwriter shall,
upon the written request of the Company, supply the Company with all information
known to the Underwriter and required to be included in such statements or
reports.
(i) During the period of two (2) years from the Effective Date, the
Company, at its expense, shall furnish the Underwriter with (i) copies of each
annual report of the Company; (ii) as soon as practicable and in any event not
later than ninety (90) days after the end of the Company's fiscal year, a
financial report of the Company, which will include a balance sheet as of the
end of such fiscal year, a statement of operations, a statement of stockholders'
equity (deficit) and a statement of cash flows covering such fiscal year, such
report being in reasonable detail and audited by independent public auditors;
(iii) for each fiscal quarter of the Company other than the last fiscal quarter
in any fiscal year, as soon as practicable and in any event not later than
forty-five (45) days after the end of each fiscal quarter, a financial report of
the Company, which will include a balance sheet as of the end of such fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E-4 received or filed by the Company from time to time; (v) a copy of each
report or document, including, without limitation, reports on Form 8-K, 10-K (or
10-KSB), 10-Q (or 10-QSB) and exhibits thereto, filed or furnished by the
Company, pursuant to the 1934 Act, to the Commission, any Securities Exchange or
the NASD on the date each such report or document is so filed or furnished; and
(vi) such additional information concerning the business and financial condition
of the Company as the Underwriter may from time to time reasonably request.
(j) For a period of three (3) years from the First Closing Date, the
Company shall continue to retain Xxxxxxxxx & Company, LLC (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent certified public accountants, and shall not change such
accountants without the Underwriter's prior written consent. For a period of
five (5) years from the First Closing Date, the Company shall promptly submit to
the Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.
(k) For a period of five (5) years from the First Closing Date, or
such shorter period as may be consented to by GunnAllen in writing, the Company,
at its expense, shall cause its then independent certified public accountants,
as described in Section 4(j) above, to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q (or 10-QSB) quarterly report (or other equivalent report) and the mailing
of quarterly financial information to stockholders.
(l) 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 (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders in accordance with Section 11 (a) of
the Act an earnings statement of the Company meeting the requirements of Rule
158(a) under the Act covering a period of at least twelve (12) months beginning
after the Effective Date, and advise the Underwriter that such statement has
been so
made available.
(m) The Company will apply the net proceeds ("Proceeds") it realizes
from the sale of the Shares in the manner set forth under the caption "Use of
Proceeds" in the Prospectus. The Company will provide on a monthly basis a
report from its Chief Financial Officer which report shall indicate the use of
the proceeds for such monthly period and the Company's expenses and revenues.
(n) The Company, on the First Closing Date, will sell to GunnAllen
the Underwriter's Warrants according to the terms specified in Section 2(d)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriter's
Warrants.
(o) For the period of three (3) years following the Effective Date,
GunnAllen and its successors will have the right to designate a nominee for
election, at its or their option, as a non-voting advisor to the Board of
Directors of the Company and the Company agrees to use its best efforts to elect
to its Board of Directors and continue in office such nominee as an advisor to
the Board of Directors. Such advisor shall be entitled to the same cash
compensation and reimbursement of expenses as the Company affords its directors
who are not also officers or employees of the Company and to receive all copies
of all notices and other documents distributed to the members of the Company's
Board of Directors (including, but not limited to, any unanimous consents
prepared and advance notices of all proposed Board actions or consents), as if
such advisor were a member of the Company's Board of Directors. The Company
agrees to indemnify and hold such advisor harmless against any and all claims,
actions, awards and judgments arising out of his service and in the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, to include such advisor as an insured under such
policy. In the event the Company does not have a liability insurance policy in
effect on the Effective Date, the Company agrees to use its best efforts to
obtain, as promptly as practicable but in any event not later than thirty (30)
days following the Effective Date, such a policy in an amount not less than
twenty-five (25%) of the gross proceeds of this offering. The rights and
benefits of such indemnification and the benefits of such insurance shall, to
the extent possible, extend to the Underwriters in so far as it may be, or be
alleged to be, responsible for such designee. During such three (3) year period,
the Company will cause its Board of Directors to meet, either in person or
telephonically, at least four (4) times per year.
(p) For a period of three (3) years from the Effective Date, the
Company agrees that it will maintain insurance in full force and effect of the
types and in the amounts which are customary for similarly situated companies,
including but not limited to, personal injury and product liability insurance
and insurance covering all personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.
(q) During the course of the distribution of the Shares, the Company
will not take, directly or indirectly, any action designed to or which might, in
the future, reasonably be expected to cause or result in stabilization or
manipulation of the price of the Shares. During the so-called "quiet period" in
which delivery of a Prospectus is required, if applicable, the Company will not
issue press releases or engage in any other publicity without the Underwriters'
prior written consent.
(r) The Company will use its best efforts, at its cost and expense,
to take all necessary and appropriate action to maintain the listing of the
Shares and the Warrant Shares on the AMEX or if not qualified for AMEX on NASDAQ
and maintain such listing for as long as the Shares and Warrant Shares are so
qualified.
(s) In the event that the Company shall receive notice that its
securities are no longer qualified for listing on AMEX, the Company shall
prepare and file an application for listing in Standard & Poor's Corporation
Records Service (including annual report information) or Xxxxx'x Industrial
Manual and shall use its best efforts to have the Company listed in such manual
and shall maintain such listing for a period of five (5) years from the date on
which the Company's securities are delisted from AMEX.
(t) The Company has filed with the Commission a registration
statement on Form 8-A and will, concurrently with the Effective Date, register
the class of equity securities of which the Shares are a part under Section
12(b) or 12(g) of the 1934 Act. The Company will maintain its registration under
the 1934 Act in effect for a period of five (5) years from the Effective Date.
(u) The Company will at all times, from the First Closing Date until
at least three (3) years from such date, maintain in full force, or cause to be
maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of Xxxxx X.
Xxxxx and Xxxxx X. Xxxxxxxx. Such policy shall be owned by the Company and all
benefits thereunder shall be payable to the Company.
(v) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Shares will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.
(w) For a period of three (3) years from the Effective Date, the
Company will provide to the Underwriter ten (10) days' written notice prior to
any issuance by the Company of any equity securities or securities exchangeable
for or convertible into equity securities of the Company, except for (i) the
Shares issuable pursuant to Section 2 of this Agreement, (ii) the Underwriter's
Warrants and Warrant Shares issuable upon exercise of the Underwriter's
Warrants, (iii) Common Stock issuable upon exercise of currently outstanding
options and warrants or conversion of currently outstanding convertible
securities and (iv) options available for future grant pursuant to any stock
option plan in effect on the Effective Date, limited solely to such number of
options as are available for grant on the Effective Date, and the issuance of
shares of Common Stock upon the exercise of such options. For a period of six
(6) months from the Effective Date, the Underwriter shall have a right of first
refusal with respect to the
underwriting of any private placements or any future public offerings of the
Company's securities.
(x) The Company will not file any Registration Statement relating to
the offer or sale of any of the Company's securities, including any Registration
Statement on Form S-8 (except for a Form S-8 filed with respect to the Company's
1999 Stock Option Plan), during the twenty-four (24) months following the
Effective Date without the Underwriter's prior written consent.
(y) The Company shall retain a transfer agent for the Shares,
reasonably acceptable to the Underwriter, for a period of three (3) years from
the Effective Date, and will not, during such period change its transfer agent
for the Common Stock without the prior written consent of the Underwriter. In
addition, for a period of two (2) years from the Effective Date, the Company, at
its own expense, shall cause such transfer agent to provide to the Underwriter
on a monthly basis copies of the Company's daily stock transfer sheets;
provided, however, that any confidential information relating thereto which is
hereafter provided to the Underwriter pursuant to the terms of this Agreement
shall be kept confidential by it. In addition, for a period of two (2) years
from the Effective Date, the Company, at its own expense, shall cause Depository
Trust Company to provide to the Underwriter as frequently as may be required by
them, copies of a securities position listing with respect to the Common Stock.
(z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or other), business, operations, prospects, income, net
worth or properties, including any loss or damage to the properties of the
Company (whether or not such loss is insured against), which could adversely
affect the condition (financial or other), business, operations, prospects
income, net worth, asstes or properties of the Company and its subsidiaries,
taken as a whole; and (iii) the Company shall not have paid or declared any
dividend or other distribution on its Common Stock or its other securities or
redeemed or repurchased any of its Common Stock or other securities.
(aa) For the period of two (2) years following the Effective Date,
the Company shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Effective Date without obtaining the Underwriter's prior written consent.
The Underwriter shall either approve or disapprove such contemplated redemption
of securities or dividend payment or distribution within five (5) business days
from the date it receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
(ab) The Company will not, for a period of three (3) years from the
Effective Date of the Registration Statement, increase or authorize an increase
in the compensation of its five (5) most highly paid employees greater than
those increases provided for in their
employment agreements with the Company in effect as of the Effective Date and
disclosed in the Registration Statement, without the prior written consent of
the Underwriter.
(ac) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ad) For a period of five (5) years from the First Closing Date,
management of the Company shall provide the Board of Directors, on an annual
basis, with an internal budget for the next fiscal year, which budget must be
approved by the Board of Directors.
(ae) Prior to the Effective Date and for a period of three (3) years
thereafter, the Company shall retain a financial public relations firm
reasonably acceptable to the Underwriter.
(af) Except as set forth under the caption "Use of Proceeds" in the
Prospectus or otherwise consented to in writing by the Underwriter, no proceeds
from the sale of the Shares will be used to pay outstanding loans from officers,
directors or shareholders or to pay any accrued salaries or bonuses to any
current or former employees or consultants or any affiliates thereof or to pay
off any other outstanding debt other than as described in the Prospectus.
(ag) The Company agrees that for so long as the Common Stock is
registered under the Securities Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act") the
Company will hold an annual meeting of stockholders for the election of
directors and will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by applicable rules
under the 1934 Act and shall be included in an annual report pursuant to the
requirements thereof.
(ah) The Company shall provide the Underwriter, at the First Closing
Date and at least annually thereafter, until the earlier of such time as the
Common Stock is listed on the American Stock Exchange or New York Stock Exchange
or quoted on NASDAQ/NMS or five years after the First Closing Date, with a list
setting forth those states in which the Common Stock may be traded in non-issuer
transactions under the blue sky laws of the 50 states. For a period of three (3)
years from the Effective Date, the Company shall not issue any shares of its
Preferred Stock without the prior written approval of the Underwriter. From the
second anniversary of the Effective Date through the fifth anniversary of the
Effective Date, the Company shall not issue any shares of its Preferred Stock
without the unanimous consent of its Board of Directors.
(ai) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities (i) pursuant to Regulation
S, or similar regulation, promulgated under the Act or (ii) at a discount to
market or in a discounted transaction, without the prior written consent of the
Underwriter, other than the issuance of Common Stock upon exercise of options
and warrants outstanding on the First Closing Date and described in the
Prospectus.
(aj) The Company will not, without the prior written consent of the
Underwriter, for a period of three (3) years following the Effective Date,
offer, sell or contract to sell, or otherwise dispose of (or enter into any
transaction which is designed to, or might reasonably be expected to, result in
the disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, or announce the offering of, or file or cause
to be filed a registration statement under the Act to register any shares of
Common Stock or any securities convertible into, or exchangeable for, shares of
Common Stock; provided, however, that the Company may issue and sell Common
Stock pursuant to the 1999 Stock Option Plan as in effect at the Effective Date.
The Company also may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the Effective Date.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the directors, officers, employees and agents of the Underwriter
and each person who controls the Underwriter within the meaning of the Act or
the 1934 Act against any and all losses, claims, damages, expenses or
liabilities (collectively, "Losses") (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorney's fees), to which the Underwriter or
any such person may become subject, under the Act, the 1934 Act or other Federal
or state statute, law or regulation, at common law or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case (i) to the extent
that any such Loss arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information furnished to the Company by the Underwriter specifically for
inclusion therein; (ii) if the Underwriter failed to deliver a Prospectus to the
claimant seeking damages from the Company or (iii) if a material misstatement or
omission was corrected by the Company in an amended or supplemented Prospectus
and the Underwriter failed to deliver such amended or supplemented Prospectus to
the claimant seeking damages from the Company. The information set forth on the
cover page concerning the Underwriter and under the caption "Underwriting" or
otherwise specifically relating to the Underwriter in the Registration Statement
shall be deemed to have been furnished to the Company by the Underwriter for
purposes hereof. This indemnity will be in addition to any liability which the
Company may otherwise have. The Company
also agrees to indemnify and hold harmless the Underwriter, the directors,
officers, employees and agents of the Underwriter and each person who controls
the Underwriter within the meaning of the Act or the 1934 Act against any and
all Losses (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all reasonable attorney's
fees) to which the Underwriter or any such person may become subject, insofar as
such Losses (or actions in respect thereof) arise out of or are based upon any
liability of the Company for or any claim against the Company for services in
the nature of, a finder's fee or similar fee in connection with the transactions
herein contemplated.
(b) The Underwriter agrees that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the Act
or the 1934 Act, against any and all Losses (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorney's fees), joint or several, to which the Company
or any such director, nominee, officer or controlling person may become subject
under the Act, the 1934 Act or other Federal or state statute, law or
regulation, at common law or otherwise, insofar as such Losses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus or
the Prospectus or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for inclusion therein, provided, however, that the obligation of
the Underwriter to indemnify the Company (including any controlling person,
director or officer thereof) shall (i) only relate to any untrue statement or
alleged untrue statement or any omission or alleged omission which applies to
the Underwriter and (ii) be limited in amount to the net proceeds received by
the Company from the Underwriter. The information set forth on the cover page
concerning the Underwriter and under the caption "Underwriting" or otherwise
specifically relating to the Underwriter in the Registration Statement shall be
deemed to have been furnished to the Company by the Underwriter for inclusion
therein. This indemnity will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 5, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than solely pursuant to this Section 5. In case any such action is
brought against any indemnified party, which notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may choose, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof. Subject to the
provisions herein stated 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 5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the consent of
the indemnified party. The indemnified party shall have the right to employ one
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, (ii) the named parties to such
action (including any impleaded parties) include both the indemnified and the
indemnifying party and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall, 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 only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party), or (iii) the
professional competence of the counsel to be employed by the indemnifying party
is not reasonably acceptable to the indemnified party. No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld. The indemnifying party shall not be liable to indemnify the
indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which consent
shall not be unreasonably withheld.
6. Contribution. In order to provide for just and equitable
contribution under in any case in which (i) the Underwriter makes a claim for
indemnification pursuant to Section 5 hereof 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 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 Section 5 provide for indemnification in such
case, or (ii) contribution may be required on the part of the Underwriter, then
the Company and the Underwriter shall contribute to the aggregate Losses to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) in either such case (after contribution from others) in such
proportions such that the Underwriter shall be responsible in the aggregate for
that portion of such Losses determined by multiplying the total amount of such
Losses by the difference between the public offering price of the Shares and the
purchase price of the Shares to the Underwriter and dividing the product by the
public offering price of the Shares, and the Company shall be responsible for
that portion of such Losses determined by multiplying the total amount of such
Losses by the purchase price of the Shares to the Underwriter and dividing the
product thereof by the public offering price of the Shares. 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 is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. As used in
this Section 6, the
term "Underwriter" includes any person who controls the Underwriter within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this Section 6 is not permitted by law, then the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the fullest extent permitted by law. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this Section 6,
notify such party or parties from whom contribution may be sought, but the
omission so to 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 6, or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
7. Survival of Agreements etc. All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Shares. The provisions of Sections
5, 6, 10, 11 and 15 shall survive the termination or cancellation of this
Agreement.
8. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder will be subject (as of the date of this Agreement and as
of the Closing Dates) to the accuracy of and compliance in all material respects
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company or its officers made pursuant
hereto, to the performance in all material respects by the Company of its
obligation hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 a.m., New York City time, on the day following this Agreement, or at
such later time or on such later date as shall be consented to in writing by the
Underwriter; prior to the First Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or be pending or, to the
knowledge of the Company or the Underwriter, contemplated or threatened by the
Commission; and any request by the Commission for additional information to be
included in the Registration Statement or the Prospectus or otherwise shall have
been complied with to the satisfaction of counsel for the Underwriter, and
qualification under the securities laws of such states as the Underwriter may
designate of the issue and sale of the Shares upon the terms and conditions
herein set forth or contemplated and containing no provision unacceptable to the
Underwriter shall have been secured; and no stop order shall be in effect
denying or suspending effectiveness of such qualifications, nor shall any stop
order proceedings with respect thereto be instituted or pending or threatened
under such laws. 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 First Closing Date the Company shall have provided
evidence satisfactory to the Underwriter 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.
(b) No amendment to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriter, 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 misleading.
(d) The Underwriter shall have received from Xxxxxxxxx & Company,
LLC, two signed certificates or letters, one dated and delivered on the
Effective Date and one dated and delivered on the First Closing Date, in form
and substance satisfactory to the Underwriters, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of the Registration Statement is
required insofar as it relates to them;
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted auditing
standards), including a reading of the latest available unaudited interim
financial statements or other financial information of the Company (with an
indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders, the Board of Directors and any committees of the Board of
Directors of the Company, as set forth in the minute books of the Company, and
other specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to believe
that:
(A) during the period from the date of the latest
financial statements of the Company appearing in the Registration Statement and
Prospectus to a specified date not more than three (3) business days prior to
the date of such letter, there has been any decreases in net
current assets or net assets, change in the Common Stock or other securities of
the Company (except as specifically disclosed in such certificates or letters),
any decreases in shareholders equity or working capital or any increases in net
current liabilities, net liabilities or long-term debt, in each case as compared
with amounts shown in such financial statements; and any decrease in revenues or
in the total or per share amounts of income before extraordinary items or net
income or loss, or any other material change in each case as compared with the
corresponding period in the preceding year or any change in the capitalization
or long term debt of the Company, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will or may occur.
(B) the unaudited interim financial statements of the
Company, if any, appearing in the Registration Statement and the Prospectus, do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
(e) At the time this Agreement is executed and at the First Closing
Date, the Underwriters shall have received from Xxxxxxx Xxxxx Xxxxxxx Xxxxx &
Xxxxxx LLP counsel for the Company ("Company Counsel"), a signed opinion dated
as of the date hereof and the First Closing Date, as the case may be, reasonably
satisfactory to the Underwriter's Counsel, in the form and substance of Exhibit
B annexed hereto.
(f) The Underwriter shall have received a certificate, dated and
delivered as of the date of the First Closing Date, of the Chief Executive
Officer and President of the Company stating that:
(i) The Company and such officers have complied with all the
agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not
contain any untrue statement of a material fact, and since the Effective Date
there has occurred no event required to be set forth in the amended or
supplemented Prospectus which has not been set forth.
(iv) As of the date of such certificate, the representations and
warranties contained in Section 1 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and certifying as to the matters referred to in
Sections 8(g) and (h).
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent (other than in the ordinary
course of business), or entered into any material transactions and there has not
been any change in the Common Stock or funded debt of the Company or any
material adverse change in the condition (financial or other), business,
operations, income, net worth, properties or prospects of the Company and its
Subsidiaries, taken as a whole, except for such changes as are contemplated by,
or disclosed in the Prospectus.
(vi) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company shall
have not sustained any material loss of or damage to its properties, whether or
not insured, and since such respective dates, no dividends or distributions
whatever shall have been declared or paid, or both, on or with respect to any
security (except interest in respect of loans) of the Company.
(vii) Neither the Company nor any of its officers or affiliates
shall have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Shares.
(viii) No action, suit or proceeding, at law or in equity, which
may (A) result in the imposition of damages or penalties against, or payments
by, the Company in excess of $25,000 or (B) adversely affect the operation of
the Company's business shall be pending or, to the knowledge of such officers,
threatened against the Company, or affecting any of its properties, before or by
any commission, board or other administrative agency, except as otherwise set
forth in the Registration Statement.
(ix) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company shall not
have lost any significant customers or been advised that it may lose any such
significant customers.
(x) The Company is the sole owner of all intellectual property
and proprietary set forth in the Prospectus.
(g) On the First Closing Date, the Company shall not be a party to,
or be involved in, any arbitration, litigation (except as set forth in the
Registration Statement) or governmental
proceeding, which is then pending, or, to the knowledge of the Company,
threatened, of a character which might materially and adversely affect the
Company or be required to be disclosed in the Registration Statement.
(h) Subsequent to the respective date as of which information is
given in the Registration Statement and the Prospectus, the Company shall not
have sustained any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter materially adversely affects the business of the Company.
(i) All of the certificates representing the Shares shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.
(j) The Underwriter shall have received the Lock-Up Agreements
referred to in paragraph (x) of Section 1 hereof.
(k) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed, in all material respects, all its obligations due to be
performed prior thereto; (ii) the Registration Statement and the Prospectus and
any amendment or supplement thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations and conform in all material respects to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall 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 not misleading; (iii) there shall have been, since the
date as of which information is given, no material adverse change in the
condition, business, operations, properties, business prospects, securities,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement or the Prospectus, except changes which the
Registration Statement and the Prospectus indicate will occur after the
Effective Date and prior to such Closing Date, and the Company shall not have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit
or proceeding, at law or in equity, shall be pending or threatened against the
Company which might be required to be set forth in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding might materially
adversely affect the condition, business, operations, properties, prospects or
general affairs of the Company.
(l) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(m) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date or the Option Closing Date, as the case may be, for any member firm of the
NASD to execute transactions (as principal or as agent)
in the Shares, and no proceedings for the purpose of taking such action shall
have been instituted or shall be pending, or, to the best of each of the
Underwriter's or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date hereof, and shall
represent as of the Closing Date or Option Closing Date, as the case may be,
that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(n) The Company meets the current criteria for inclusion of the
Shares on AMEX.
(o) All proceedings taken at or prior to the First Closing Date or
the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in this Section 8 hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.
(p) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the Underwriter to purchase and pay for the Option Shares
will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Underwriters or the
Company, shall be contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter.
(ii) At the Option Closing Date there shall have been delivered
to the Underwriters the signed opinion of Company Counsel, in form and substance
reasonably satisfactory to counsel for the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinions furnished to the
Underwriter by Company Counsel at the date hereof and at First Closing Date
pursuant to Section 8 (e).
(iii) At the Option Closing Date there shall have been delivered
to the Underwriter a certificate of the Chief Executive Officer and the
Secretary of the Company dated the Option Closing Date, in form and substance
satisfactory to counsel for the Underwriter, substantially the same in scope and
substance as the certificates furnished to the Underwriter at the First Closing
Date pursuant to Section 8 (f).
(iv) At the Option Closing Date there shall have been delivered
to the Underwriter a certificate or letter in form and substance satisfactory to
the Underwriter from Xxxxxxxxx & Company, LLC dated the Option Closing Date and
addressed to the Underwriter, confirming the
information in its certificate or letter referred to in Section 8(d) hereof and
stating that nothing has come to their attention during the period from the
ending date of their review referred to in said certificate or letter to a date
not more than three (3) business days prior to the Option Closing Date which
would require any change in said certificate or letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and transfer of the Option Shares shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
counsel for the Underwriter, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(q) The Company shall have issued the Underwriter's Warrants.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.
Any certificate signed by an officer of the Company delivered to the Underwriter
or to counsel for the Underwriter, will be deemed a representation and warranty
by the Company to the Underwriter as to the statements made therein.
If any of the conditions specified in this Section 8 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and counsel for the Underwriter, this Agreement
and all obligations of the Underwriter hereunder may be canceled at, or at any
time prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Company in writing or by telephone or facsimile confirmed
in writing.
9. Effective Date. This Agreement will become effective no later than
10:00 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this Agreement will
become effective at such later time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company or by
release of any of the Shares for sale to the public or by any other action
constituting a commencement of the public offering. For the purposes of this
Section 9, the Shares will be deemed to be so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by the Underwriter of telegrams offering the Shares for sale to
securities dealers, whichever may occur first. The term "business day" shall
mean a calendar day other than a Saturday, Sunday or holiday. Notwithstanding
anything herein to the contrary, the provisions of this Section 9 and of
Sections 5, 6, 10, 11 and 15 hereof will, however, be effective upon the
execution of this Agreement.
10. Termination. This Agreement may be terminated by GunnAllen, in its
absolute discretion, by notice to the Company (a) at any time before this
Agreement becomes effective in accordance with Section 9 hereof; or (b) if,
prior to the First Closing Date or the Option Closing Date, as the case may be,
(i) the Company shall have failed or refused to fully comply with any of the
provisions of this Agreement on its part to be performed prior thereto, (ii) any
of the agreements, conditions, covenants, representations or warranties of the
Company herein contained are not correct or shall not have been performed or
fulfilled within the times specified; (iii) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange will have been
suspended; (iv) limited or minimum prices will have been established on either
such exchange or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD; (v) a banking moratorium
will have been declared either by federal or New York State authorities; (vi)
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, will be
established by either of such Exchanges, by the Commission by any other federal
or state agency, by action of the Congress or by Executive Order; (vii) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity; (viii) any action has been taken by
the Government of the United States or any department or agency thereof which,
in the sole judgment of the Underwriter, has had a material adverse effect upon
the general market for securities; (ix) there shall have occurred the outbreak
of any war or any other event or calamity which, in the sole judgment of the
Underwriter, materially disrupts the financial markets of the United States; (x)
the general market for securities or political, legal or financial conditions
should deteriorate so materially from that in effect on the date of this
Agreement that, in the sole judgment of the Underwriter, it becomes
impracticable for the Underwriter to commence or proceed with the public
offering of the Shares and with the payment for or acceptance thereof; (xi) if
trading of any securities of the Company shall have been suspended, halted or
delisted on any exchange or in any over-the- counter market or by the
Commission; or (xii) any materially adverse change shall have occurred in the
sole judgment of the Underwriter, since the date as of which information is
given in the Registration Statement and the Prospectus, in the financial
condition, business, prospects, operations, properties or obligations of the
Company. Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Sections 5, 6, 7, 10, 11
and 15 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Expenses.
(a) Whether or not the offering is consummated, the Company will pay
all costs and expenses incident to the performance of the obligations of the
Company hereunder, including without limiting the generality of the foregoing,
(i) the preparation, printing, filing with the Commission, and copying of the
Registration Statement, each Preliminary Prospectus, Prospectus, this Agreement,
the Selected Dealer Agreement, and other underwriting documents, if any, and any
drafts, amendments or supplements thereto, including the cost of all copies
thereof supplied to the Underwriter in such quantities as reasonably requested
by the Underwriters and the costs of mailing Prospectuses to offerees and
purchasers of the Shares; (ii) the printing, engraving, issuance and delivery of
certificates representing the Shares, including any transfer or other taxes
payable thereon; (iii) the fees, expenses and other costs related to the
registration or qualification of the Shares under state securities or "blue sky"
laws, in accordance
with the provisions of Section 11(c) below; (iv) fees, costs and disbursements
of Underwriter's Counsel in connection with the review and analysis of certain
blue sky matters related to prior issuances by the Company; (v) the cost of
printing and mailing the "blue sky survey" and any registration or qualification
of the Securities for offer and sale under the securities or blue sky laws of
the several states (including filing fees and fees and expenses of counsel for
the Underwriter relating to such registration and qualification); (vi) all
reasonable fees and expenses of the Company's counsel and accountants; (vii) all
NASD filing fees in connection with the offering; (viii) all costs and expenses
of any listing of the Shares on AMEX or, if not qualified for listing on AMEX,
on NASDAQ or any other stock exchange or in Standard and Poor's Corporation
Reports or any other securities manuals; (ix) all costs and expenses of five (5)
bound volumes provided to the Underwriter of all documents, paper exhibits,
correspondence and records forming the materials included in the offering; (x)
the cost of "tombstone" advertisements to be placed in one or more daily or
weekly periodicals as the Underwriter may request (up to a maximum of $10,000);
(xi) all expenses (up to a maximum of $5,000) incurred in connection with
presentation of a "due diligence" meeting in Saddle Brook, New Jersey; (xii) the
cost of printing and mailing the Selected Dealer Agreement and (xiii) all other
costs and expenses incident to the performance of the Company's obligations
hereunder which are not otherwise specifically provided for in this Section
11(a). The obligations of the Company under this subsection (a) shall survive
any termination or cancellation of this Agreement.
(b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to GunnAllen a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds of the offering,
including in such amount the proceeds from the exercise of the Underwriter's
over-allotment option. The non-accountable expense allowance due shall be paid
at the First Closing Date and any Option Closing Date, as applicable. GunnAllen
hereby acknowledges prior receipt from the Company of Thirty Five Thousand
Dollars ($35,000), which amount shall be applied to the non-accountable expense
allowance due when, and if, the offering is closed. If the sale of the
Securities provided for herein is not consummated because GunnAllen elects to
terminate this Agreement in accordance with Section 10 hereof, then the Company
shall reimburse GunnAllen in full for its actual out-of-pocket expenses incurred
in connection with the proposed purchase and sale of the Securities (including,
without limitation, the fees and disbursements of its counsel) inclusive of the
Thirty Five Thousand Dollars ($35,000) previously paid on account.
Notwithstanding the foregoing, in the event the offering is terminated,
GunnAllen will not be entitled to retain or receive more than an amount equal to
its actual accountable out-of-pocket expenses.
(c) The Underwriter shall determine in which states or jurisdictions
the Shares shall be registered or qualified for sale. Immediately prior to the
Effective Date, counsel for the Company shall advise the Underwriters in writing
of all states in which the offering has been registered or qualified for sale or
has been canceled, withdrawn or denied and the number of Shares registered or
qualified for sale in each such state. The Company shall be responsible for the
cost of state registration or qualification, including the filing fees (which
filing fees are payable to Underwriter's Counsel in advance of such filings) and
the legal fees and disbursements of Underwriter's Counsel in connection with
obtaining such registration or qualification.
12. Notices. Any notice hereunder shall be in writing, unless otherwise
expressly
provided herein, and if to the respective persons indicated, will be sufficient
if mailed by certified mail, return receipt requested, postage prepaid, or hand
delivered, and confirmed in writing or by telecopier, addressed as respectively
indicated or to such other address as will be indicated by a written notice
similarly given, to the following persons:
(a) If to the Underwriter - addressed to GunnAllen Financial Inc.,
0000 Xxxxxxxxx Xxxx. Xxxxx 000, Xxxxx, Xxxxxxx 00000, Attn: Xxxxxx Xxxxx, with a
copy to XxXxxxxxx, Will & Xxxxx, 000 00xx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000,
Attention: Xxxxxx X. Xxxxxxxx, Esq.
(b) If to the Company - addressed to Integcom Corp., 000 Xxxxxxx
Xxxxxx, Xxxxxx Xxxxx, Xxx Xxxxxx 00000, Attention: Xxxxx X. Xxxxx, President,
with a copy to Xxxxxxx Xxxxx Xxxxxxx Xxxxx & Lerach LLP, Xxx Xxxxxxxxxxxx Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx Xxxxxxxx, Esq.
Notice shall be deemed delivered upon receipt.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriters and any person or persons who control the Underwriter within the
meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the Shares from the Underwriter
will be deemed a successor or assign solely because of such purchase.
14. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and warrants to the Underwriter
that it has not paid any compensation for services as a finder in connection
with any prior financing of the Company during the twelve-month period
immediately preceding the date hereof and that no person is entitled, directly
or indirectly, to compensation for services as a finder in connection with the
proposed transactions. The Company further represents and warrants that other
than as set forth below in subsection (c), no person holds a right of first
refusal or similar right in connection with the proposed offering, and the
Company hereby agrees to indemnify and hold harmless the Underwriter, its
officers, directors, agents and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder or alleged holder of a right of first refusal or similar right
in connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of the
Company.
(b) The Underwriter hereby represents and warrants to the Company
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions contemplated by this
Agreement; and the Underwriter hereby agrees to indemnify and hold harmless the
Company, its officers, directors and agents, from and against any loss,
liability, claim, damage or expense whatsoever arising out of a claim by an
alleged finder in connection with the proposed offering, insofar as such loss,
liability, claim, damage or expense arises out of any action or alleged action
of the Underwriter.
15. Applicable Law. This Agreement shall be a deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said state applicable to contracts made
and to be performed entirely within such State. The Company (i) agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement
shall be instituted exclusively in New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York, (ii) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (iii) irrevocably consents
to the jurisdiction of the New York State Supreme Court, County of New York and
the United States District Court for the Southern District of New York in any
such suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
16. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
17. Counterparts. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
18. Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
19. Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders and the singular shall include the plural, and vice versa.
If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the spaces provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
among us.
Very truly yours,
DIVERSIFIED SECURITY SOLUTIONS, INC.
By:
Name: Xxxxx X. Xxxxx
Title: President
Confirmed and accepted on the
day and year first above written.
GUNNALLEN FINANCIAL, INC.
By:
Name: Xxxxxx Xxxxx
Title: Executive Vice President
EXHIBIT A
LOCK-UP LETTER
FOR DIVERSIFIED SECURITY SOLUTIONS, INC.
DIRECTORS, OFFICERS AND STOCKHOLDERS
[Date]
GunnAllen Financial, Inc.
0000 Xxxxx Xxxxxxxxx Xxxx.
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Dear Sirs:
The undersigned understands that GunnAllen Financial, Inc. (the
"Underwriter"), propose to enter into an Underwriting Agreement with Diversified
Security Solutions, Inc., a Delaware corporation (the "Company"), providing for
the public offering (the "Public Offering") of common stock, par value $0.01 per
share (the "Common Stock") of the Company.
To induce the Underwriter to continue its efforts in connection with
the Public Offering, the undersigned, during the period commencing on the date
hereof and ending 365 days after the date of the final prospectus relating to
the Public Offering:
(i) agrees not to (x) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder or otherwise transfer or
dispose of, directly or indirectly, any shares of capital stock of the Company
or any securities convertible into or exercisable or exchangeable for any shares
of capital stock of the Company or (y) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any shares of capital stock of the Company, or publicly announce an
intention to effect any such transaction (regardless of whether any of the
transactions described in clause (x) or (y) is to be settled by the delivery of
Common Stock, or such other securities, in cash or otherwise), without the prior
written consent of GunnAllen Financial, Inc.;
(ii) agrees not to make any demand for, exercise any right, or file (or
participate in the filing of) a registration statement with respect to the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, without the prior written consent
of GunnAllen Financial, Inc.; and
(iii) authorizes the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any shares of Common Stock and any
securities convertible into or exercisable or exchangeable for Common Stock for
which the undersigned is the record holder and, in the case of any such shares
or securities for which the undersigned is the beneficial but not the record
holder, agrees to cause the record holder to cause the transfer agent to decline
to transfer and/or to note stop transfer restrictions on such books and records
with respect to such shares or securities.
The undersigned hereby represents and warrants that all of the shares
of capital stock held by such person are listed on the attached Annex 1 and that
the undersigned has full power and authority to enter into the agreements set
forth herein, and that, upon request, the undersigned will execute any
additional documents necessary or desirable in connection with the enforcement
hereof. All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors, and assigns of the undersigned.
Very truly yours,
----------------------------------------
(Name - Please Type)
(Address)
(Social Security or Taxpayer Identification No.)
Annex 1
Number (and type) of shares of capital stock owned:
-----------------------------
Certificate Numbers:
-----------------------------
-----------------------------
EXHIBIT B
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with full power
and authority, corporate and other, and with all Permits necessary to own or
lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement and Prospectus. The Company is qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualifications is necessary and failure to so qualify could have a material
adverse effect on the financial condition, results of operation, business or
properties of the Company. The Company's subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority, corporate and other, and with all
Permits necessary to own or lease, as the case may be, and operate their
properties, whether tangible or intangible, and to conduct their business as
described in the Registration Statement and Prospectus. The Company's
subsidiaries are qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualifications is necessary and
failure to so qualify could have a material adverse effect on the financial
condition, results of operation, business or properties of the Company.
(ii) The Company has full power and authority, corporate and other,
to execute, deliver and perform the Underwriting Agreement and the Underwriter's
Warrant Agreement and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Underwriting Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions therein contemplated and the compliance by the Company with
the terms of the Underwriting Agreement and the Underwriter's Warrant Agreement
have been duly authorized by all necessary corporate action, and the
Underwriting Agreement has been duly executed and delivered by the Company. The
Underwriting Agreement is and, when executed and delivered by the Company on the
Closing Date, the Underwriter's Warrant Agreement will be, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable remedies
and except that enforceability of the indemnification and contribution
provisions set forth in the Underwriting Agreement and the Underwriter's Warrant
Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(iii) The execution, delivery and performance of the Underwriting
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement and the
Underwriter's Warrant Agreement do not, and will not, with or without the giving
of notice or the lapse of time, or both, (A) result in a violation of the
Certificate of Incorporation or By-Laws, each as amended, of the Company, (B)
result in a breach of or conflict with any terms or provisions of, or constitute
a default under, or result in the modification or termination of, or result in
the creation or imposition of any lien, security interest, charge or encumbrance
upon any of the
properties or assets of the Company pursuant to any indenture, mortgage, note,
contract, commitment or other material agreement or instrument to which the
Company is a party or by which the Company, or any of the Company's properties
or assets are or may be bound or affected; (C) violate any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, or self regulatory organization, including, without
limitation, the NASD, NYSE and AMEX, having jurisdiction over the Company or any
of the Company's properties or business; or (D) have any effect on any Permit
necessary for the Company to own or lease, as the case may be, and operate its
properties or conduct its businesses or the ability of the Company to make use
thereof.
(iv) No Permits of any court or governmental agency or body (other
than under the Act, the Regulations and applicable state securities or Blue Sky
laws) are required for the valid authorization, issuance, sale and delivery of
the Shares or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by the Agreement or
the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective under the Act;
no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act or applicable state securities
laws.
(vi) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its effective or
issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
13 of Form SB-2 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, or self regulatory organization, including, without limitation, the
NASD, NYSE and AMEX, having jurisdiction over the Company or any of its assets
or businesses, including, without limitation, those promulgated by the
Commission and comparable state and local regulatory authorities.
(viii) The outstanding Common Stock and outstanding options and
warrants to purchase Common Stock have been duly authorized and validly issued.
The outstanding Common Stock are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Stock constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. None of
the outstanding Common Stock or options or warrants to purchase Common Stock has
been issued in violation of the preemptive rights of any stockholder of the
Company. None of the holders of the outstanding Common Stock is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Stock and outstanding options and warrants to purchase
Common Stock were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Stock and outstanding options and warrants
to purchase Common Stock conform to the descriptions thereof contained in the
Registration Statement and Prospectus. Except as set forth in the Prospectus, no
holders of any of the Company's securities has any rights, "demand", "piggyback"
or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly authorized
and, when the Shares have been issued and duly delivered against payment
therefor as contemplated by the Underwriting Agreement, the Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. The
Shares are not subject to preemptive rights of any stockholder of the Company.
The certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Warrant Shares issuable upon
exercise of the Underwriter's Warrants have been duly authorized and, when such
Warrant Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Warrant Shares will be
validly issued, fully paid and nonassessable. Holders of Warrant Shares issuable
upon exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Warrant Shares issuable upon exercise thereof will be subject
to preemptive rights of any stockholder of the Company. The Company has reserved
a sufficient number of Common Stock from its authorized, but unissued Common
Stock for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Firm Shares to the Underwriter against
payment therefor as provided in the Underwriting Agreement, the Underwriters
(assuming it is a bona fide purchaser within the meaning of the Uniform
Commercial Code) will acquire good title to the Firm Shares, free and clear of
all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the over-allotment
option to purchase any of the Optional Shares and makes payment therefor in
accordance with the terms of the Underwriting Agreement, upon delivery of the
Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against the
Company, or involving the Company's properties or businesses, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material.
(xiv) The Company owns or possesses adequate and enforceable rights
to use all patents, patent applications, trademarks, service marks, copyrights,
rights, trade secrets, confidential information, processes and formulations used
or proposed to be used in the conduct of its business as described in the
Prospectus (collectively the "Intangibles"); to the best of Company Counsel's
knowledge, the Company has not infringed nor is infringing with the rights of
others with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, the Company has not received any notice that it has or may have
infringed, is infringing upon or is conflicting with the asserted rights of
others with respect to the Intangibles which might, singly or in the aggregate,
materially adversely affect its business, results of operations or financial
condition and such counsel is not aware of any licenses with respect to the
Intangibles which are required to be obtained by the Company other than those
licenses which the Company has obtained. The opinions described in this Section
6(b)(xiv) may be given by Company Counsel in reliance on the opinion of an
attorney, reasonably acceptable to Underwriter's Counsel, practicing in the
patent area.
Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each counsel giving an opinion must give the opinion set
forth in this paragraph as to such subject matter of its opinion.
