EXHIBIT 1.1
REDLINE PERFORMANCE PRODUCTS, INC.
UNDERWRITING AGREEMENT
2,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
Minneapolis, Minnesota
________ __, 2003
GunnAllen Financial, Inc.
0000 Xxxxxxxxx Xxxx.
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Dear Sirs:
Redline Performance Products, Inc., a Minnesota corporation
(the "Company"), proposes to issue and sell to GunnAllen Financial, Inc.
("GunnAllen" or the "Underwriter") pursuant to this Underwriting Agreement (the
"Agreement"), Two Million (2,000,000) shares of common stock of the Company, par
value $.01 per share (such class of stock being referred to herein as the
"Common Stock"), and to grant to the Underwriter the option referred to in
Section 2(c) hereof to purchase all or any part of an additional Three Hundred
Thousand (300,000) shares of Common Stock or such other number as may be
permitted thereunder, for the purpose of covering over-allotments, if requested
by the Underwriter in accordance with Section 2(c) hereof. It is understood that
the Underwriter proposes to offer the "Shares" (as hereinafter defined) 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,
(a) the term "Firm Shares" shall mean the Two Million (2,000,000) shares of
Common Stock to be issued and sold to the Underwriter at the "First Closing
Date" (as defined in Section 2(b) below); (b) the term "Option Shares" shall
mean any of the additional Three Hundred Thousand (300,000) shares of Common
Stock as are purchased pursuant to the option referred to in Section 2(c)
hereof; and (c) the term "Shares" shall mean the Firm Shares and the Option
Shares collectively. The Company also proposes, pursuant to Section 2(h) hereof,
to issue and sell to the Underwriter, for its own account and the accounts of
its designees (limited to the "Underwriter's Designees" as hereinafter defined)
for an aggregate price of One Hundred Dollars ($100.00), warrants (the
"Underwriter's Warrants") to purchase up to an aggregate of Two Hundred Thousand
(200,000) shares of Common Stock (the "Warrant Shares") at a per share price of
165% of the per share initial offering price of the Shares set forth in the
"Registration Statement" and "Prospectus" (as hereinafter defined), which
purchase shall be consummated in accordance with the terms and conditions of the
form of underwriter's warrant agreement substantially in the form of Exhibit 4.2
to the Registration Statement ("Underwriter's Warrant Agreement").
1
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, the Underwriter that as of the date first above
written:
(a) A Registration Statement on Form SB-2 (File No.
333-102529), relating to the offering of the Shares, 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 of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act (the
"Rules and Regulations"), 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 Shares under the Act
including the related preliminary prospectus or preliminary prospectuses (each
being hereinafter referred to as a "Preliminary Prospectus" as further defined
below), each of which has been furnished to the Underwriter. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(a)(7) of Regulation
S-B. The Company has prepared and proposes to file on or prior to the Effective
Date (as defined below) of the Registration Statement an additional amendment
thereto which will include the final "Prospectus" (as defined below). The
Company will not, until the option described in Section 2(c) has been fully
exercised or terminated, 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 if 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 at the Effective
Date as provided by Rule 430A. The term "Effective Date" shall mean the date and
time that the Registration Statement becomes 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 Shares 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 Shares 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 Shares 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.
2
(b) Neither the Commission nor, to the Knowledge of
the Company (as hereinafter defined), 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 Knowledge of the
Company, threatened to institute any proceedings with respect to such an order.
When representations or warranties in this Agreement are qualified to the
"Knowledge of Company," they are given by the Company only to the extent of and
qualified in all respects by (i) the facts known to any of the executive
officers and directors of the Company listed in the Registration Statement or
the Prospectus as a result of their participation in the Business (as defined in
Section 1(d) below), and (ii) facts that an executive officer listed in the
Registration Statement or Prospectus would reasonably be expected to discover or
otherwise become aware of in the course of fulfilling his duties and
participating in the Business, prior to the date such representations or
warranties are made.
(c) The Registration Statement, as of the Effective
Date, the Prospectus (and any amendments or supplements thereto) when it is
filed with the Commission, and both documents as of the First Closing Date and
any Option Closing Date referred to below, contain or will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and conform or will conform in all material
respects to the applicable 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, contain or will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein, or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, except that the
representations and warranties in this Section 1(c) do not apply to statements
or omissions in the Registration Statement, Preliminary Prospectus or Prospectus
made in reliance upon and in conformity with information furnished herein or in
writing to the Company by or on behalf of the Underwriter for inclusion in the
Registration Statement, Preliminary Prospectus or the Prospectus.
(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 Minnesota, and has
full corporate power and authority to (i) 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 the Registration Statement and
Prospectus (the "Business") and (ii) 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 states 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 be reasonably
expected to have a material adverse effect upon the condition (financial or
otherwise), results of operations, income, shareholders' equity, net worth,
business, assets or properties of the Company, taken as a whole (a "Material
Adverse Effect"). 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 and is in compliance with
all laws and regulations and all orders and decrees applicable to it or to such
business, except where the failure to hold such licenses, certificates or
permits or comply with such laws, regulations, orders or decrees would not be
reasonably expected to have a Material
3
Adverse Effect, 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.
(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, present fairly the financial position
of the Company as of the respective dates thereof and the results of operations
and changes in financial position of the Company for the respective periods
indicated therein and comply in all material respects as to form with the
applicable accounting requirements of the Act and the Rules and Regulations.
Such financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, consistently applied
throughout the periods involved, except as otherwise stated in the Registration
Statement or the Prospectus. The selected financial data set forth in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been presented on a basis consistent with that of the audited
and unaudited financial statements included in the Registration Statement and
the Prospectus.
(f) The accounting firm of Virchow, Xxxxxx & Company,
LLP, who have expressed their opinions with respect to 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 filed with the Commission as a part
thereof, and except as described or contemplated in the Registration Statement
or the Prospectus, (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) 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; (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; and (v) no event has occurred, which would be reasonably expected to
result in a Material Adverse Effect.
(h) This Agreement and the Underwriter's Warrant
Agreement have been duly and validly authorized by the Company and (assuming the
due authorization and delivery thereof by the Underwriter), when duly executed
and delivered by the Company, 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, and except to the extent that rights to indemnity
hereunder may be limited by Federal and state securities laws. The Company is
not presently in violation of
4
or in default under this Agreement or 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, (i) result in a breach of or constitute
default under any of the terms, conditions or provisions of the articles of
incorporation or bylaws 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, the result of any of the foregoing in this subsection 1(h)(ii) of
which would be a Material Adverse Effect; (iii) violate any existing law, order,
rule, regulation, or, to the Knowledge of the Company, any writ, injunction or
decree of any government, governmental agency, or court 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 except where such effect on any Permit would
not actually or reasonably be expected to result in a Material Adverse Effect.
(i) No Permits of any government or governmental
agency, 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. ("AMEX") are required (i) for
the valid authorization, issuance, sale and delivery of the Firm Shares and the
Option 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 (i) there is neither pending nor, to the Knowledge of the
Company, 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
executive officers or directors named in the Registration Statement or
Prospectus is a party or involving the Company's properties or businesses before
or by any court, arbitration tribunal or governmental agency, or body, which, if
determined adversely to the Company, would individually or in the aggregate
result in a Material Adverse Effect or which question the validity of the
capital stock of the Company or seek to prevent consummation of the transactions
contemplated hereby; (ii) nor are there any such actions, suits or proceedings
pending or, to the Knowledge of the Company, threatened, 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 threatened, which would be reasonably expected
to result in a Material Adverse Effect.
(k) There is no contract or other document which is
of a character 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 is not so described or
5
filed as required and each contract or document which has been described in the
Registration Statement and Prospectus has been described accurately in all
material respects 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, has 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 reasonably necessary for the conduct of its Business, 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, (ii) as described in the
Registration Statement and Prospectus, or (iii) which will terminate after the
First Closing upon the Company's payment of obligations as described in the
Registration Statement or 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 except (x) where the invalidity
or unenforceability of any of such leases, subleases or license would not have a
Material Adverse Effect or (y) as described in the Registration Statement and
Prospectus, all rentals, royalties or other payments accruing thereunder which
became due prior to the date of this Agreement have been duly paid and neither
the Company nor, to the Knowledge of the Company, 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 against 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. Except as set forth in the Registration Statement and
the Prospectus, 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 reasonably necessary to its operations as now conducted and as proposed to
be conducted as set forth in the Registration Statement and Prospectus.
(m) The Company has filed with the appropriate
federal, state and local governmental agencies, all tax returns, including
franchise tax returns, which are required to be filed by it or has duly obtained
extensions of time for the filing thereof and has paid all taxes required to
paid by it as shown on such returns and all other assessments against it to the
extent that the same have become due. 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, to the Knowledge of the Company, 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 insurance covering all personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily
6
insured against. The Company maintains insurance in amounts as are usually
maintained by companies of similar size engaged in the same or similar
businesses located in their geographic area other than with respect to personal
injury and product liability insurance. 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 of its
existing insurance policies which would relieve any insurer of its obligation to
satisfy in full any existing valid claim of the Company under such policy or
bond. The Company has arranged for personal injury and product liability
insurance which shall become effective on the First Closing Date.
(o) Except as disclosed in the Registration Statement
or the Prospectus, the Company owns or otherwise possesses adequate, enforceable
and unrestricted rights to intellectual property that is used or proposed to be
used in the conduct of its Business as described in the Registration Statement
and Prospectus, including all patents, patent rights, inventions, trademarks,
service marks, trade names and copyrights, 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,
proprietary information and the like, reasonably necessary for the conduct of
its Business (collectively, the "Intangibles"). Except as otherwise described in
the Registration Statement or the Prospectus, (i) the Company is the beneficial
and record owner of all right, title and interest in, to and under the
Intangibles, free and clear of all liens, security interests, charges,
encumbrances or other adverse claims and has the right to use the Intangibles
without payment to a third party licensor, except those which will terminate
after the First Closing upon the Company's payment of obligations as described
in the Registration Statement or Prospectus; (ii) to the Knowledge of the
Company, the Company has not infringed nor is it infringing upon the
intellectual property rights of others, and the Company has not received any
notice that it has or may have infringed or is infringing upon the intellectual
property rights of others; (iii) there is no pending or, to the Knowledge of the
Company, 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; (iv) there is no pending or, to the Knowledge of the Company,
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 or right-to-use opinion
from its intellectual property counsel; (v) to the Knowledge of the Company, no
others have infringed upon the Intangibles of the Company and 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, that interferes with the issued or pending claims of any such
Intangibles, or prevents the Company from conducting its business or otherwise
as described in the Registration Statement or Prospectus; and (vi) the Company
is not obligated to make any payment by way of royalties, fees or otherwise to
any owner or licensee of, or other claimant to, intellectual property rights not
owned or controlled by the Company 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 in all
material respects.
7
(p) Neither the Company nor any of its executive
officers or directors 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 executive officer or director of the Company,
or to the Knowledge of the Company, 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 executive 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 or manipulation of the price of any security issued by the
Company or other violation of Regulation M promulgated under the Securities Act
of 1934, as amended (the "1934 Act") or otherwise, to facilitate the sale or
resale of the Shares.
(r) There are no existing agreements, arrangements,
or transactions, between or among the Company and any executive 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 material respects.
(t) No labor problem exists with any of the Company's
employees or to the Knowledge of the Company, is imminent, nor is the Company
aware of any bankruptcy, labor disturbance or other event affecting any of its
principal suppliers or customers, which would reasonably be expected to result
in a Material Adverse Effect.
(u) The Company had at the date or dates indicated in
the Registration Statement and Prospectus a duly authorized and outstanding
securities as set forth in the Registration Statement and the Prospectus. Except
as described or contemplated in the Registration Statement or the Prospectus,
the Company will have on the Closing Date the adjusted securities set forth
therein. Except as set forth or contemplated 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 Company's 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 to have such securities registered under the Act.
(v) The Shares and the other securities of the
Company conform in all material respects to all statements in relation thereto
in the Registration Statement and Prospectus; the outstanding shares of Common
Stock described in the Prospectus have been duly authorized and validly issued
and are fully paid and non-assessable; the outstanding options and warrants to
purchase Common Stock have been duly authorized and validly issued; none of such
outstanding shares of Common Stock or warrants or options to purchase Common
Stock were issued in
8
violation of the pre-emptive rights of any stockholder of the Company; and the
Shares will not be subject to 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 or contemplated
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
non-assessable.
(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, including,
without limitation, delivery against payment therefor, shall constitute the
valid and binding obligations of the Company. The issuance and sale of the
Warrant Shares has 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 non-assessable, and will
conform to the description thereof contained in the Registration Statement and
Prospectus. On the basis of the Company's current articles of incorporation,
bylaws and any existing agreements with its security 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 365 days from the Effective
Date hereof (the "Lock-Up Period") neither the Company nor any of its officers,
directors or unless waived in writing by the Underwriters, its 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, each such stockholder, to the extent
permitted by law, may sell his securities in a private transaction during the
Initial 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 Letter Agreement. The Company will deliver to
GunnAllen the undertakings as of the date hereof of its officers, directors and
stockholders to this effect in the form of a "Lock-Up Letter Agreement", which
Lock-Up Letter Agreement will be substantially in the form and substance of
Exhibit A annexed hereto.
(z) Neither the Company nor any executive officer,
director or, to the Knowledge of the Company, any other agent of the Company
has, acting on behalf of the Company for the purpose of advancing the Company's
interests, 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
9
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 Shares 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.
(bb) Except as described in the Registration
Statement or Prospectus, 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.
(cc) The employment, consulting, confidentiality and
non-competition agreements between the Company and its executive 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 state statute or common law, 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.
(dd) The Company does not have any employee benefit
plans (including, without limitation, profit sharing and welfare benefit plans)
or deferred compensation arrangements that are subject to the minimum funding
requirements or other provisions of the Employee Retirement Income Security Act
of 1974 or such regulations promulgated thereunder and published interpretations
thereof.
(ee) After the First Closing Date there will be 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.
(ff) The Company has filed a registration statement
on Form 8-A with respect to its Common Stock under Section 12(b) of 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 AMEX and such listing application has been accepted by and the Shares have
been approved for listing on AMEX, subject to official notice of issuance.
10
(gg) The Company is in material 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 Knowledge of the
Company, 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, to the Knowledge
of the Company, is imminent.
(hh) The Company has provided or made available 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, including in such counsel's Due Diligence
Memorandum dated October 30, 2002 and all supplements thereto except those items
for which Underwriter's counsel has waived such requirement in writing.
(ii) Any certificate signed by an executive 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.
(jj) To the Knowledge of the Company, the Company is
and has been doing business in compliance with all 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
Permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would be reasonably expected to result in a
Material Adverse Effect.
(kk) 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 accounting principles
generally accepted in the United States 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.
(ll) Except as set forth in the Registration
Statement and the Prospectus, 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
11
its Business ("Environmental Laws"), (B) has received and is in compliance with
all Permits, 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 or
liability as described in clauses (A) through (C) above, respectively, would not
be reasonably expected, individually or in the aggregate, to have a Material
Adverse Effect. 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 the Firm Shares from the Company at a purchase
price of $_.__ per share (net of underwriting discounts). On the "First Closing
Date" (defined below in Section 2(b)), 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, at
the Underwriter's option, payable to the order of the Company.
(b) 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."
(c) 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 over-allotments 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 Option Shares from the Company. The purchase
price to be paid per share for the Option 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 (but not more than once) by notice from GunnAllen to the
Company in accordance with Section 2(d) hereof solely by the Underwriter as to
all or any part of the Option Shares at any time within forty-five (45) days
after the Effective Date. GunnAllen will not be under any obligation to purchase
any Option Shares prior to the exercise by GunnAllen of such option in
accordance with Section 2(d) hereof.
(d) The option granted pursuant to Section 2(c) may
be exercised by GunnAllen giving oral notice to an executive officer of the
Company, which must be promptly confirmed by a letter or facsimile setting forth
the number of Option Shares to be purchased, the
12
date and time for delivery of and payment for the Option Shares to be purchased
and stating that the Option 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(c) hereof, GunnAllen will become obligated to purchase, the number of
Option Shares specified in such notice.
(e) Payment for any Option 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, at GunnAllen's
option, against delivery of the Option Shares purchased to GunnAllen at the
offices of GunnAllen (or at such other location as GunnAllen and the Company may
agree).
(f) The obligation of GunnAllen to purchase and pay
for any of the Option 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
executive 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(c), and to the delivery to GunnAllen of
opinions, certificates and letters dated the Option Closing Date substantially
similar in scope to those specified in Sections 8(d), (e), (f) and (g) hereof,
but with each reference to "Firm Shares" and "First Closing Date" to be changed,
respectively, to the "Option Shares" and the "Option Closing Date."
(g) 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, Registrar and Transfer Company, in Cranford, New Jersey, 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.
(h) On the First Closing Date, the Company will issue
and sell the Underwriter's Warrants (in the form of, and in accordance with the
provision of the Underwriter's Warrant Agreement substantially in the form filed
as Exhibit 4.2 to the Registration Statement) to
13
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") pursuant to the Underwriter's Warrant
Agreement that shall be executed and delivered by the Company and GunnAllen. 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 4.2 to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is One Hundred Dollars ($100.00). The Underwriter's
Warrants will be restricted from sale, transfer, assignment or hypothecation
pursuant to Corporate Financing Rule 2710 (currently 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 in accordance with the terms and
conditions of the Underwriter's Warrant Agreement. The certificates representing
the Underwriter's Warrants will be in such denominations and such names as
GunnAllen may request prior to the First Closing Date.
(i) 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 four (4) 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 First Closing Date, 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) If the Registration Statement has not been
declared effective prior to the time of execution of this Agreement, 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 within 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.
14
(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, and 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
Shares is required to be delivered under the Act by GunnAllen or a dealer, 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.
(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.
15
(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, 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 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 reasonably may be required for the purposes of the distribution of the
Shares.
(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 accounting principles generally accepted in the United States 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; (v) monthly shareholder lists prepared by the Company's
transfer agent; (vi) weekly reports prepared by DTC; and (vii) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request.
16
(j) For a period of two (2) years from the First Closing Date, the
Company shall continue to retain Virchow, Xxxxxx & Company, LLP (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, which consent shall
not be unreasonably withheld. For a period of two (2) 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) [Reserved.]
(l) [Reserved.]
(m) The Company will apply the net proceeds ("Proceeds") it realizes
from the sale of the Shares substantially in the manner set forth under the
caption "Use of Proceeds" in the Prospectus. For a period of two (2) years from
the Effective Date, the Company will provide on a quarterly basis a report from
its Chief Financial Officer (or other individual functioning in that capacity)
which report shall indicate the use of the proceeds for such quarterly 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(h) 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 two (2) years following the Effective Date,
GunnAllen and its successors will have the right to designate one representative
to attend each meeting of the Board of Directors of the Company and each meeting
of any committee thereof and to participate, as a non-voting observer, in all
discussions of each such meeting. Such observer shall not be an employee or
affiliate of the Underwriter and shall be entitled to one half of the same cash
compensation and full reimbursement of expenses as the Company affords its
directors who are not also executive 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 observer were a member of the Company's Board of
Directors. The Company agrees to indemnify and hold such observer harmless
against any and all claims, actions, awards, damages and judgments arising out
of the acts or omissions of the Underwriter's observer which acts or omissions
occur during the period such person serves as the Underwriter's observer, except
when such right to indemnification would not be permitted under Minnesota law
for directors or when such claims, actions, awards, damages and judgments result
from the observer's willful misconduct or violation of law. In the event the
Company maintains a liability insurance policy affording coverage for the acts
of its executive officers and directors, the Company agrees to include such
observer as an insured under such policy or under a policy affording the same or
substantially similar protection. 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
17
policy in an amount not less than $2,500,000. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the extent
possible, extend to the Underwriter in so far as it may be, or be alleged to be,
responsible for such observer. During the period in which the Underwriter may
appoint an observer pursuant to this paragraph, the Company will cause its Board
of Directors to meet, either in person or telephonically, at least four (4)
times per year.
Prior to an observer described above participating in meetings of the
Company's Board of Directors or committees, the Company and such observer shall
enter into an agreement, in a format reasonably acceptable to the Company and
the Underwriter, which shall provide that: (i) the Company agrees to indemnify
and hold such observer harmless, in accordance with the foregoing indemnity
provision; (ii) to include such observer as an insured under its liability
insurance policy as described in the foregoing paragraph; (iii) any confidential
information obtained by the observer in such capacity shall be maintained
thereafter as confidential and shall not be copied, disclosed or used by the
observer without the prior written consent of an executive officer of the
Company; and (iv) during the period such person serves as an observer to the
Company's Board of Directors, he or she shall be subject to the same obligations
and restrictions as the independent directors of the Company are subject with
respect to direct or indirect engagement in any business which competes or,
based on the Company's business plans, will compete with the Company in the near
future; provided further, that the foregoing confidentiality requirements shall
continue to apply following any period of service as an observer for as long as
any confidential information to which such requirements applies shall be treated
as confidential by the Company.
(p) For a period of two (2) years from the Effective Date, or, with
respect to personal injury and product liability insurance, from the First
Closing 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 Underwriter's
prior written consent.
(r) During the two (2) year period following the Effective Date, the
Company will use its reasonable best efforts, at its cost and expense, to take
all necessary and appropriate action to maintain the listing of the Shares on
AMEX (or other exchange or stock market described in Section 18(b)(1)(A) of the
Act) and maintain such listing for as long as the Shares are so qualified.
(s) [Reserved.]
18
(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 two (2) years from the Effective Date.
(u) The Company will at all times, from the First Closing Date until at
least two (2) 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 lives of the
Company's executive officers, provided that such insurance on Xxxx X. Xxxxx
shall be required to be in place not later than sixty (60) days after the First
Closing Date. Such policies 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 one (1) year 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.
(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, during the twelve (12) 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 two (2) 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 which
consent will not be unreasonably withheld. 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. In addition, for a period of two (2)
years from the Effective Date, the Company, at its own expense, shall cause DTC
to provide to the Underwriter, on a weekly basis, copies of a securities
position listing with respect to the Common Stock.
19
(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 material 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
would be reasonably expected to result in a Material Adverse Effect; 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) Except as disclosed in or contemplated by the Registration
Statement or Prospectus, 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.
(bb) The Company will 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 accounting principles generally accepted
in the United States 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.
(cc) For a period of two (2) years from the First Closing Date or such
time as the Company has filed a quarterly report reflecting a net profit for the
quarter before interest, taxes, depreciation and amortization, whichever is
earlier, 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.
(dd) Prior to the Effective Date and for a period of two (2) years
thereafter, the Company shall retain a financial public relations firm
reasonably acceptable to the Underwriter.
(ee) Except as set forth in or contemplated by the Registration
Statement or 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
20
shareholders or to pay any accrued salaries or accrued 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.
(ff) For a period of two (2) years from the First Closing Date, 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.
(gg) [Reserved.]
(hh) For a period of two (2) years from the Effective Date or until the
Company commences an offering as described in Section 4(ll) below, 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, which consent shall not be unreasonably withheld, other than the
issuance of Common Stock upon exercise of options, warrants or convertible
securities outstanding on the First Closing Date and described or contemplated
in the Prospectus.
(ii) The Company will not, for a period of two (2) years from the
Effective Date of the Registration Statement or the Company achieves significant
revenues, whichever is the first to occur, increase or authorize an increase in
the compensation of its three (3) 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.
(jj) With respect to any securities underlying any option issued by the
Company or to be issued by the Company pursuant to any equity incentive plan,
the Company agrees to require the holder of such option to comply with the
transfer restrictions with respect to any securities issued upon the exercise of
any such option in accordance with the terms of the Lock-Up Letter Agreement set
forth in Exhibit A attached hereto.
(ll) Each obligation of the Company and each right of the Underwriter
set forth in this Section 4 that is not otherwise mandated by applicable Rules
and Regulations or other laws (collectively "Section 4 Provisions") shall
terminate upon the earlier of (i) the commencement of a private offering of
securities for not less than $10 million or a public offering of securities for
not less than $15 million (consistent with the timing restrictions set forth in
Section 4(x) above), in either case conducted pursuant to a letter of intent or
other agreement with an underwriter, investment bank or placement agent and
subject to the prior written consent of the Underwriter as set forth in the
following paragraph; provided, however, that if (A) such private offering has
not been successfully completed within nine months of the execution by the
Company and an underwriter, investment bank or placement agent, as the case
21
may be, of such letter of intent or other agreement or (B) such public offering
has not been successfully completed within twelve months of the execution of
such letter of intent, the foregoing Section 4 Provisions will be reinstated and
will continue to apply until no longer required under the terms of each Section
4 Provision above or in this paragraph; provided further, that in the event the
completion of a private or public offering is delayed beyond the time periods
described above, such Section 4 Provisions shall continue from those time
periods only until such delay is cured and such offering has recommenced or been
completed; or (ii) upon the completion of such offering described in clause (i)
above.
Notwithstanding anything to the contrary in the preceding paragraph,
however, no Section 4 Provisions, other than Section 4(hh), shall terminate
under this Section 4(ll) after the commencement but before the completion of an
offering described in the preceding paragraph without the prior written consent
of the Underwriter, which consent (X) shall not be unreasonably withheld; and
(Y) required only one time unless the Section 4 Provisions shall be reinstated
for failure to complete an offering described herein, in which case said consent
to terminate these Section 4 Provisions and rights shall be required again prior
to recommencing said offering.
5. Indemnity and Contribution by the Company and the Underwriter.
(a) The Company shall indemnify, defend and hold harmless the
Underwriter and each person who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the 1934 Act, from and against any loss,
expense, liability, damage or claim (including the reasonable cost of
investigation) which the Underwriter or any such controlling person may incur
under the Act, the 1934 Act or otherwise, but only insofar as such loss,
expense, liability, damage or claim arises out of or is based upon (i) any
failure on the part of the Company to comply with any applicable law, rule or
any regulation relating to the offering of securities being made pursuant to the
Prospectus, (ii) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or in the Registration Statement
as amended by any post-effective amendment thereof by the Company), the
Prospectus (the term Prospectus for the purpose of this Section 5 being deemed
to include any Preliminary Prospectus, the Prospectus and any Prospectus
supplements, in each case as amended or supplemented by the Company), or (iii)
any omission or alleged omission to state a material fact required to be stated
in any such Registration Statement or Prospectus or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case, to the extent that (a) any such loss, expense, liability, damage
or claim arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in and in
conformity with information furnished in writing by the Underwriter to the
Company expressly for use in such Registration Statement or such Prospectus as
specified in the last sentence of Section 5(b) hereof; or (b) any such loss,
expense, liability, damage or claim which arises out of or is based upon any
failure by the Underwriter to deliver a copy of the Prospectus if copies of the
Prospectus were timely delivered to the Underwriter and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of the
Underwriter, if required by law so to have been delivered, at or prior to the
time specified under the Act.
22
(b) The Underwriter agrees to indemnify, defend and hold harmless the
Company, the Company's directors, the officers that signed the Registration
Statement and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the 1934 Act from and against any loss, expense,
liability, damage or claim (including the reasonable cost of investigation)
which, jointly or severally, the Company or any such person may incur under the
Act, the 1934 Act or otherwise, but only insofar as such loss, expense,
liability, damage or claim arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in and in
conformity with information furnished in writing by the Underwriter to the
Company expressly for use in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof by the Company) or
the Prospectus, as specified in the last sentence of this Section 5(b), or (ii)
any failure on the part of the Underwriter to comply with any applicable law,
rule or regulation, (iii) any omission or alleged omission to state a material
fact in connection with such information required to be stated in such
Registration Statement or the Prospectus or necessary to make such information,
in the light of the circumstances under which made, not misleading, or (iv) any
failure by the Underwriter to deliver a copy of the Prospectus if copies of the
Prospectus were timely delivered to the Underwriter and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of the
Underwriter, if required by law so to have been delivered, at or prior to the
time specified under the Act. The Company and the Underwriter acknowledge that
the statements set forth on the cover page of the Prospectus regarding delivery
of the Shares and the statements under the caption "Underwriting" in the
Prospectus (to the extent such statements relate to the Underwriter) constitute
the only information furnished by or on behalf of the Underwriter to the Company
for purposes of this Section 5.
(c) Promptly after receipt by an indemnified party under subsection,
(a) or (b) above of notice of any claims or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify in writing each party against
whom indemnification is to be sought of the claim or the commencement thereof
(but the failure so to notify an indemnifying party shall not relieve the
indemnifying party from any liability which it may have under this Section 5 to
the extent that it is not materially prejudiced as a result thereof and in any
event shall not relieve it from any liability that such indemnifying party may
have otherwise than on account of the indemnity agreement hereunder). In case
any such claim or action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, an indemnifying
party may participate in the defense of such action at its own expense, and to
the extent it may elect, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, the
indemnifying party may assume the defense thereof with counsel satisfactory to
such indemnified party; provided, however, that counsel to the indemnifying
party shall not (except with the written consent of the indemnified party) also
be counsel to the indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after
23
notice of commencement of the action, (iii) the indemnifying party does not
diligently defend the action after assumption of the defense, or (iv) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the fees and expenses of one counsel selected by all of the indemnified parties
to represent them all (in addition to one local counsel selected by all of the
indemnified parties to represent them all in each applicable jurisdiction) shall
be borne by the indemnifying parties. No indemnifying party shall, without the
prior written consent of the indemnified parties, which consent shall not be
unreasonably withheld, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever in respect of which indemnification or contribution could have
been sought under this Section 5 (whether or not the indemnified parties are
actual or potential parties thereto), unless (x) such settlement, compromise or
consent (I) includes an unconditional release of the indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(II) does not include a statement as to, or an admission of, fault, culpability
or a failure to act, by or on behalf of the indemnified party and (y) the
indemnifying party reaffirms its indemnification obligations pursuant to this
Agreement. For purposes of this Section 5(c), it shall be deemed unreasonable
for an indemnified party to withhold consent to settlement if the conditions in
subsections 5(c)(x) and (5)(c)(y) are satisfied.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 5 in respect of any losses, expenses, liabilities, damages or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, expenses,
liabilities, damages or claims (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriter on the other hand from the offering of the Shares or (ii) if (but
only if) the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Underwriter on the other with respect to
the statements or omissions which resulted in such losses, expenses,
liabilities, damages or claims, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriter on the other shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company from the
Shares sold under this Agreement, on the one hand and the total underwriting
discounts and commissions received by the Underwriter with respect to the Shares
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the Shares under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
of the Company on the one hand and of the Underwriter on the other shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
relates to information supplied by the Company or by the Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or
24
omission. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any claim or action.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in Section 5(d)(i) and, if
applicable Section 5(d)(ii), above. Notwithstanding the provisions of this
Section 5, the Underwriter shall not be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by the Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
indemnification or contribution from any person who was not guilty of such
fraudulent misrepresentation.
6. Confidentiality. The Underwriter agrees that all information (other
than as described below in subsections (i) through (iii)) disclosed by the
Company to the Underwriter, or to the Underwriter's observer in the course of
fulfilling its obligations under Section 4 of the Agreement, shall be
confidential information and shall be treated by the Underwriter as such. The
Underwriter agrees to maintain the confidential nature of such confidential
information and to prevent its unauthorized copy, disclosure or dissemination,
and agrees not to use the confidential information for any purpose other than to
be informed about the Company's operations. Confidential information shall not,
however, include information which: (i) is now or subsequently becomes generally
known by persons other than any of the Company's directors, employees or
representatives bound by confidentiality or non-disclosure agreements or
obligations, or becomes available by publication, commercial use or otherwise,
through no fault of the Underwriter or Underwriter's observer; (ii) is lawfully
obtained by the Underwriter from a third party without violation of any
confidentiality obligation; or (iii) the Company agrees in writing (such
agreement not to be unreasonably withheld) may be disclosed by the Underwriter.
All confidential information shall remain the property of the Company and no
license or other rights in the confidential information are granted by this
Underwriting Agreement. The Underwriter agrees to return all confidential
information to the Company after expiration of the Underwriter's right to
receive confidential information under this Underwriting Agreement and upon the
Company's request. The Underwriter acknowledges that unauthorized disclosure or
use of confidential information could cause irreparable harm and significant
injury which may be difficult to ascertain. Accordingly, the Underwriter agrees
that the Company shall have the right to seek and obtain immediate injunctive
relief from breaches of this Section 6, in addition to any other rights and
remedies the Company may have.
7. Survival of Agreements etc. 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, 10, 11 and 15
shall survive the termination or cancellation of this Agreement.
25
8. Conditions of Underwriter's Obligations. The several obligations of
the Underwriter to purchase and pay for the Firm Shares and the Option Shares,
as provided herein, will be subject to the following conditions:
(a) (i) The Registration Statement shall have become effective
not later than 10:00 a.m., New York City time, on the day following execution of
this Agreement, or at such later time or on such later date as shall be
consented to in writing by GunnAllen; provided, if the Company shall have
elected to rely upon Rule 430A of the Rules and Regulations, (A) the
Registration Statement shall have been filed with the Commission in a timely
fashion in accordance with Section 4(a) hereof; (B) a form of the Prospectus
containing information relating to 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 filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period; and
(C) 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; and (ii) prior to the First Closing Date or any Option Closing
Date, no stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereof shall have been issued and no proceeding
for that purpose shall have been initiated or be pending or, to the Knowledge of
the Company (but excluding directors from the definition of Knowledge of the
Company for purposes of this paragraph) or the knowledge of the Underwriter,
threatened by the Commission or under the securities laws of any state.
(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 Virchow, Xxxxxx &
Company, LLP, 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 Underwriter, 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;
(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
26
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; and
(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 accounting principles generally accepted in the United States
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 First Closing Date, the Underwriter shall have
received from Larkin, Hoffman, Xxxx & Xxxxxxxx, Ltd., counsel for the Company
("Company Counsel"), a signed opinion dated as of the First Closing Date,
reasonably satisfactory to the Underwriter's Counsel, in substantially the form
and substance of Exhibit B annexed hereto.
27
(f) At the First Closing Date, the Underwriter shall have
received from Xxxx, Forward, Xxxxxxxx & Scripps LLP, patent and trademark
counsel for the Company ("IP Company Counsel"), a signed opinion dated as the
First Closing Date, reasonably satisfactory to the Underwriter's Counsel, in the
form and substance of Exhibit C annexed hereto.
(g) The Underwriter shall have received a certificate, dated
and delivered as 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 4
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, in
light of the circumstances in which they were made, 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, complete
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(h) and 8(i).
(v) 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 filed with the Commission as a part
thereof, and except as described in or contemplated by the Registration
Statement and the Prospectus, (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) there have not been, and through and
including the First Closing Date, there will not be, any changes in the capital
stock or any material increases in the long-term debt or other securities of the
Company; (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, and (v) no adverse
change in the condition (financial or otherwise), results of operations, income,
shareholders' equity, net worth, business, assets or properties of the Company
has occurred, which would be reasonably expected to result in a Material Adverse
Effect as defined in Section 1(d) of the Underwriting Agreement.
28
(vi) [Intentionally Omitted.]
(vii) No officer or director of the Company, 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 or
manipulation of the price of any security of the Company or other violation of
Regulation M promulgated under the 1934 Act or otherwise to facilitate the sale
or resale of the Shares.
(viii) Except as described in the Registration
Statement and the Prospectus, no action, suit or proceeding, at law or in equity
shall be pending or, to the knowledge of such officers, threatened in writing
against the Company before or by any commission, board or other administrative
agency, which may (A) result in the imposition of damages or penalties against,
or payments by, the Company in excess of $25,000 or (B) would be reasonably
expected to result in a Material Adverse Effect.
(ix) Except as otherwise set forth in the
Registration Statement and Prospectus, the Company is the sole owner of all
intellectual property and proprietary information as described in the
Registration Statement and Prospectus.
(x) To the knowledge of the officers, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not been advised by any regulatory
authority that its products may not be used for the purposes described in the
Registration Statement and Prospectus nor has the Company been advised by any
potentially significant customer that it will not utilize the Company's products
as described in the Registration Statement and Prospectus.
(h) 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
result in a Materially Adverse Effect or be required to be disclosed in the
Registration Statement.
(i) Subsequent to the respective dates 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 reasonable judgment of the
Underwriter would be reasonably expected to result in a Material Adverse Effect.
(j) All of the certificates representing the Shares shall have
been tendered for delivery in accordance with the terms and provisions of this
Agreement.
(k) The Underwriter shall have received the Lock-Up Letter
Agreements referred to in paragraph (y) of Section 1 hereof or waived such
requirement in writing.
29
(l) On the Effective Date, the First Closing Date and each
Option Closing Date, as the case may be, (i) the representations and warranties
of the Company contained in this Agreement shall be (A) true, complete and
correct, with the same effect and subject to the same materiality qualifiers as
may be set forth therein as if made on and as of each of the Effective Date, the
First Closing Date and each Option Closing Date; (ii) the Company shall have
complied in all material respects with all agreements of the Company herein,
provided, however, that notwithstanding the foregoing Materiality Qualifier,
such compliance shall be unqualified to the extent that any said agreement is
already subject to a Materiality Qualifier in accordance with its terms; (iii)
the Company shall have performed in all material respects all of its obligations
due to be performed prior thereto, provided, however, that notwithstanding the
foregoing Materiality Qualifier, such performance shall be unqualified to the
extent that any said obligation is already subject to a Materiality Qualifier in
accordance with its terms; (iv) the Registration Statement, the final Prospectus
when it is filed with the Commission, and both documents as of the 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 applicable
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, in light of the circumstances in which they were made,
not misleading, except that this condition shall not apply to statements or
omissions in the Registration Statement or Prospectus made in reliance upon and
in conformity with information described in Section 2(i) above and furnished
herein or in writing to the Company by or on behalf of an Underwriter for
inclusion in the Registration Statement or the Prospectus; (v) 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 which
would be reasonably expected to result in a Material Adverse Effect, except as
described in the Registration Statement and the Prospectus, 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 which would be reasonably expected to result in a
Material Adverse Effect; and (vi) except as set forth in the Registration
Statement and Prospectus, no action, suit or proceeding, at law or in equity,
shall be pending or, to the Knowledge of the Company, threatened against the
Company which is required to be set forth in the Registration Statement, and no
proceedings shall be pending or, to the Knowledge of the Company, 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 would be reasonably expected to result in a Material Adverse Effect.
(m) The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(n) 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
30
instituted or shall be pending, or, to the knowledge of the Underwriter or to
the Knowledge of the Company, 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.
(o) The Company meets the criteria for inclusion of the Shares
on AMEX.
(p) 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.
(q) Upon exercise of the option provided for in Section 2(c)
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 Underwriter 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 Underwriter the signed opinions of Company Counsel and IP
Company Counsel, respectively, 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 and IP Company Counsel at the First Closing Date pursuant to Sections
8(e) and 8(f), respectively.
(iii) At the Option Closing Date there shall have
been delivered to the Underwriter a certificate of the Chief Executive Officer
and the President 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(g).
(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 Virchow, Xxxxxx & Company, LLP 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
31
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.
(r) The Company shall have issued the Underwriter's Warrants in
accordance with Section 2(h) hereof.
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 executive 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.
9. Effective Date. This Agreement will become effective upon the later
of when (i) GunnAllen and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement.
10. Termination. GunnAllen shall have the right by written notice to
the Company (which may be delivered electronically through email or facsimile)
to terminate this Agreement at any time prior to the First Closing Date or the
obligations of the Underwriter to purchase the Option Shares at any time prior
to the Option Closing Date, as the case may be, if (i) the Company shall have
failed or refused to fully perform or comply with any of the provisions of this
Agreement on its part to be performed and complied with by it prior thereto,
(ii) any of the conditions of Underwriter's obligations as set forth in Section
8 herein shall not have been satisfied; (iii) trading in securities generally on
AMEX will have been suspended; (iv) limited or minimum prices will have been
established on 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 or adversely affecting the distribution of the Firm Shares or the
Option Shares, as the case may be, have been established by AMEX, 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 of
such character as in the reasonable judgment of the Underwriter may interfere
materially with the conduct of the Business and operations of the Company or
make it impracticable to proceed with the offering, sale
32
and delivery of the Firm Shares or the Option Shares, as the case may be, on the
terms contemplated by the Prospectus; (viii) any action has been taken by the
Government of the United States or any department or agency thereof which, in
the reasonable judgment of the Underwriter, has had a material adverse effect
upon the general market for securities and has made it impracticable to proceed
with the offering, sale and delivery of the Firm Shares or the Option Shares, as
the case may be, on the terms set forth in the Prospectus; (ix) there shall have
occurred the outbreak of any war or similar calamity which, in the reasonable
judgment of the Underwriter, materially disrupts the financial markets of the
United States and makes it impracticable to proceed with the offering, sale and
delivery of the Firm Shares or the Option Shares, as the case may be, on the
terms set forth in the Prospectus; (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 reasonable 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 change that would result in a Material
Adverse Effect shall have occurred in the reasonable judgment of the
Underwriter, since the date as of which information is given in the Registration
Statement and the Prospectus. 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, 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 of the Shares is consummated,
the Company will pay all costs and expenses incident to the performance of the
obligations of the Company hereunder (other than legal fees and disbursements of
Underwriter's counsel which are not included in subsections 11(a)(iii),
11(a)(iv) and 11(a)(vi)), 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 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
Underwriter 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 the offering; (v) all reasonable
fees and expenses of the Company's counsel and accountants; (vi) all NASD filing
fees in connection with the offering and all expenses of Underwriter's Counsel
in connection with such NASD filings (up to a maximum of $30,000 in the
aggregate); (vii) all costs and expenses of any listing of the Shares on AMEX or
any other stock exchange and in Standard and Poor's Corporation Reports or any
other securities manuals; (viii) 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; (ix)
the cost of "tombstone"
33
advertisements to be placed in one or more daily or weekly periodicals as the
Underwriter may request (up to a maximum of $15,000); and (x) 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 Thousand Dollars ($30,000), which amount shall be applied to the
non-accountable expense allowance due when, and if, the offering is closed. If
the sale of the Shares 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
Shares (including, without limitation, the fees and disbursements of its
counsel) inclusive of the Thirty Thousand Dollars ($30,000) 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.
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: Xxxxxxx X.
Xxxxx, with a copy (which shall not constitute notice) to XxXxxxxxx, Will &
Xxxxx, 000 00xx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, Attention: Xxxx X.
Xxxxxxxxx, Esq.
(b) If to the Company - addressed to Redline Performance
Products, Inc., 0000 Xxxxxxxxxx Xxx, Xxxxx, Xxxxxxxxxx 00000, Attention: Xxxx X.
Xxxxx, President and Chief Financial Officer, with a copy (which shall not
constitute notice) to Larkin, Hoffman, Xxxx & Xxxxxxxx, Ltd., 0000 Xxxxxx Xxxxxx
Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000, Attention: Xxxxxxx X. Xxxxxx, 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
34
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
Underwriter 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 (b), 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 Florida and for all purposes shall be
governed by and construed in accordance with the laws of the State of Florida
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 Florida Circuit
Court, County of Hillsborough, or in the United States District Court for the
Middle District of Florida, (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 Florida Circuit Court, County of
Hillsborough and the United States District Court for the Middle District of
Florida 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 Florida
Circuit Court, County of Hillsborough and the United States District Court for
the Middle District of Florida, and agrees that service of process upon the
Company mailed by certified
35
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.
36
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,
REDLINE PERFORMANCE PRODUCTS, INC.
By:
---------------------------------------
Name: Xxxx X. Xxxxx
Title: President and Chief Financial
Officer
Confirmed and accepted on the
day and year first above written.
GUNNALLEN FINANCIAL, INC.
By:
-------------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Executive Vice President
37
EXHIBIT A
LOCK-UP LETTER
FOR REDLINE PERFORMANCE PRODUCTS, INC.
DIRECTORS, OFFICERS AND STOCKHOLDERS
[Date]
GunnAllen Financial, Inc.
0000 X. Xxxxxxxxx Xxxxxxxxx., 0xx Xxxxx
Xxxxx, Xxxxxxx 00000
Re: Lock-Up Agreement for Proposed Initial Public Offering by Redline
Performance Products, Inc.
Dear Sirs:
The undersigned, a shareholder, security holder and/or an officer and/or
director of Redline Performance Products, Inc., a Minnesota corporation (the
"Company"), understands that GunnAllen Financial, Inc. ("GunnAllen") proposes to
enter into an Underwriting Agreement (the "Underwriting Agreement") with the
Company providing for the initial public offering (the "IPO") of shares of the
Company's common stock (the "Common Stock").
After consultation, the Company and GunnAllen have agreed that sales by the
officers and directors of the Company within the eighteen (18) month period, and
sales by other security holders and shareholders of the Company within the
twelve (12) month period, after the date of effectiveness of the IPO could have
an adverse effect on the market price for the Common Stock, and that the public
to whom the Common Stock is being offered should be protected for a reasonable
time from the impact of such sales.
In recognition of the benefit that such an offering will confer upon the
undersigned as a security holder, a shareholder, an officer and/or a director of
the Company, and to induce GunnAllen and any other firms that may participate in
the IPO and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees that,
during the period commencing seven (7) days prior to the effective date of the
final prospectus relating to the IPO in which GunnAllen is the underwriter and
ending eighteen (18) months thereafter with respect to officers and directors
and twelve (12) months thereafter with respect to other security holders and
shareholders (the "Restricted Period"), the undersigned will not (and will not
publicly announce an intention to), without the prior written consent of
GunnAllen, directly or indirectly: (i) 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 warranty for the sale of, or otherwise dispose
of or transfer any shares of the Company's Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock (including
stock options, warrants and shares of Series A Preferred Stock) (collectively,
the "Securities"), whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or
38
hereafter acquires the power of disposition, or (ii) file, make a demand for, or
exercise any right to file any registration statement under the Securities Act
of 1933, as amended, with respect to any of the Company's Securities, or (iii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Securities of the Company, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise;
provided, however, that the limitations set forth in (i) through (iii), above,
shall not apply to any (a) bona fide gifts, provided that the donee or donees,
or in the case of a minor donee such minor's legal guardian on such minor's
behalf, agree in writing to be bound by the terms of this restriction, or (b)
transfers to the ancestors, descendants, siblings, children or siblings of
spouse, or if the undersigned is a partnership, limited liability company or
corporation, to the partners, members or stockholders of such partnership,
limited liability company or corporation, as the case may be, in each case,
provided that the transferee or transferees, or in the case of a minor
transferee, such minor's legal guardian on such minor's behalf, agree in writing
to be bound by the terms of this restriction, and further provided that any such
transfer during the Restricted Period is part of a private sale and is not
effected through a broker.
Very truly yours,
Individuals Sign Below: Entities Sign Below:
Signature: Entity Name:
----------------------------- ----------------------
Print Name: Signature:
---------------------------- ------------------------
Title:
----------------------------
Please Mail To:
Redline Performance Products, Inc.
c/o Larkin, Hoffman, Xxxx & Xxxxxxxx, Ltd.
0000 Xxxxx Xxxxx Xxxxx
0000 Xxxxxx Xxx. Xx.
Xxxxxxxxxxx, XX 00000
ATTN: Xx. Xxxx Xxxx Xxxxx
39
EXHIBIT B
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, with full corporate power and
authority to own or lease, as the case may be, and use its properties and to
conduct its business as described in the Prospectus. The Company has been duly
qualified to do business as a foreign corporation and is in good standing as
such in the State of California and in each jurisdiction where the ownership or
leasing of property, or the conduct of its business requires such qualification
except where the failure to so qualify would not have a material adverse effect
on the business, prospects, financial condition or results of operations of the
Company.
2. The Underwriting Agreement, the Warrant Agreement and the Underwriter's
Warrants (collectively the "Underwriting Documents") and the performance of the
Company's obligations thereunder have been duly authorized by all necessary
corporate action and the Underwriting Documents have been duly executed and
delivered by and on behalf of the Company and are valid and binding obligations
of the Company enforceable in accordance with their terms, except as
enforceability of the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and by the exercise of judicial discretion in accordance with general
principles applicable to equitable and similar remedies and public policy and
except as to those provisions relating to indemnities for liabilities arising
under the 1933 Act as to which such counsel need express no opinion.
3. The execution, delivery and performance of the Underwriting Documents by the
Company will not (A) violate the Articles of Incorporation or Bylaws of the
Company; (B) conflict with or constitute a breach of any of the provisions of,
or result in 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 material indenture, mortgage, note, contract or other agreement or
instrument known to such counsel after due inquiry to which the Company is a
party or by which the Company, or any of the Company's properties or assets are
bound; (C) violate any statute, rule or regulation, or to the best of such
counsel's knowledge, order or decree of any court or any regulatory or
governmental body having jurisdiction over the Company or its properties; or (D)
nothing has come to the attention of such counsel that the Company has violated
any Permit necessary for the Company to own or lease, as the case may be, its
properties or conduct its businesses or the ability of the Company to make use
thereof.
4. No approval, authorization or consent of any public board, agency, or
instrumentality of the United States or of any state or other jurisdiction is
necessary in connection with the valid issuance or sale of the Shares or the
Underwriter's Warrants pursuant to the Underwriting Agreement or the Warrant
Agreement (other than approval, authorization or consent under the 1933 Act,
applicable blue sky laws and the rules of the NASD, as to which no opinion need
be given) or the consummation by the Company of the transactions contemplated by
the Underwriting Agreement.
5. Nothing has come to the attention of such counsel that any of the Company's
Permits is
40
not valid or in full force and effect and the Company is in compliance with all
the material terms and conditions thereof and with the material rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto. Nothing has come to the attention of such counsel, that any
event has occurred which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such Permit or results or,
after notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such Permit except for such events which, singly
or in the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company.
6. Nothing has come to the attention of such counsel that the Company has
violated any Environmental Laws, any provisions of ERISA, or any provisions of
the Foreign Corrupt Practices Act of 1977, as amended, or the rules and
regulations promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company.
7. The Registration Statement has become effective under the Act, and 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 or, to
such counsel's knowledge after due inquiry, are threatened or contemplated under
the Act.
8. The Registration Statement and the Prospectus, as of the Closing Date (except
for the financial statements, financial schedules, and other financial and
statistical data included therein or omitted therefrom, as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the 1933 Act and Regulations and the Company satisfies the
conditions for use of a registration statement on Form SB-2.
9. The descriptions in the Registration Statement and the Prospectus of legal
matters, proceedings, statutes, regulations, material contracts and other
documents are accurate in all material respects and present fairly the
information required to be disclosed therein, and to such counsel's knowledge
after due inquiry, there are no legal matters, proceedings, statutes,
regulations or government classifications or 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.
10. The Company is not in violation of its articles of incorporation or bylaws,
each as amended, nor, to such counsel's knowledge after due inquiry, is the
Company in default in the performance of any obligation, agreement, covenant or
condition contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company, to which the Company is
a party or by which the Company or its property is bound, which default would
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company.
11. The shares of capital stock issued and outstanding immediately prior to the
Effective Date as set forth in the Prospectus have been duly authorized and
validly issued, are fully paid and nonassessable and are not subject to any
pre-emptive or similar rights pursuant to the company's
41
articles of incorporation and bylaws or, to such counsel's knowledge after due
inquiry, pursuant to any agreement or other instrument. The outstanding options
and warrants to purchase Common Stock constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as enforceability of the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and by the exercise of judicial discretion in accordance
with general principles applicable to equitable and similar remedies and public
policy and except as to those provisions relating to indemnities for liabilities
arising under the 1933 Act as to which such counsel need express no opinion. The
offers and sales of the outstanding capital stock and outstanding options and
warrants to purchase Common Stock were exempt from the registration requirements
of the 1933 Act and applicable state securities or blue sky laws. The authorized
capital stock and outstanding options and warrants to purchase Common Stock
conform in all material respects as to legal matters to the descriptions thereof
contained in the Registration Statement and the Prospectus. To such counsel's
knowledge after due inquiry and except as set forth in the Prospectus, (i) no
holder of any of the Company's securities has any rights to have such securities
registered under the Act; and (ii) no options, warrants or other rights to
purchase, agreements or other obligations to issue, or right to convert any
obligations into or exchange any securities for, shares of capital stock of or
ownership interests in the Company are outstanding. To such counsel's knowledge
after due inquiry, no holder of any of the Company's securities has any right to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.
12. When the certificates for the Shares have been duly countersigned by the
Company's transfer agent, and issued and duly delivered to the Underwriter
against payment of the agreed consideration therefor in accordance with the
Underwriting Agreement, the Shares will be duly authorized, validly issued,
fully paid and nonassessable and the certificates representing the Shares will
be in proper legal form. There are no preemptive or other rights to subscribe
for or the purchase any Shares pursuant to the Company's articles of
incorporation or bylaws or, to such counsel's knowledge after due inquiry, any
agreement or other instrument.
13. Upon delivery of the Firm Shares to the Underwriter against payment therefor
as provided in the Underwriting Agreement, the Underwriter will acquire good
title to the Firm Shares, free and clear of all liens, encumbrances, equities,
security interests and claims.
14. The issuance and sale of the Underwriter's Warrants and 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 Warrant Agreement, such Warrant Shares will be validly
issued, fully paid and nonassessable. 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 pursuant to the Company's articles of
incorporation or bylaws or, to such counsel's knowledge after due inquiry, any
agreement or other instrument. 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 rendering such opinion, such counsel may state that their opinion is limited
to matters
42
governed by Federal laws of the United States of America and the Minnesota
Business Corporation Act.
The letter which includes the foregoing opinions shall also include a statement
that such counsel has acted as counsel to the Company in connection with the
preparation of the Registration Statement and the Prospectus, has participated
in reviews and discussions with officers and other representatives of the
Company and representatives of the independent public accountants for the
Company in connection with the preparation of the Registration Statement and the
Prospectus, and based on the foregoing and in the course of such reviews and
discussions and such other investigation as such counsel deemed necessary, no
facts have come to the attention of such counsel which leads them to believe
that (A) the Registration Statement (except for the financial statements,
financial schedules and other financial and statistical data included therein or
omitted therefrom, as to which such counsel need express no belief), as of the
Effective Date, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except for the financial
statements, financial schedules and other financial and statistical data
included therein, as to which such counsel need express no belief), as of the
Effective Date, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing statement shall be qualified by a
statement to the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
43
EXHIBIT C
[FORM OF PATENT COUNSEL OPINION]
_______, 2003
GunnAllen Financial, Inc.
0000 Xxxxx Xxxxxxxxx Xxxx.
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Re: Redline Performance Products, Inc.
Gentlemen:
We have acted as patent and trademark counsel to Redline Performance Products,
Inc., a Minnesota corporation (the "Company"), in connection with the patent and
trademark matters described in the Company's Registration Statement (No.
333-102529) on Form SB-2, filed by the Company with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, and as amended, on May
__, 2003 (the "Registration Statement"). We are rendering this opinion to you,
GunnAllen Financial, Inc. ("Underwriter"), pursuant to Section 8(f) of an
Underwriting Agreement dated May __, 2003, between you and the Company relating
to the sale of up to 2,300,000 shares of the common stock of the Company, par
value $0.01 per share (the "Underwriting Agreement").
"Patent" or "Patents" in this opinion letter shall mean the patents or patent
applications listed in Section 1.1(c) or on Schedule 1 to this opinion letter.
"Trademark" or "Trademarks" in this opinion letter shall mean the trademark or
trademark application, listed in Section 1.1(c) or on Schedule 1 to this opinion
letter. "IP Matters" shall mean the Patents and Trademarks, collectively.
1. Factual Examination.
1.1 Company Documents. In preparing this opinion, we have examined
originals or copies identified to us by the Company as being, or otherwise
believed by us to be, true copies of the following documents (collectively, the
"Company Documents"):
(a) the sections of the Registration Statement and the Company's
final Prospectus in the form filed with the SEC on May __, 2003 (the
"Prospectus") entitled, (i) "Prospectus Summary - Redline Performance Products,
Inc. - Our Snowmobiles," (ii) "Risk Factors - Risks Related to Our Company -
'Protecting our intellectual property in our technology through patents may be
costly and ineffective and if we are not able to protect our intellectual
property, we may not be able to compete effectively in our markets, which could
result in lower
44
than expected sales and harm our competitive position' and - 'We may not be able
to build brand loyalty because our trademarks and trade names may not be
protected, which could harm our competitive position and impair our ability to
generate revenues," and (iii) "Business - 'Technology' and - 'Intellectual
Property'," insofar as such sections pertain to the Company's IP Matters
(collectively, the "IP Discussions");
(b) a certificate executed by the Chief Executive Officer and
Vice President of the Company, dated May __, 2003 (the "Officers' Certificate");
(c) the issued Patents (U.S. Patent 6,263,991, and Canadian
Patent 2,300,342), as of the date of this opinion letter, and the registered
Trademarks (U.S. Trademark Registration Numbers: 2,529,633; 2,524,761;
2,408,729; 2,377,974; 2,496,984), as of the date of this opinion letter; and
(d) the original patent and trademark applications filed with
the United States Patent and Trademark Office listed on Schedule 1 to this
opinion letter, and the responses filed with the United States Patent and
Trademark Office listed on Schedule 1 to this opinion letter.
1.2 Scope of Opinion; Certain Assumptions, Qualifications, and
Limitations.
(a) In preparing this opinion, (i) we have examined, and
relied upon, only the Company Documents; (ii) we have not conducted any
independent factual investigation of the title to or validity of any
intellectual property rights described, or referred to, in the Company
Documents; and (iii) we have conducted no search of the SEC records (except for
the Company Documents) or of any patent prior art or prior trademark rights
relevant to any of the IP Matters, nor have we made any evaluations thereof or
any inquiries of any securities holders or any employees of the Company with
respect to any patent prior art or prior trademark rights.
(b) In rendering this opinion, we have assumed without
independent verification and with your permission (i) the conformity to
authentic original documents of all documents submitted to, or reviewed by, us
as copies; (ii) the accuracy, completeness and authenticity of certificates and
files of public agencies and officials that we have reviewed; and (iii) that the
certificates and records of public officials dated as of an earlier date are
still accurate as of the date hereof.
(c) Whenever a statement set forth below in Section 2 is
qualified by the phrase "to our knowledge" or concerning an item "known to us"
or our opinion otherwise refers to our knowledge, it means that with your
specific knowledge and consent: (i) we have conducted no independent
investigation of the matters set forth in connection therewith (including,
without limitation, no search of dockets, court, administrative tribunal or
other records or other matters); (ii) we have not conducted a litigation search,
a validity or patentability search or analysis, a search of United States Patent
and Trademark Office records or records of any foreign patent or trademark
office, or other search or investigation with respect to any pending items of
litigation, infringement or orders or decrees; (iii) with respect to factual
matters we have relied solely upon the Officers' Certificate; and (iv) no
inference as to our knowledge of the existence or absence of facts or other
matters should be drawn from the fact of our representation on any other matter;
45
provided, however, that during and in the course of our representation of the
Company in connection with the IP Matters, no information has come to the
attention of the specific attorneys who rendered legal services in connection
with that representation (namely, Xxxxxxxx Xxxxx and Xxxxx Xxxxxxxx) as of the
date hereof which gives us current actual knowledge to the contrary to the
statement so qualified.
(d) This opinion relates solely to the patent and trademark
laws of the United States of America and the State of California. We express no
opinion with respect to laws becoming effective after the date hereof or the
effect or applicability of the laws of other jurisdictions.
(e) This opinion relates only to matters discussed herein as
of the date hereof, and we express no opinion with respect to any transaction,
transfer, conveyance, obligation or performance occurring after the date hereof.
We disclaim any obligation to advise you of any events occurring or coming to
our attention or any developments in areas covered by this opinion that occur
after the date hereof.
(f) We express no opinion as to: (i) the effect of bankruptcy,
insolvency, reorganization, moratorium, liquidation, receivership, assignment
for the benefit of creditors, fraudulent conveyance or transfer, marshaling and
other laws relating to or affecting the rights and remedies of creditors
generally or relating to equitable principles of general application, including
but not limited to, those matters set forth specifically herein; and (ii) (1)
compliance with or the effect of any (a) securities laws or regulations,
including the effect of federal and state securities laws; (b) income tax,
franchise or other laws, rules or regulations relating to taxation, or (c)
export control, trade regulation or antitrust laws; (2) the accuracy or effect
of any matter of fact or law set forth in the Company Documents, except to the
extent that any such matter is also set forth as part of our opinion below; or
(3) any documents (including exhibits to the Company Documents, except for
exhibits to the documents listed in Section 1.1(d) above) or the effect thereof
other than the Company Documents.
2. Opinion. On the basis of our examination, and in reliance thereon
and on our consideration of such other matters of fact and questions of law we
consider relevant in the circumstances, and subject to the limitations,
exceptions, qualifications, and assumptions set forth herein, we are of the
opinion that:
2.1 To our knowledge, the statements in the IP Discussions, insofar as
such statements and references constitute matters governed under patent and
trademark laws of the United States of America or legal conclusions thereunder,
are accurate and fairly present such matters of law and legal conclusions.
2.2 To our knowledge, the IP Discussions do not contain any untrue
statement of a material fact, or omit to state a material fact, with respect to
the IP Matters.
2.3 To our knowledge, the United States Patents and Trademarks were
properly prepared and filed in accordance with all applicable legal and
procedural requirements, all annuity, maintenance and other necessary fees have
been timely paid and we are not aware of any
46
facts that could form a basis for a successful challenge to the validity or
enforceability of any issued Patent or registered Trademark.
2.4 To our knowledge, the Patents and Trademarks are solely owned by,
or licensed to, the Company.
2.5 To our knowledge, there are no material pending or threatened legal
or governmental proceedings relating to the Patents or Trademarks (other than
the patent and trademark application proceedings themselves) to which the
Company is subject, other than as stated herein.
2.6 To our knowledge, no third parties have asserted any ownership
rights in any of the Patents or Trademarks.
2.7 To our knowledge, the Company has received no notice challenging
the validity or enforceability of any of the Patents or Trademarks.
2.8 To our knowledge, the Company has received no notice of
infringement with respect to any patent or trademark owned by a third party.
This opinion is furnished by us, as of the date hereof, as patent and trademark
counsel to the Company in connection with the Underwriting Agreement and may not
be delivered to, exhibited, quoted, or relied upon by any person other than you,
or for any other purpose without our prior written consent. This opinion is
expressly limited to the matters set forth above, and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company. We assume no obligation to advise you of facts, circumstances, events,
or developments which hereafter may be brought to our attention and which may
alter, affect, or modify the opinions expressed herein.
We hereby consent to the filing of this opinion letter as an Exhibit to the
Registration Statement and to the reference to this firm under the captions
"Legal Matters" and "Experts" in the Prospectus included in the Registration
Statement.
Very truly yours,
Xxxx, Forward, Xxxxxxxx & Scripps LLP
47
