XXXX TECHNOLOGY GROUP LTD.
$5,500,000 PRINCIPAL AMOUNT, 10%
CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES, DUE AUGUST , 2003
UNDERWRITING AGREEMENT
, 1997
Xxxxxx & Associates, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Xxxx Technology Group Ltd., a Delaware corporation (the "Company"), hereby
confirms its agreement with Xxxxxx & Associates, Inc. ("you" or the
"Underwriter"), as follows:
1. DESCRIPTION OF THE SECURITIES.
The Company proposes to issue and sell to the Underwriter $5,500,000
principal amount of 10% convertible senior subordinated debentures, due August
, 2003 (the "Debentures"), of the Company (the Debentures being sometimes
referred to as the "Securities"). The Company proposes to grant to the
Underwriter an option to purchase up to $825,000 additional principal amount of
Debentures (the "Additional Securities"). The Debentures will be offered in
multiples of $1,000 per Debenture. The offering of Securities and Additional
Securities contemplated hereby may sometimes be referred to as the "Offering."
(a) Underwriter's Securities.
The Company will sell to the Underwriter, for nominal consideration,
warrants to purchase up to $550,000 principal amount of Debentures at a
price equal to $1,200 per Debenture (the "Underwriter's Warrants"). The
Underwriter's Warrants and shares of Common Stock underlying the
Underwriter's Warrants are hereinafter referred to collectively as the
"Underwriter's Securities." The Underwriter's Warrants shall be
non-exercisable and non-transferable (other than to officers and partners
of the Underwriter and to members of the selling group and their officers
or partners) for a period of 12 months following the Effective Date.
Thereafter, the Underwriter's Warrants shall be exercisable and
transferable for a period of four years (provided such transfer is in
accordance with the Securities Act and any other applicable securities
laws). If the Underwriter's Warrants are not exercised during their term,
they shall, by their terms, automatically expire. The Underwriter's
Securities shall be registered for sale to the public and shall be included
in the Registration Statement filed in connection with the Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission"), a registration statement, and one or more amendments
thereto, on Form SB-2 (File No. 333-23259), including in each such
registration statement and each such amendment any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the
Securities under the Securities Act of 1933 (the "Act"). The Company will,
if required, file a further amendment to said registration statement in the
form to be delivered to you and will not, before the registration statement
becomes effective, file any other amendment thereto to which you shall have
reasonably objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time such
registration statement becomes effective (including the prospectus,
financial statements, exhibits and all other documents, as amended, filed
as a part thereof), is hereinafter called the "Registration Statement," and
the prospectus, in the form filed with the Commission pursuant to Rule
424(b) of the General Rules and Regulations of the Commission under the Act
(the "Regulations") or, if no such filing is made, the definitive
prospectus used in the Offering, is hereinafter called the "Prospectus."
The Company
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has delivered to you copies of each Preliminary Prospectus as filed with
the Commission and has consented to the use of such copies for purposes
permitted by the Act.
(b) The Commission has not issued any orders preventing or suspending
the use of any Preliminary Prospectus, and, as of the date filed with the
Commission, each Preliminary Prospectus conformed in all material respects
with the requirements of the Act and did not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty does not apply to statements
or omissions made in reliance upon and in conformity with written
information furnished to the Company by or on your behalf for use in such
Preliminary Prospectus and except that this representation and warranty
does not apply to statements or omissions that have been cured in a
subsequent preliminary prospectus or in the Prospectus.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto to and including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and
for such longer periods as a Prospectus is required to be delivered in
connection with the sale of the Securities by the Underwriter, the
Registration Statement and Prospectus, and any amendment thereof or
supplement thereto, will contain all material statements which are required
to be stated therein in accordance with the Act and the Regulations, and
will in all material respects conform to the requirements of the Act and
the Regulations, and 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 under which they were made, not misleading; provided,
however, that this representation and warranty does not apply to statements
or omissions made in reliance upon and in conformity with written
information furnished to the Company by you for use in the Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto.
It is understood that the statements set forth in the Prospectus with
respect to (i) the amounts of the selling concession and reallowance; (ii)
the identity of counsel to the Underwriter under the heading "Legal
Matters"; (iii) information under the heading "Underwriting," including the
information concerning the National Association of Securities Dealers, Inc.
("NASD") affiliation of the Underwriter; and (iv) the stabilization legend
in the Prospectus constitute the only information supplied by you for use
in the Registration Statement or Prospectus.
(d) The Company is, and at the Closing Date and the Option Closing
Date will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Exhibit 22 to the
Registration Statement correctly sets forth the names of each of the
Company's subsidiaries (the "Subsidiaries"). The Subsidiaries are the only
subsidiaries of the Company are, and at the Closing Date and the Option
Closing Date will be, corporations duly organized, validly existing and in
good standing under the laws of the State of New York. Each of the Company
and the Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification,
except those jurisdictions in which the failure to so qualify would not
have a material adverse effect on the business or operations of the Company
and its subsidiaries, taken as a whole ("Material Adverse Effect"). Each of
the Company and the Subsidiaries has all requisite corporate powers and
authority, and all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials
and bodies to own or lease its properties and conduct its business as
described in the Prospectus except where the failure to have any such
authorizations, approvals, orders, licenses, certificates or permits would
not have a Material Adverse Effect, and each of the Company and the
Subsidiaries is doing business and has been doing business during the
period described in the Registration Statement in compliance with all such
material authorizations, approvals, orders, licenses, certificates and
permits and all material federal, state and local laws, rules and
regulations concerning the business in which the Company or the
Subsidiaries is engaged, except where the failure to comply with any such
authorizations, approvals, orders, licenses, certificates or permits or any
such laws, rules or regulations would not have a Material Adverse Effect.
The disclosures in the Registration Statement concerning the effects of
federal, state and local regulation on the Company's and the Subsidiaries'
business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact required to be
stated therein in light of the circumstances under which such disclosures
were made. The Company has all corporate power and authority to enter into
this Agreement and carry out the provisions
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and conditions hereof, and all consents, authorizations, approvals and
orders required in connection therewith have been obtained or will have
been obtained prior to the Closing Date. In the event the Company forms a
subsidiary after the Closing Date but before the Option Closing Date, the
foregoing shall apply to the new subsidiary as appropriately modified.
(e) This Agreement and the Indenture between the Company and
Continental Stock Transfer & Trust Co. (the "Indenture"), have been duly
and validly authorized and executed by the Company. The Securities
(including the shares of common stock, $.01 par value per share (the
"Common Stock"), issuable upon conversion of the Debentures (the "Shares"),
or in payment of interest thereon (the "Interest Shares")), and the
Underwriter's Securities have been duly authorized (and, in the case of the
Shares, have been duly reserved for issuance) and, when issued and paid for
in accordance with this Agreement (and, in the case of such Shares and
Interest Shares, upon issuance), will be validly issued, fully paid and
non-assessable; the Securities, Additional Securities, Shares and Interest
Shares, and Underwriter's Securities are not and will not be subject to the
preemptive rights of any stockholder of the Company and conform and at all
times up to and including their issuance will conform in all material
respects to all statements with regard thereto contained in the
Registration Statement and Prospectus; and all corporate action required to
be taken for the authorization, issuance and sale of the Securities, the
Additional Securities, Shares and Interest Shares and Underwriter's
Securities has been taken, and this Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its
terms, to issue and sell, upon exercise in accordance with the terms
thereof, the number and kind of securities called for thereby, except as
enforceability may be limited by bankruptcy, reorganization, moratorium,
insolvency or other laws affecting the enforceability of creditors' right
generally and rules of law governing specific performance, injunctive
relief and other equitable remedies.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, the Certificate of Incorporation or by-laws, in each case as
amended, of the Company or of any evidence of indebtedness, lease, contract
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries
or any of their respective properties is bound, or under any applicable
law, rule, regulation, judgment, order or decree of any government,
administrative agency or court, domestic or foreign, having jurisdiction
over the Company or the Subsidiaries or their respective properties, in
each case except for any breach, violation or default that would not have a
Material Adverse Effect, or result in the creation or imposition of any
material lien, charge or encumbrance upon any of the properties or assets
of the Company or the Subsidiaries; and no consent, approval, authorization
or order of any court or governmental or other regulatory agency or body is
required for the consummation by the Company of the transactions on its
part herein contemplated, except such as may be required under the Act or
under state securities or blue sky laws or under the rules and regulations
of the NASD, and except where the breach, violation or failure to obtain
such consent, approval, authorization or order would not have a Material
Adverse Effect.
(g) Subsequent to the date hereof, and prior to the Closing Date and
the Option Closing Date, except as otherwise described in or contemplated
by the Prospectus, neither the Company nor the Subsidiaries will issue or
acquire any equity securities.
(h) The consolidated financial statements and notes thereto included
in the Registration Statement and the Prospectus fairly present the
consolidated financial position and the results of operations of the
Company and the Subsidiaries at the respective dates and for the respective
periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, neither the
Company nor any of the Subsidiaries is, and at the Closing Date and at the
Option Closing Date neither the Company nor any of the Subsidiaries will
be, in violation or breach of, or default in, the due performance and
observance of any term, covenant or condition of any indenture, mortgage,
deed of trust, note, loan or credit agreement, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or the Subsidiaries is a party
or by which the Company or the Subsidiaries may be bound or to which any of
the property or assets of the Company or the Subsidiaries is subject, which
violations,
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breaches, default or defaults, singularly or in the aggregate, have not
been waived and would have a Material Adverse Effect. Neither the Company
nor any of the Subsidiaries has and at the Closing Date or Option Closing
Date neither the Company nor the Subsidiaries will have taken any action in
violation of the provisions of the Certificate of Incorporation or by-laws,
in each case as amended, of the Company or the Subsidiaries, as the case
may be, or any statute or any order, rule or regulation of any court or
regulatory authority or governmental body having jurisdiction over or
application to either the Company or the Subsidiaries or its business or
properties, except for any violations that, singularly or in the aggregate,
would not have a Material Adverse Effect.
(j) The Company and the Subsidiaries have, and at the Closing Date and
at the Option Closing Date will have, good and marketable title to all
properties and assets described in the Prospectus as owned by them, free
and clear of all liens, charges, encumbrances, claims, security interests,
restrictions and defects of any material nature whatsoever, except such as
are described or referred to in the Prospectus and liens for taxes not yet
due and payable or such as in the aggregate will not have a Material
Adverse Effect. All of the material leases and subleases under which the
Company or the Subsidiaries is the lessor or sublessor of properties or
assets or under which the Company or the Subsidiaries holds properties or
assets as lessee as described in the Prospectus are, and will on the
Closing Date and the Option Closing Date be, in full force and effect, and
except as described in the Prospectus, each of the Company and the
Subsidiaries is not and will not be in default in respect of any of the
terms or provisions of any of such leases or subleases (except for defaults
which would not have a Material Adverse Effect), and no claim has been
asserted by anyone adverse to rights of the Company or the Subsidiaries as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company or
the Subsidiaries to continue possession of the leased or subleased premises
or assets under any such lease or sublease, except as described or referred
to in the Prospectus or such as in the aggregate would not have a Material
Adverse Effect, and the Company and the Subsidiaries owns or leases all
such properties as are necessary to its operations as now conducted and,
except as otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus (except where the failure to own or lease
such properties would not have a Material Adverse Effect).
(k) The authorized, issued and outstanding capital stock of the
Company as of the date referenced in the Prospectus is, and the authorized,
issued and outstanding capital stock of the Company on the Closing Date
will be, as set forth in the Prospectus under "Capitalization" (in each
case based on the assumptions set forth therein and except that issuance
and sale of the Additional Securities will not be reflected therein); the
shares of issued and outstanding capital stock of the Company set forth
thereunder have been (or as of the Closing Date will be) duly authorized
and validly issued and are (or as of the Closing Date will be) fully paid
and non-assessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to
issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by
the Company; and the Common Stock, the Warrants and all such options and
warrants conform in all material respects, to all statements relating
thereto contained in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, neither the Company nor the
Subsidiaries owns or controls any capital stock or securities of, or has
any proprietary interest in, or otherwise participates in any other
corporation, partnership, joint venture, firm, association or business
organization (other than those direct or indirect subsidiaries of the
Company disclosed in Exhibit 22 to the Registration Statement); PROVIDED,
HOWEVER, that this provision shall not be applicable to the investment, if
any, of the net proceeds from the sale of the Securities sold by the
Company or other funds thereof in interest-bearing savings accounts,
certificates of deposit, money market accounts, United States government
obligations or other short-term obligations.
(m) Xxxxxx Xxxxxxxx LLP, who have reported on the financial statements
of the Company which have been filed with the Commission as a part of the
Registration Statement, are independent accountants with respect to the
Company as required by the Act and the Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the
Company nor the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or
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contingent, for borrowed money; or (ii) entered into any transaction other
than in the ordinary course of business; or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital
stock; PROVIDED, HOWEVER, that this provision shall not be applicable to
any transaction between or among the Company and its Subsidiaries.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company or the Subsidiaries threatened against, or
involving the properties or business of the Company or the Subsidiaries
which might have a Material Adverse Effect, except as referred to in the
Prospectus. Further, except as referred to in the Prospectus, there are no
pending actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race, nor
is the Company or the Subsidiaries charged with or, to its knowledge, under
investigation with respect to any violation of any statutes or regulations
of any regulatory authority having jurisdiction over its business or
operations, which violations might have a Material Adverse Effect, and no
labor disturbances by the employees of the Company or the Subsidiaries
exist or, to the knowledge of the Company or the Subsidiaries, have been
threatened.
(p) Each of the Company and the Subsidiaries has, and at the Closing
Date and at the Option Closing Date will have, filed all necessary federal,
state and foreign income and franchise tax returns required to be filed or
has requested extensions thereof (except in any case where the failure so
to file would not have a Material Adverse Effect), and has paid all taxes
which it believes in good faith were required to be paid by it except for
any such taxes that currently, or on the Closing Date or Option Closing
Date, as the case may be, are being contested in good faith or as described
in the Prospectus.
(q) Neither the Company nor the Subsidiaries has at any time (i) made
any contribution to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law, or (ii) made any
payment to any state, federal, foreign governmental or professional
regulatory agency, officer or official or other person charged with similar
public, quasi-public or professional regulatory duties, other than payments
or contributions required or allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company or the Subsidiaries, neither the Company or the
Subsidiaries nor any officer, director, employee or agent of the Company or
the Subsidiaries has made any payment or transfer of any funds or assets of
the Company or the Subsidiaries or conferred any personal benefit by use of
the Company's or the Subsidiaries' assets or received any funds, assets or
personal benefit in violation of any law, rule or regulation, which is
required to be stated in the Registration Statement or necessary to make
the statements therein not misleading.
(s) On the Closing Date and on the Option Closing Date, all transfer
or other taxes, if any (other than income tax), which are required to be
paid, and are due and payable, in connection with the sale and transfer of
the Securities by the Company to the Underwriter will have been fully paid
or provided for by the Company as the case may be, and all laws imposing
such taxes will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company or the
Subsidiaries which are of a character required to be described in the
Registration Statement or Prospectus or filed as exhibits to the
Registration Statement which have not been so described or filed.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; and (3)
access to assets is permitted only in accordance with management's general
or specific authorizations.
(w) Except as set forth in the Prospectus, no holder of any securities
of the Company has the right (which has not been effectively waived or
terminated) to require registration of any securities because of the filing
or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to
5
constitute, the stabilization or manipulation of the price of the Common
Stock or the Warrants to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services in
the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to the Underwriter was, when made, or as
of the Closing Date or as of the Option Closing Date will be materially
inaccurate, untrue or incorrect.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriter that:
(a) It will deliver to the Underwriter, without charge, two conformed
copies of each Registration Statement and of each amendment or supplement
thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, and each of the
Selected Dealers (as hereinafter defined) without charge, as many copies as
have been reasonably requested of each Preliminary Prospectus heretofore
filed with the Commission in accordance with and pursuant to the
Commission's Rule 430 under the Act and will deliver to the Underwriter and
to others whose names and addresses are furnished by the Underwriter or a
Selected Dealer, without charge, on the Effective Date, and thereafter from
time to time during such reasonable period as you may request if, in the
reasonable opinion of counsel for the Underwriter, the Prospectus is
required by law to be delivered in connection with sales by the Underwriter
or a dealer, as many copies of the Prospectus (and, in the event of any
amendment of or supplement to the Prospectus, of such amended or
supplemented Prospectus) as the Underwriter may reasonably request for the
purposes contemplated by the Act. The Company will take all necessary
actions to furnish to whomever directed by the Underwriter, when and as
requested by the Underwriter, all necessary documents, exhibits,
information, applications, instruments and papers as may be reasonably
required in order to permit or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with
the distribution of the Securities (the "Selected Dealers") to be purchased
by the Underwriter and all dealers to whom any of such Securities may be
sold by the Underwriter or by any Selected Dealer, to use the Prospectus,
as from time to time amended or supplemented, in connection with the sale
of the Securities in accordance with the applicable provisions of the Act,
the applicable Regulations and applicable state law, until completion of
the distribution of the Securities and for such longer period as you may
reasonably request if the Prospectus is required under the Act, the
applicable Regulations or applicable state law to be delivered in
connection with sales of the Securities by the Underwriter or the Selected
Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately,
and confirm the notice in writing: (i) when the Registration Statement or
any post-effective amendment thereto becomes effective; (ii) of the receipt
of any comments from the Commission regarding the Registration Statement or
of the receipt of any stop order or of the initiation, or to the best of
the Company's knowledge, the threatening, of any proceedings for that
purpose; (iii) the suspension of the qualification of the Securities and
the Underwriter's Warrants, or underlying securities, for offering or sale
in any jurisdiction or of the initiating, or to the best of the Company's
knowledge the threatening, of any proceeding for that purpose; and (iv) of
the receipt of any comments from the Commission. If the Commission shall
enter a stop order at any time, the Company will make every reasonable
effort to obtain the lifting of such order as promptly as practicable.
(e) During the time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company will use its best
efforts to comply with all requirements imposed upon it by the Act and the
Securities Exchange Act of 1934 (the "Exchange Act"), as now and hereafter
amended and by the Regulations, as from time to time in force, as necessary
to permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus and the Company
shall use its best
6
efforts to keep the Registration Statement effective so long as a
Prospectus is required to be delivered in connection with the sale of the
Securities or Additional Securities by the Underwriter or by dealers
effecting transactions therein in connection with the initial public
offering thereof. If at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the reasonable opinion of counsel for the
Company or counsel for the Underwriter, the Prospectus as then amended or
supplemented (or the prospectus contained in a new registration statement
filed by the Company pursuant to Paragraph 3(q)), 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, in the reasonable opinion of either such counsel, it is necessary at
any time to amend the Prospectus (or the prospectus contained in such new
registration statement) to comply with the Act, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment
or supplement in accordance with Section 10 of the Act and will furnish to
you copies thereof.
(f) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time the Registration Statement becomes effective, to
qualify the Securities for offering and sale under the securities laws or
blue sky laws of such jurisdictions as you may reasonably designate;
PROVIDED, HOWEVER, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction or to make any changes in its
capital structure or certificate of incorporation or in any other material
aspects of its business or to enter into any material agreement with any
Blue Sky commissioner. In each jurisdiction where such qualification shall
be effected, the Company will, unless you agree that such action is not at
the time necessary or advisable, use it best efforts to file and make such
statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification until none of
the Warrants are outstanding.
(g) The Company will make generally available (within the meaning of
Section 11(a) of the Act and the Regulations) to its security holders, as
soon as practicable, but in no event later than the first day of the
eighteenth full calendar month following the Effective Date, an earnings
statement of the Company, which will be in reasonable detail but which need
not be audited, covering a period of at least twelve months beginning after
the Effective Date, which earnings statements shall satisfy the
requirements of Section 11(a) of the Act and the Regulations as then in
effect. The Company may discharge this obligation in accordance with Rule
158 of the Regulations.
(h) During the period of five years commencing on the Effective Date
(unless the Company shall no longer have a class of equity securities
registered under Section 12(b) or 12(g) of the Exchange Act), the Company
will furnish to its stockholders an annual report (including financial
statements audited by its independent public accountants), in accordance
with Rule 14a-3 under the Exchange Act, and, at its expense, furnish to the
Underwriter (i) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries and a separate balance sheet of each subsidiary of the Company
the accounts of which are not included in such consolidated balance sheet
as of the end of such fiscal year, and consolidated statements of
operations, stockholder's equity and cash flows of the Company and its
consolidated subsidiaries and separate statements of operations,
stockholder's equity and cash flows of each of the subsidiaries of the
Company the accounts of which are not included in such consolidated
statements, for the fiscal year then ended all in reasonable detail and all
certified by independent accountants (within the meaning of the Act and the
Regulations), (ii) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, similar balance sheets as of the end
of such fiscal quarter and similar statements of operations, stockholder's
equity and cash flows for the fiscal quarter then ended, all in reasonable
detail, and subject to year end adjustment, all certified by the Company's
principal financial officer or the Company's principal accounting officer
as having been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, (iii) as soon as available, each
report furnished to or filed with the Commission or any securities exchange
and each report and financial statement furnished to the Company's
stockholders generally, and (iv) as soon as available, such other material
as the Underwriter may from time to time reasonably request regarding the
financial condition and operations of the Company; PROVIDED, HOWEVER, that
the Underwriter shall use such other material only in connection with its
activities as Underwriter hereunder and shall otherwise keep such other
material confidential.
7
(i) For a period of twelve months from the Closing Date, the Company,
at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial
statements for each of the first three quarters prior to the announcement
of quarterly financial information, the filing of the Company's 10-Q
quarterly report and the mailing,if any, of quarterly financial information
to stockholders.
(j) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without your prior written
consent, which shall not be unreasonably withheld or delayed, issue any
press release or other public announcement or hold any press conference
with respect to the Company or its activities with respect to the Offering
(other than trade releases issued in the ordinary course of the Company's
business consistent with past practices with respect to the Company's
operations or otherwise required by law).
(k) The Company will deliver to you prior to filing, any amendment or
supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and will not file any such amendment or supplement
to which you shall reasonably object after being furnished such copy.
(l) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action
designed to, or which will constitute or which might reasonably be expected
to cause or result in stabilization or manipulation of the price of the
Securities to facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering received
by it substantially in the manner set forth under "Use of Proceeds" in the
Prospectus.
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the
opinions, the letters and the certificates referred to in subsections of
Paragraph 9 hereof, and, if the Company shall file any amendment to the
Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date, such counsel, such
accountants, and such officers and directors, respectively, will, at the
time of such filing or at such subsequent time as you shall specify, so
long as Securities being registered by such amendment or supplement are
being underwritten by the Underwriter, furnish to you such opinions,
letters and certificates, each dated the date of its delivery, of the same
nature as the opinions, the letters and the certificates referred to in
said Paragraph 9, as you may reasonably request, or, if any such opinion or
letter or certificate cannot be furnished by reason of the fact that such
counsel or such accountants or any such officer or director believes that
the same would be inaccurate, such counsel or such accountants or such
officer or director will furnish an accurate opinion or letter or
certificate with respect to the same subject matter.
(o) The Company will comply in all material respects with all of the
provisions of any undertakings contained in the Registration Statement.
(p) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which
are issuable upon conversion of the Debentures or upon conversion of the
Debentures issuable upon exercise of the Underwriter's Warrants outstanding
from time to time.
(q) The Company will timely prepare and file at its sole cost and
expense one or more post-effective amendments to the Registration Statement
or a new registration statement as required by law as will permit
Underwriter's Warrant holders to be furnished with a current prospectus in
the event and at such time as the Underwriter's Warrants are exercised, and
the Company will use its best efforts and due diligence to have the same be
declared effective (with the intent that the same be declared effective as
soon as the Underwriter's Warrants become exercisable) and to keep the same
effective so long as the Underwriter's Warrants are outstanding. The
Company will deliver a draft of each such post-effective amendment or new
registration statement to the Underwriter at least ten days prior to the
filing of such post-effective amendment or registration statement.
(r) So long as any of the Underwriter's Warrants remain outstanding,
the Company will timely deliver and supply sufficient copies of the
Company's current Prospectus, as will enable a holder to deliver a copy
8
of such Prospectus to any Underwriter's Warrant or other holder where such
Prospectus delivery is by law required to be made.
(s) For a period of three years from the Effective Date, the Company
shall continue to employ the services of a firm of independent certified
public accountants reasonably acceptable to the Underwriter in connection
with the preparation of the financial statements to be included in any
registration statement to be filed by the Company hereunder, or any
amendment or supplement thereto. During the same period, the Company shall
employ the services of a law firm(s) reasonably acceptable to the
Underwriter in connection with all legal work of the Company, including the
preparation of a registration statement to be filed by the Company
hereunder, or any amendment or supplement thereto.
(t) The Company agrees that it will, upon the Effective Date, for a
period of no less than three years, engage a designee of the Underwriter as
an advisor (the "Advisor") to its Board of Directors where such Advisor
shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to members of its
Board of Directors. In addition, such Advisor shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to (if reasonably required in connection with
any meeting held outside the New York City metropolitan area),
reimbursement for food, lodging and transportation. The Company further
agrees that, during said three year period, it shall schedule no less than
four (4) formal meetings (at least one of which shall be held "in person"
and the others which may be held telephonically) of its Board of Directors
in each such year and such meetings shall be held quarterly each year and
advance notice of such meetings identical to the notice given to directors
shall be given to the Advisor. Further, during such three year period, the
Company shall give notice to the Underwriter with respect to any proposed
acquisitions, mergers, reorganizations or other similar transactions;
provided, however, that the Underwriter agrees to keep all such information
confidential and not to use such information in any way in violation of
applicable securities laws. In lieu of the Underwriter's right to designate
an Advisor, the Underwriter shall have the right during such three-year
period, in its sole discretion, to designate one person for election as a
Director of the Company and the Company will utilize its best efforts to
obtain the election of such person who shall be entitled to receive the
same compensation, expense reimbursements and other benefits as other
non-officer Directors, including, but not limited to (if reasonably
required in connection with any meeting held outside the New York City
metropolitan area), reimbursement for food, lodging and transportation, but
excluding any warrants, options or shares of equity securities issued to
any other Directors as an inducement for joining the Board or for
continuing membership on the Board. It is currently anticipated that
Directors shall receive $1,000 for each board meeting attended in person.
The Company agrees to indemnify and hold the Underwriter and such
Advisor or Director harmless against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, it agrees, if possible, to
include the Underwriter's designee as an insured under such policy.
(u) Upon the Closing Date, the Company shall have entered into an
agreement with the Underwriter in form reasonably satisfactory to the
Underwriter (the "Debenture Management Agreement"), pursuant to which the
Underwriter will be retained as a Debenture management consultant for a
three-year period commencing as of the Closing Date, and will be paid a fee
of $3,000 a month for a term of three years, all of which ($108,000) shall
be paid upon the Closing Date.
(v) The Debentures (and the Shares issuable upon conversion thereof)
shall be quoted on The Nasdaq SmallCap Market ("Nasdaq"), not later than
the Closing Date. Thereafter, (unless the Company is acquired) the Company
will effect and use its best efforts to maintain such listing or cause such
securities to be listed on a national securities exchange or in a
comparable inter-dealer quotation system for at least five years from the
date of this Agreement.
(w) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to
have the Company included in such publications for at least five years from
the Closing Date (unless the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange or unless the Company shall no
longer have a class of equity securities registered under Section 12(b) or
12(g) of the Exchange Act).
9
(x) The Company has obtained from each person who is currently an
officer or director of the Company or a stockholder of the Company who
holds (after taking into account the issuance of the Securities in the
Offering) greater than 5% of the Company's outstanding securities (except
for Xxxxxxxx Xxxxxxxxx and Harpoon Holdings, Ltd.), a written agreement, in
form and substance reasonably satisfactory to you and your counsel, to the
effect that such person shall not offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, without your prior written
consent (or pursuant to such other agreement with respect to the sale of
capital stock as may be required by state "Blue Sky" laws in order to
qualify the Offering in any such State), any shares of the Common Stock
owned by such person or any securities convertible into, or exchangeable
for, or warrants to purchase or acquire, shares of Common Stock, for a
period of twelve months from the Effective Date. Notwithstanding the
foregoing, Xxxx Xxxx will be permitted to sell up to 30,000 shares of
Common Stock in the event the Common Stock trades at a price of at least
$15.00 per share for 20 consecutive trading days and an additional 30,000
shares in the event the Common Stock trades at a price of at least $20.00
per share for 20 consecutive trading days. For a period of twelve months
from the Effective Date, the Company shall not issue any Debentures, shares
of Common Stock or preferred stock or any warrants, options or other rights
to purchase Common Stock or preferred stock without the consent of the
Underwriter, except for (i) the Securities and the Additional Securities,
(ii) the Underwriter's Securities, (iii) securities issuable upon the
exercise of other options or warrants outstanding as of the Closing Date,
(iv) options to purchase up to 355,000 shares of Common Stock pursuant to
the Company's existing stock option plan and shares of Common Stock
issuable upon the exercise of such options, (v) shares, options or warrants
issuable in connection with the hiring or retention of senior executives
who are not currently affiliated or associated with the Company, and (vi)
shares of Common Stock or preferred stock or any warrants, options or other
rights to purchase Common Stock or preferred stock in connection with
strategic alliances, partnerships, mergers, acquisitions or joint ventures,
with the consent of the Underwriter which shall not be unreasonably
withheld or delayed; PROVIDED, HOWEVER, that the Underwriter will bear its
own expenses incurred in connection with the granting of such consent
(including, but not limited to any independent due diligence and
reimbursement to the Company for any costs associated with obtaining a
fairness opinion at the request of the Underwriter).
(y) The Company will use its best efforts to maintain liability
insurance covering its officers and directors.
(z) The Company agrees that it will employ the services of a financial
public relations firm reasonably acceptable to the Underwriter for a period
of at least twelve months following the Effective Date.
(aa) The Company agrees not to call for redemption the Company's
outstanding publicly traded warrants until 12 months from the date hereof,
without the prior written consent of the Underwriter.
4. SALE, PURCHASE AND DELIVERY OF SECURITIES; CLOSING DATE; PUBLIC
OFFERING.
(a) On the basis of the warranties, representations and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the
Securities at a price of $1,000 per Debenture, less, in the case of each
such Security, an underwriting discount of ten percent (10%) of the price
for such Security. The Underwriter may allow a concession not exceeding
$. per Debenture to Selected Dealers who are members of the NASD, and to
certain foreign dealers, and such dealers may reallow to NASD members and
to certain foreign dealers a concession not exceeding $. per Debenture.
(b) Delivery of the Securities and payment therefor shall be made at
10:00 A.M., New York time on the Closing Date, as hereinafter defined, at
the offices of the Underwriter or such other location as may be agreed upon
by you and the Company. Delivery of certificates for the Debentures (in
definitive form and registered in such names and in such denominations as
you shall request by written notice to the Company delivered at least four
business days' prior to the Closing Date), shall be made to you for the
account of the Underwriter against payment of the purchase price therefor
by certified or bank check or wire transfer payable in New York Clearing
House funds to the order of the Company. The Company will make such
certificates available for inspection at least one business day prior to
the Closing Date at such place as you shall designate.
10
(c) The "Closing Date" shall be , 1997, or such other date
not later than the fourth business day following the effective date of the
Registration Statement as you shall determine and advise the Company by at
least three full business days' notice.
(d) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Securities by the Company to the
Underwriter shall be borne by the Company. The Company will pay and hold
the Underwriter, and any subsequent holder of the Securities, harmless from
any and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which are payable in
connection with the original issuance or sale to the Underwriter of the
Securities or any portions thereof.
(e) As soon, on or after the Effective Date, as the Underwriter deems
advisable, the Underwriter shall make a public offering of the Securities
(other than to residents of or in any jurisdiction in which qualification
of the Securities is required and has not become effective) at the initial
public offering prices and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering prices of the Securities after the distribution thereof has
been completed to such extent as the Underwriter, in its sole discretion,
deems advisable.
5. SALE, PURCHASE AND DELIVERY OF ADDITIONAL SECURITIES; OPTION CLOSING
DATE.
(a) Upon the basis of the representations, warranties and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to sell to the
Underwriter, and the Underwriter shall have the option (the "Option") to
purchase from the Company, the Additional Securities at the same price per
Security as set forth in Paragraph 4(a) above. Additional Securities may be
purchased solely for the purpose of covering over-allotments made in
connection with the distribution and sale of the Securities as contemplated
by the Prospectus.
(b) The Option to purchase all or part of the Additional Securities
covered thereby is exercisable by you at any time and from time to time
before the expiration of a period of 45 calendar days from the date of the
Effective Date (the "Option Period") by written notice to the Company
setting forth the number of Additional Securities for which the Option is
being exercised, the name or names in which the certificates for such
Additional Securities are to be registered and the denominations of such
certificates. Upon each exercise of the Option, the Company shall sell to
the Underwriter the aggregate number of Additional Securities specified in
the notice exercising such Option.
(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at
10:00 A.M., New York time on the Option Closing Date, as hereinafter
defined, at the offices of the Underwriter or at such other locations as
may be agreed upon by you and the Company. Delivery of certificates for
Additional Securities shall be made to you for the account of the
Underwriter against payment of the purchase price therefor by certified or
bank check or wire transfer in New York Clearing House Funds to the order
of the Company. The Company will make certificates for Additional
Securities to be purchased at the Option Closing Date available for
inspection at least one business day prior to such Option Closing Date at
such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than three
business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless
some other time is agreed upon between you and the Company.
(e) The obligations of the Underwriter to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to
compliance as of such date with all the conditions specified in Paragraph 9
herein and the delivery to you of opinions, certificates and letters, each
dated such Option Closing Date, substantially similar in scope to those
specified in Paragraph 9 herein.
(f) The cost of original issue tax stamps, if any, in connection with
the issuance and delivery of the Additional Securities by the Company to
the Underwriter shall be borne by the Company. The Company will pay and
hold the Underwriter, and any subsequent holder of Additional Securities,
harmless from any and all liabilities with respect to or resulting from any
failure or delay in paying federal and state stamp taxes, if any, which are
payable in connection with the original issuance or sale to the Underwriter
of the Additional Securities or any portion thereof.
11
6. INTENTIONALLY OMITTED
7. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the NASD, and has
complied with all NASD requirements concerning net capital and compensation
to be received in connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for services
in the nature of a finder's or origination fee with respect to the sale of
the Securities hereunder, which the Company is, or may become, obligated to
pay.
8. PAYMENT OF EXPENSES.
(a) The Company will pay and bear all costs, fees and expenses
incident to and in connection with: (i) the preparation, printing and
filing of the offering documents and amendments thereto, including NASD,
SEC and filing fees, preliminary and final Prospectus and the printing of
the Underwriting Agreement, the Agreement Among Underwriters and the
Selected Dealer's Agreement, a Blue Sky Memorandum, material to be
circulated to any underwriter by the Underwriter and other incidental
material; (ii) the mailing and distribution costs for the preliminary and
final Prospectus; (iii) the issuance and delivery of certificates
representing the Securities, including original issue and transfer taxes,
if any; (iv) the qualification of the Securities and any shares of
Company's Common Stock underlying the Securities under state securities or
Blue Sky Laws, including counsel fees of the Underwriter relating thereto,
not to exceed $25,000 (not including fees for the after-market survey in
the amount of $10,000) ($15,000 of which shall be due and payable upon the
commencement of Blue Sky filings together with appropriate state filing
fees), plus disbursements relating to, but not limited to, long-distance
telephone calls, photocopying, messengers, excess postage, overnight mail
and courier services; (v) the fees and disbursements of counsel for the
Company and the accountants for the Company; and (vi) advertising costs and
expenses, including, but not limited to, the costs and expenses in
connection with the "road show," memorabilia and "tombstones" in
publications selected by the Underwriter.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, the Company shall reimburse you at
closing for expenses incurred by you in connection with the Offering (for
which you need not make any accounting), in the amount of 3% of the price
to the public of the Securities and Additional Securities sold in the
Offering. This 3% non-accountable expense allowance shall cover the fees of
your legal counsel, but shall not include any expenses for which the
Company is responsible under Paragraph 8(a) above, including the fees and
disbursements of your legal counsel with respect to Blue Sky matters.
12
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS.
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy in
all material respects of the representations and warranties of the Company
contained herein (except those representations and warranties that speak as of a
specific date) and the accuracy in all material respects of the statements of
the Company and its officers and directors made pursuant to the provisions
hereof, as of the date hereof and as of the Closing Date, and to the performance
by the Company in all material respects of its covenants and agreements
hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing
by you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement and no proceedings for that
purpose shall have been instituted or to your knowledge or the knowledge of
the Company, shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriter and after the date hereof no amendment or supplement shall have
been filed to the Registration Statement or Prospectus without your prior
consent, which shall not have been unreasonably withheld or delayed.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto contains an untrue statement of a fact which, in the
Underwriter's reasonable opinion, is material, or omits to state a fact
which, in the Underwriter's reasonable opinion, is material and is required
to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there
shall be no proceeding instituted or, to the Company's knowledge,
threatened against the Company or any of its officers or directors before
or by any federal, state or county commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding
would have a Material Adverse Effect.
(d) The representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to
be delivered to you shall be true and correct in all material respects at
the Closing Date as if made at the Closing Date, and all covenants and
agreements contained herein to be performed on the part of the Company, and
all conditions contained herein to be fulfilled or complied with by the
Company at or prior to the Closing Date shall be fulfilled or complied with
in all material respects.
(e) At the Closing Date, you shall have received the opinion of
Xxxxxxx Xxxxx Xxxxxxx Xxxxx & Xxxxxx LLP, counsel to the Company, dated as
of such Closing Date, addressed to the Underwriter and in form and
substance satisfactory to counsel to the Underwriter, to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and each of
the Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, each with all
requisite corporate power and authority to own its properties and to
conduct its business as described in the Registration Statement. Each of
the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where
its ownership, leasing, licensing or use of property and assets or the
conduct of its business as described in the Registration Statement makes
such qualification necessary, except where failure to be so qualified or
in good standing will not have a Material Adverse Effect.
(ii) The Company has all requisite corporate power and authority to
execute, deliver and perform the Underwriting Agreement, the Debenture
Management Agreement (to be entered into as of the Closing Date), the
Indenture and the Underwriter's Warrants and to consummate the
transactions contemplated thereby. The execution, delivery and
performance of the Underwriting Agreement, the Debenture Management
Agreement, the Indenture and the Underwriter's Warrants by the Company,
the consummation by the Company of the transactions therein contemplated
and the compliance by the
13
Company with the terms of the Underwriting Agreement, the Debenture
Management Agreement, the Indenture and the Underwriter's Warrants have
been duly authorized by all necessary corporate action, the Underwriting
Agreement and the Indenture have been duly executed and delivered by the
Company, and each of the Debenture Management Agreement and the
Underwriter's Warrants will have been duly executed and delivered by the
Company as of the Closing Date. The Underwriting Agreement is, and, as
of the Closing Date each of the Debenture Management Agreement, the
Indenture and the Underwriter's Warrants will be, a valid and binding
obligation of the Company, enforceable in accordance with its terms,
except insofar as enforceability of indemnification and contribution
provisions may be limited by applicable law or policy or equitable
principles, and except as enforceability may be limited by bankruptcy,
reorganization, moratorium, insolvency or other laws affecting the
enforceability of creditors' rights generally and rules of law governing
specific performance, injunctive relief and other equitable remedies.
(iii) The execution, delivery and performance of the Underwriting
Agreement, the Debenture Management Agreement, the Indenture and the
Underwriter's Warrants by the Company, and the consummation by the
Company of the transactions therein or herein contemplated will not,
with or without the giving of notice or the lapse of time, or both, (A)
result in a violation of the Certificate of Incorporation or by-laws of
the Company, in each case as the same may be amended, (B) to the best of
such counsel's knowledge, result in a breach of, or conflict with, any
terms or provisions of or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other material agreement or
instrument known to such counsel to which the Company is a party or by
which the Company or any of its properties or assets are bound or
affected, except where any of the foregoing would not have a Material
Adverse Effect; (C) to the best of such counsel's knowledge, violate any
existing applicable law, rule or regulation or judgment, order or decree
known to such counsel of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties
or business, which judgment, order or decree is binding on the Company
or to which any of its business or operations is subject, except where
any such violation would not have a Material Adverse Effect; or (D) to
the best of such counsel's knowledge, have any material adverse effect
on any permit, certification, registration, approval, consent, license
or franchise necessary for the Company to own or lease and operate its
properties and to conduct its business or the ability of the Company to
make use thereof, in each case in the State of New York.
(iv) To the best of such counsel's knowledge, no authorization,
approval, consent, order, registration, license or permit of any court
or governmental agency or body (other than under the Act, the
Regulations and applicable state securities or Blue Sky laws) is
required for the authorization, issuance, sale and delivery of the
Securities, the Additional Securities or the Underwriter's Warrants, and
the consummation by the Company of the transactions contemplated by the
Underwriting Agreement, the Debenture Management Agreement, the
Indenture or the Underwriter's Warrants. The Indenture has been duly
qualified under the Trust Indenture Act of 1939.
(v) Such counsel has been advised by the staff of the Commission
that the Registration Statement was declared effective under the Act by
the Commission on , 1997; to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration Statement
has been issued by the Commission, and no proceedings for that purpose
have been instituted or are pending or threatened under the Act.
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial
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 Act and Regulations and, to the best of
such counsel's knowledge, the conditions for use of a registration
statement on Form SB-2 have been satisfied by the Company.
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have
been reviewed by such counsel, and, based upon such review, are accurate
summaries of such statutes, regulations, contracts and other documents
in all material respects
14
and, to the best of such counsel's knowledge, there are no 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.
(viii) Each share of Common Stock outstanding as of the date of the
Prospectus or immediately prior to the Closing Date has been duly
authorized and validly issued and is fully paid and nonassessable. To
the best of such counsel's knowledge, none of the Common Stock
outstanding as of either such date or time has been issued in violation
of the preemptive rights of any stockholder of the Company. The
authorized Debentures and Common Stock conforms in all material respects
to the description thereof contained in the Registration Statement and
Prospectus. To the best of such counsel's knowledge, except as set forth
in the Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise (which has not been waived or
terminated), to have such securities registered under the Act.
(ix) The issuance and sale of the Securities, the Additional
Securities, the Shares, the Interest Shares and the Underwriter's
Warrants have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof and thereof, the Shares
and the Interest Shares will be validly issued, fully paid and
nonassessable. Neither the Securities nor the Additional Securities are
subject to statutory preemptive rights of any stockholder of the
Company. The certificates representing the Securities are in proper
legal form.
(x) The Underwriter's Warrants constitute valid and binding
obligations of the Company, enforceable in accordance with its terms, to
issue and sell, upon exercise thereof and payment pursuant to the terms
thereof, the numbers and types of securities of the Company called for
thereby, except as enforceability may be limited by bankruptcy,
reorganization, moratorium, insolvency or other laws affecting the
enforceability of creditors' rights generally and rules of law governing
specific performance, injunctive relief and other equitable remedies.
The Underwriter's Warrants conform in all material respects to the
descriptions thereof contained in the Registration Statement and
Prospectus.
(xi) Good title to the Securities, free and clear of all liens,
encumbrances, equities, security interests and claims (except those that
may arise from actions or inactions of the Underwriter), has been
transferred to the Underwriter, provided that the Underwriter purchased
the Securities in good faith and without notice of any such lien,
encumbrance, equity, security or claim or any other adverse claim within
the meaning of the New York Uniform Commercial Code.
(xii) Assuming that the Underwriter exercises the Option to
purchase the Additional Securities and makes payments therefor in
accordance with the terms of the Underwriting Agreement, upon issuance
of the Additional Securities to the Underwriter pursuant hereto, good
title to the Additional Securities, free and clear of any liens,
encumbrances, equities, security interests and claims (except those that
may arise from actions or inactions of the Underwriter), will have been
transferred to the Underwriter, provided that the Underwriter purchased
the Additional Securities in good faith and without notice of any such
lien, encumbrance, equity, security or claim or any other adverse claim
within the meaning of the New York Uniform Commercial Code.
(xiii) To the best of such counsel's knowledge, other than as set
forth or contemplated in the Prospectus, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, or before any private
arbitration tribunal, pending or threatened against the Company or to
which its properties or business is subject, which, individually or in
the aggregate, would have a Material Adverse Effect.
In addition, such counsel shall state that during the course of the
preparation of the Registration Statement and the Prospectus, such counsel
participated in conferences with officers of the Company, and, while such
counsel are not passing upon, has not verified or independently investigated,
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements or documents contained in the Registration Statement
or the Prospectus, during the course of such preparation and the foregoing
conferences, no facts came to such counsel's attention which caused such counsel
to believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which such counsel
need express no opinion), as of the Effective Date, contained any untrue
statement of a material fact required to be stated therein
15
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that (B) the Prospectus (except as to
the financial statements and other financial data contained therein, as to which
such counsel need express no opinion), as of its date, contained any untrue
statement or a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering such opinions, such counsel may limit their opinions to
matters governed by the federal laws of the United States, the laws of the State
of New York and the general corporation laws of the State of Delaware, and may
rely as to matters of fact, to the extent they deem proper, on certificates and
written statements of officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to counsel to the Underwriter.
(f) On or prior to the Closing Date, counsel for the Underwriter shall
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraph (e) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(g) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or
otherwise, of the Company from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the ordinary
course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the
Registration Statement and Prospectus which is material to the Company,
which is (x) required to be disclosed in the Prospectus or Registration
Statement and is not so disclosed, and (y) likely to have a Material
Adverse Effect;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness,
except as described in the Prospectus and except such as will not have a
Material Adverse Effect;
(iv) No material amount of the assets of the Company shall have
been pledged, mortgaged or otherwise encumbered, except as set forth in
the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall have
been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or
federal or state commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would have a Material
Adverse Effect, except as set forth in the Registration Statement and
Prospectus;
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission; and
(vii) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when
originally made and is at the time such certificate is dated, true and
correct in all material respects.
(h) Concurrently with the execution and delivery of this Agreement and
at the Closing Date, you shall have received a certificate of the Company
signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the
effect that the conditions set forth in subparagraph (g) above have been
satisfied in all material respects and that, as of the Closing Date, the
representations and warranties of the Company set forth in Paragraph 2
herein are true and correct, as if made on and as of the Closing Date, in
all material respects. Any certificate signed by any officer of the Company
and delivered to you or to counsel for the Underwriter shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein.
(i) At the time this Agreement is executed, and at the Closing Date,
you shall have received a letter, addressed to the Underwriter and in form
and substance reasonably satisfactory in all material respects to
16
you and counsel for the Underwriter, from Xxxxxx Xxxxxxxx LLP dated as of
the date of this Agreement and as of the Closing Date, substantially in the
form of EXHIBIT A hereto.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Securities, Additional Securities and the
Underwriter's Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to counsel to the
Underwriter, and the Underwriter shall have received from such counsel an
opinion, dated as the Closing Date with respect to such of these
proceedings as you may reasonably require.
(l) The obligation of the Underwriter to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing
Date in all material respects and to the satisfaction on and as of the
Option Closing Date of the conditions set forth herein in all material
respects.
(m) On the Closing Date there shall have been duly tendered to you for
your account the appropriate number of Debentures constituting the
Securities.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriter, each of its agents and counsel
and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of either Section 15 of the Act or Section 20
of the Exchange Act, against any and all losses, liabilities, claims,
damages, actions and expenses or liability, joint or several, whatsoever
(including but not limited to any and all expense whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever), joint or several, to
which it or such controlling persons may become subject under the Act, the
Exchange Act or under any other statute or at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
Preliminary Prospectus or the Prospectus (as from time to time amended and
supplemented); in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Warrant
Shares of the Company issued or issuable upon exercise of the Underwriter's
Warrants; or in any application or other document or written communication
(in this Paragraph 10 collectively called "application") executed by the
Company or based upon written information furnished by the Company filed in
any jurisdiction in order to qualify the Securities, Additional Securities,
Underwriter's Warrants and Underwriter's Securities under the securities
laws thereof or filed with the Commission or any securities exchange; or
the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading (in light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon or in
conformity with written information furnished to the Company with respect
to the Underwriter by or on behalf of the Underwriter expressly for use in
any Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment or supplement thereof, or in any application, as the case may
be. Notwithstanding the foregoing, the Company shall have no liability
under this Paragraph 10(a) if any such untrue statement or omission made in
a Preliminary Prospectus, is corrected in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the
liability upon which indemnification is being sought, at or prior to the
written confirmation of such sale, a copy of the Prospectus. This indemnity
will be in addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company
and each of the officers and directors of the Company who have signed the
Registration Statement, each of its agents and counsel, and each other
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Underwriter in Paragraph 10(a),
but only with respect to any untrue statement or alleged untrue statement
of any material fact contained in or any omission or alleged omission to
state a material fact required to be stated in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement
thereof or necessary to make the statements therein not misleading or in
any application made in reliance upon, and in conformity with, written
information furnished to the Company by you expressly for use in the
preparation of such Preliminary Prospectus, the Registration Statement or
Prospectus with respect to the
17
Underwriter or directly relating to the transactions effected or to be
effected by the Underwriter in connection with the Offering. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another
party pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall
assume the defense of the action, including the employment and fees of
counsel (reasonably satisfactory to the Indemnitee) and payment of
expenses. Any Indemnitee 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 Indemnitee unless the employment of such counsel
shall have been authorized in writing by the Indemnitor in connection with
the defense of such action. If the Indemnitor shall have employed counsel
to have charge of the defense or shall previously have assumed the defense
of any such action or claim, the Indemnitor shall not thereafter be liable
to any Indemnitee in investigating, preparing or defending any such action
or claim. Each Indemnitee shall promptly notify the Indemnitor of the
commencement of any litigation or proceedings or any other action against
the Indemnitee in respect of which indemnification is to be sought.
(d) In order to provide for just and equitable contribution under the
Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the time to appeal has expired or the last right
of appeal has been denied) that such indemnification may not be enforced in
such case notwithstanding the fact that this Paragraph 10 provides for
indemnification of such case; or (ii) contribution under the Act may be
required on the part of the Underwriter in circumstances for which
indemnification is provided under this Paragraph 10, then, and in each such
case, the Company and the Underwriter shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
any contribution from others) in such proportion so that the Underwriter is
responsible for the portion represented by dividing the total compensation
received by the Underwriter herein or in connection with the Offering by
the total purchase price of all Securities sold in the public offering and
the Company is responsible for the remaining portion; provided, that in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11
of the Act other than the Company and the Underwriter. As used in this
Paragraph 10, the term "Underwriter" includes any officer, director, or
other person who controls the Underwriter within the meaning of Section 15
of the Act, and the word "Company" includes any officer, director or person
who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this paragraph is not
permitted by law, then the Underwriter and each person who controls the
Underwriter shall be entitled to contribution from the Company to the full
extent permitted by law. No contribution shall be requested with regard to
the settlement of any matter from any party who did not consent in writing
to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is made against another party (the "contributing party"),
notify the contributing party of the commencement thereof, but the omission
so to notify the contributing party will not relieve it from any liability
it may have to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid fifteen
(15) days, the contributing party will be entitled to participate therein
with the notifying party and any other contributing party similarly
notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The indemnification provisions
contained in this Paragraph 11 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
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11. REPRESENTATIONS, WARRANTIES, AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnity and contribution agreements by the Underwriter and
the Company contained in Paragraph 10 hereof, and the covenants, representations
and warranties of the Company and the Underwriter set forth in this Agreement,
shall remain operative and in full force and effect regardless of (i) any
investigation made by the Underwriter or on its behalf or by or on behalf of any
person who controls the Underwriter, or by the Company or any controlling person
of the Company or any director or any officer of the Company, (ii) acceptance of
any of the Securities and payment therefor, or (iii) any termination of this
Agreement, and shall survive the delivery of the Securities; and any successor
of the Underwriter or the Company, or of any person who controls you or the
Company or any other indemnified party, as the case may be, shall be entitled to
the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Underwriter and the
Company contained in Paragraph 10 above shall be in addition to any liability
which the Underwriter and the Company may otherwise have.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 10:00 A.M., New York
time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became
effective.
(b) This Agreement may be terminated by the Underwriter by notifying
the Company at any time on or before the Closing Date, if any domestic or
international event or act or occurrence has materially disrupted, or in
your reasonable opinion will in the immediate future materially disrupt,
securities markets in the United States; or if trading in securities
generally on the New York Stock Exchange, the American Stock Exchange, or
in the over-the-counter market in the United States shall have been
suspended, or minimum or maximum prices for trading in securities generally
shall have been fixed, or maximum ranges for prices for securities shall
have been required, on the over-the-counter market by the NASD or NASDAQ or
by order of the Commission or any other governmental authority having
jurisdiction; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared in the United States; or
if the Company shall have sustained a loss material or substantial to the
Company taken as a whole by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not
such loss shall have been insured, will, in your reasonable opinion, make
it inadvisable to proceed with the offering, sale and delivery of the
Securities; or if there shall have been a material adverse change in the
conditions of the United States securities market in general, as in your
reasonable judgment would make it inadvisable to proceed with the offering,
sale and delivery of the Securities.
(c) If you elect to terminate this Agreement as provided in this
Paragraph 12, the Company shall be notified promptly by you by telephone or
facsimile, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding, if
this Agreement shall terminate or shall not be carried out within the time
specified herein by reason of any failure on the part of the Company to
perform any undertaking, or to satisfy any condition of this Agreement by
it to be performed or satisfied, the sole liability of the Company to the
Underwriter, in addition to the obligations assumed by the Company pursuant
to Paragraph 8 herein, will be to reimburse the Underwriter on an
accountable basis for the following: (i) reasonable Blue Sky counsel fees
and expenses to the extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky
filing fees to that same extent; and (iii) such other reasonable
out-of-pocket expenses actually incurred by the Underwriter (including the
reasonable fees and disbursements of their counsel), to the extent set
forth in Paragraph 8(a), in connection with this Agreement and the proposed
offering of the Securities, but in no event to exceed the sum of $100,000
less such amounts as shall have already been paid pursuant to Section 8(b)
or otherwise. The Company shall not in any event be liable to the
Underwriter for the loss of anticipated profits from the transactions
covered by this Agreement.
Anything in this Agreement to the contrary notwithstanding, if this
Agreement shall be terminated by you because you have exercised your rights
pursuant to Paragraph 12(b) above, the Company shall not be under any liability
to you except, on an accountable basis, for the portion of the non-accountable
expense allowance referred to in Paragraph 8(b) for which expenses have actually
been paid or incurred by you, and any balance will be returned by you to the
Company.
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13. NOTICES.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to the Underwriter at Xxxxxx &
Associates, Inc., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx
X. Xxxxx, with a copy thereof to Xxxxxx X. Xxxx, Esq., Xxxxxxx Xxxxxxx &
Xxxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, and, if
sent to the Company, shall be mailed, delivered or telegraphed and confirmed to
the Company at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx
X. Xxxx, Chairman, with a copy thereof to Xxxxxx X. Xxxxxxxx, Esq., Xxxxxxx
Xxxxx Bershad Xxxxx & Lerach LLP, Xxx Xxxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriter, the Company and the controlling persons, directors and
officers referred to in Paragraph 10 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. No
purchaser of any of the Securities or Additional Securities from the Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
15. CONSTRUCTION.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to the
rules governing conflict of laws, and shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company and
you relating to the sale of any of the Securities.
16. JURISDICTION AND VENUE.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. COUNTERPARTS.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
XXXX TECHNOLOGY GROUP LTD.
By: _______________________________
Xxxx X. Xxxx, Chairman
Accepted as of the date first above
written:
XXXXXX & ASSOCIATES, INC.
BY: _____________________________________________
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