Exhibit 1.1
DIVERSIFIED SECURITY SOLUTIONS, INC.
UNDERWRITING AGREEMENT
1,500,000 Shares of Common Stock
(Par Value $.01 Per Share)
New York, New York
November 15, 2001
GunnAllen Financial, Inc.
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▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Diversified Security Solutions, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to GunnAllen Financial, Inc. ("GunnAllen"
or the "Underwriter") pursuant to this Underwriting Agreement (the "Agreement"),
One Million Five Hundred Thousand (1,500,000) Firm Shares (as hereinafter
defined) of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), and to grant to the Underwriter the option referred to in Section 2(b)
hereof to purchase all or any part of an additional Two Hundred and Twenty Five
Thousand (225,000) Option Shares (as hereinafter defined) or such other number
as may be permitted thereunder, for the purpose of covering over-allotments. It
is understood that the Underwriter proposes to offer the Shares (as hereinafter
defined) to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement (as hereinafter defined) after the
Effective Date (as hereinafter defined) of the Registration Statement. As used
in this Agreement, the term "Firm Shares" shall mean the One Million Five
Hundred Thousand (1,500,000) shares of Common Stock to be issued and sold to the
Underwriter at the First Closing Date referred to in Section 2(a) hereof; the
term "Option Shares" shall mean such of the additional Two Hundred and Twenty
Five Thousand (225,000) shares of Common Stock as are purchased pursuant to the
option referred to in Section 2(b) hereof; and the term "Shares" shall mean the
Firm Shares and the Option Shares collectively. The Company will also issue and
sell to GunnAllen, for its own account and the accounts of its designees for an
aggregate price of One Hundred Dollars ($100.00), warrants (the "Underwriter's
Warrants") to purchase up to an aggregate of One Hundred and Fifty Thousand
Shares (150,000) shares of Common Stock (the "Warrant Shares") at an exercise
price of $11.55 per share, which sale will be consummated in accordance with the
terms and conditions of the form of Underwriter's Warrant substantially in the
form of Exhibit 1.5 to the Registration Statement.
1. Representations and Warranties. The Company, and each of its
Subsidiaries (as hereinafter defined), represents and warrants to, and agrees
with, the Underwriter that as of the Effective Date, the First Closing Date and
each Option Closing Date as follows. All references in
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this Agreement to the Company, including without limitation the representations
and warranties of this Section 1, shall also be deemed to include references the
Company's subsidiaries, whether or not specifically referenced in each
particular instance.
(a) The conditions for use of a registration statement on Form
SB-2, set forth in the General Instructions to Form SB-2, have been satisfied
with respect to the Company, the transactions contemplated herein and in the
Registration Statement (as defined below). A Registration Statement on Form SB-2
(File No. 333-94477), including a preliminary form of Prospectus (the
"Registration Statement"), relating to the offering of the Shares, the
Underwriter's Warrants and the Warrant Shares (all of which collectively are
referred to as the "Securities") has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
Registration Statement has been filed with the Commission under the Act. One or
more amendments to said Registration Statement has or have, as the case may be,
been similarly prepared and filed with the Commission covering the registration
of the Securities under the Act including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus"), each of which has been furnished to the Underwriter. Each
Preliminary Prospectus was endorsed with the legend required by Item 501(a) of
Regulation S-B and, if applicable, Rule 430A of the Rules and Regulations. The
Company has prepared and proposes to file on or prior to the Effective Date (as
defined below) of the Registration Statement an additional amendment thereto
which will include the final Prospectus (as defined below). The Company will
not, so long as any portion of the Underwriter's Warrants remain outstanding and
exercisable, file any amendment to the Registration Statement or any amendment
or supplement to the Preliminary Prospectus or the Prospectus unless the Company
has given reasonable and prior notice thereof to the Underwriter and counsel for
the Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to and
means said Registration Statement, including any documents incorporated by
reference therein, all exhibits, financial statements and schedules and the
Prospectus included therein, as finally amended and revised on or prior to the
Effective Date (as defined below) and, in the event of any post-effective
amendment thereto or any Rule 462(b) Registration Statement becomes effective
prior to the Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended or such Rule 462(b) Registration Statement,
as the case may be. The term "Registration Statement" shall also include any
Rule 430A Information deemed to be included therein at the Effective Date as
provided by Rule 430A. The term "Effective Date" shall mean each date and time
that the Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become effective.
The term "Preliminary Prospectus" refers to and means any preliminary prospectus
filed with the Commission and included in said Registration Statement before the
Effective Date and any preliminary prospectus included in the Registration
Statement at the Effective Date that omits Rule 430A Information; the term "Rule
430A Information" shall mean information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A; and, the term "Prospectus" refers to
and means the prospectus relating to Securities that is first filed pursuant to
Rule 424(b) or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final
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prospectus relating to the Securities included in the Registration Statement at
the Effective Date. If the Registration Statement is amended or such Prospectus
is supplemented after the Effective Date and prior to the Option Closing Date
(as defined in Section 2), then the terms "Registration Statement" and
"Prospectus" shall include such documents as so amended or supplemented. The
terms used herein shall have the same meaning as in the Prospectus unless the
context hereof otherwise requires.
(b) Neither the Commission nor, to the Company's knowledge after
due investigation, any state regulatory authority has issued an order preventing
or suspending the use of any Preliminary Prospectus nor has the Commission or
any such authority instituted or, to the best of the Company's knowledge,
threatened to institute any proceedings with respect to such an order.
(c) The Registration Statement, as of the Effective Date, the
Prospectus (and any amendments or supplements thereto) when it is filed with the
Commission, and both documents as of First Closing Date and any Option Closing
Date referred to below, will contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations and will
conform in all material respects to the requirements of the Act and the Rules
and Regulations, and at such times neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, except that the
representations and warranties in this Section 1(c) do not apply to statements
or omissions made in the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished in writing to the Company in
connection with the Registration Statement or Prospectus or any amendment or
supplement thereto by the Underwriter, expressly for use therein.
(d) The Company has been duly incorporated and is now, and at the
Closing Dates (defined below) will be, validly existing and in good standing as
a corporation under the laws of the State of Delaware, and has full power and
authority, corporate and other, to own or lease, as the case may be, its
properties, whether tangible or intangible, and conduct its business as
presently conducted and as described in, or contemplated by, the Registration
Statement and Prospectus and to execute, deliver and perform this Agreement and
the Underwriter's Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company is duly qualified to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of the business transacted by it or the character or location of its
properties, in each case taken as a whole, makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
upon the condition (financial or otherwise), results of operations, business,
assets or properties of the Company or its subsidiaries, taken as a whole. The
Company holds, or will hold by the First Closing Date, all licenses,
certificates and permits from state, federal or other regulatory authorities
necessary for the conduct of its business as presently conducted and as
described in or contemplated by the Registration Statement and the Prospectus
and is in material compliance with all laws and regulations and all orders and
decrees applicable to it or to such business or assets, and there are no
proceedings pending or, to the knowledge of the Company, threatened, seeking to
cancel, terminate or limit such licenses, approvals or permits. Other than as
described
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in the Registration Statement and Prospectus, the Company does not own, directly
or indirectly, any capital stock of or other equity interest in any corporation,
partnership or other legal entity whatsoever. HBE Acquisition Corp., Viscom
Products, Inc. and HBE Central Management, Inc. (the "Subsidiaries") have each
been duly incorporated and are now (other than HBE Central Management, Inc.),
and at the Closing Dates (defined below) will be (other than HBE Central
Management, Inc.), validly existing and in good standing as corporations under
the laws of the state of their respective incorporations, and have full power
and authority, corporate and other, to own or lease, as the case may be, their
properties, whether tangible or intangible, and conduct their business as
presently conducted and as described in, or contemplated by, the Registration
Statement and Prospectus. The failure of HBE Central Management, Inc. to be
validly existing and in good standing as a corporation under the laws of its
state of incorporation does not have a material adverse effect upon the
condition (financial or otherwise), results of operations, business, assets or
properties of the Company, taken as a whole. Each of the Subsidiaries are duly
qualified to do business and are in good standing as foreign corporations in all
jurisdictions in which the nature of the business transacted by them or the
character or location of their properties, in each case taken as a whole, makes
such qualification necessary, except where the failure to so qualify would not
have a material adverse effect upon the condition (financial or otherwise),
results of operations, business, assets or properties of each Subsidiary, taken
as a whole. Each Subsidiary holds, or will hold by the First Closing Date, all
licenses, certificates and permits from state, federal or other regulatory
authorities necessary for the conduct of its business as presently conducted and
as described in or contemplated by the Registration Statement and the Prospectus
and are in material compliance with all laws and regulations and all orders and
decrees applicable to them or to such business or assets, and there are no
proceedings pending or, to the knowledge of the Company, threatened, seeking to
cancel, terminate or limit such licenses, approvals or permits.
(e) The financial statements of the Company, including the
schedules and related notes filed as part of the Registration Statement and
included in the Prospectus, are complete, correct and present fairly the
financial position of the Company and its subsidiaries as of the dates thereof
and the results of operations and changes in financial position of the Company
for the respective periods indicated therein and comply as to form with the
applicable accounting requirements of the Act. Such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as otherwise stated
in the Registration Statement and the Prospectus, and all adjustments necessary
for a fair presentation of results for such periods have been made. The selected
financial data set forth in the Registration Statement and the Prospectus
present fairly the information shown therein and have been compiled on a basis
consistent with that of the audited and unaudited financial statements included
in the Registration Statement and the Prospectus.
(f) The accounting firm of ▇▇▇▇▇▇▇▇▇ & Company, LLC, which has
audited certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and Prospectus, are independent
public accountants within the meaning of the Act and the Rules and Regulations.
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(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
financial statements, (i) the Company has not incurred any material liability or
obligation, direct or contingent, or entered into any material transactions
whether or not incurred in the ordinary course of business; (ii) the Company has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty (whether or not such loss is insured
against), or from any labor dispute or court or governmental action, order or
decree; (iii) since the respective dates as of which information is given in the
Registration Statement and Prospectus, there have not been, and through and
including the First Closing Date, there will not be, any changes in the capital
stock or any increases in the long-term debt or other securities of the Company
or any material adverse change in the condition (financial or otherwise),
business, operations, income, net worth, assets or properties of the Company;
and (iv) the Company has not paid or declared any dividend or other distribution
on its Common Stock or its other securities or redeemed or repurchased any of
its Common Stock or other securities.
(h) This Agreement and compliance by the Company with the terms
thereof, has been duly and validly authorized by all necessary corporate action
and has been duly executed and delivered by the Company and constitutes the
valid and binding obligations of the Company enforceable in accordance with its
terms, except to the extent enforceability may be limited by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and, to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought. The Underwriter's Warrant Agreement and
compliance by the Company with the terms thereof, have been duly and validly
authorized by all necessary corporate action and upon execution and delivery
will be duly executed and delivered by the Company and will constitute the valid
and binding obligations of the Company enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by any
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors' rights generally and to the extent that the
remedy of specific performance and injunction or other forms of equitable relief
may be subject to equitable defenses and the discretion of the court before
which any proceeding therefor may be brought. The Company is not presently in
violation of or in default under this Agreement or the Underwriter's Warrant
Agreement and the execution, delivery and performance by the Company of this
Agreement and the Underwriter's Warrant Agreement and the consummation of the
transactions herein and therein contemplated, will not, with or without the
giving of notice or the lapse of time or both, (i) result in a breach of or
constitute default under any of the terms, conditions or provisions of the
Certificate of Incorporation or by-laws of the Company; (ii) result in a breach
of or conflict with any of the terms or provisions of, or constitute a default
under, or result in the modification or termination of, or the creation or
imposition of any lien, security interest, charge or encumbrance upon any
property or asset of the Company pursuant to any note, indenture, mortgage, deed
of trust, contract, commitment or other agreement or instrument to which the
Company is a party or by which the Company or any of its respective properties
or assets may be bound or affected; (iii) violate any existing law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality, agency, body or court, domestic or foreign, having jurisdiction
over the Company or any of its properties or businesses; or (iv) have any effect
on any
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permit, certification, registration, approval, consent, order, license,
franchise or other authorization (collectively, the "Permits") necessary for the
Company to own or lease and operate its properties and to conduct its business
or the ability to make use thereof.
(i) To the Company's knowledge no Permits of any government or
governmental instrumentality, agency, body or court other than under the Act,
the blue sky or securities laws of any state or the rules of the National
Association of Securities Dealers, Inc. ("NASD") (including approval of
underwriting compensation and listing of the Common Stock on The American Stock
Exchange, Inc. ("AMEX")) are required (i) for the valid authorization, issuance,
sale and delivery of the Firm Shares to the Underwriter, and (ii) the
consummation by the Company of the transactions contemplated by this Agreement
and the Underwriter's Warrant Agreement.
(j) Except as disclosed in the Registration Statement and
Prospectus there is neither pending nor, to the knowledge of the Company after
due investigation, threatened, against the Company any claim, action, suit, or
proceeding at law or in equity, arbitration (or circumstances that may give rise
to the same), investigation or inquiry to which the Company or any of its
respective officers, directors or shareholders is a party or involving the
Company's properties or businesses before or by any court, arbitration tribunal
or governmental instrumentality, agency, or body, which, if determined adversely
to the Company, would individually or in the aggregate result in any material
adverse change in the condition (financial or otherwise), business, management
of affairs or business prospects, results of operations, income, shareholders'
equity, net worth, assets or properties or which question the validity of the
capital stock of the Company or seek to prevent consummation of the transactions
contemplated hereby; nor are there any such actions, suits or proceedings
against the Company related to consumer protection, distribution, rental and
sales, or environmental matters or matters related to discrimination on the
basis of age, sex, religion or race; and no labor disturbance by the employees
of the Company exists or to the knowledge of the Company is imminent which might
be expected to materially adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company, taken as a
whole.
(k) There is no contract or other document which is required by
the Act or by the Rules and Regulations to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which has not been so described or filed as required and each contract
or document which has been described in the Registration Statement and
Prospectus has been described accurately and presents fairly the information
required to be described and each such contract or document which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at the Closing Date or shall have been terminated in accordance with its terms
or as set forth in the Registration Statement and Prospectus, and no party to
any such contract has given notice to the Company of the cancellation of or, to
the knowledge of the Company, shall have threatened to cancel, any such
contract, and except as described in the Registration Statement and Prospectus,
the Company is not in default thereunder.
(l) The Company does not own any real property. The Company has
good title to all of its personal property (tangible and intangible) and assets,
including any licenses,
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trademarks and copyrights, described in the Registration Statement and
Prospectus as owned by it, free and clear of all security interests, liens,
charges, mortgages, encumbrances and restrictions other than (i) such as are not
materially significant in relation to the business of the Company and (ii) other
than as described in the Registration Statement and Prospectus. The leases,
subleases and licenses under which the Company is entitled to lease, hold or use
any real or personal property are valid, subsisting and enforceable only with
such exceptions as are not material and do not interfere with the use of such
property made or proposed to be made by the Company, and all rentals, royalties
or other payments accruing thereunder which become due prior to the date of this
Agreement have been duly paid and neither the Company nor, to the Company's
knowledge after due investigation, any other party is in default in respect of
any of the terms or provisions of any such leases, subleases and licenses, and
no claim of any sort has been asserted by anyone adverse to the rights of the
Company under any such leases, subleases or licenses affecting or questioning
the rights of the Company to the continued use or enjoyment of the rights and
property covered thereby. The Company has not received notice of any violation
of any applicable law, ordinance, regulation, order or requirement relating to
its owned or leased properties. The Company owns or leases all such properties
as are necessary to its operations as now conducted and as proposed to be
conducted as set forth in the Prospectus.
(m) The Company has filed with the appropriate federal, state and
local governmental agencies, and all appropriate foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same have become due; and the provisions
for income taxes payable, if any, shown on the financial statements filed with
or as part of the Registration Statement and Prospectus are sufficient for all
accrued and unpaid foreign and domestic taxes, whether or not disputed, and for
all periods to and including the dates of such consolidated financial
statements. The Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company.
(n) The Company maintains insurance, which is in full force and
effect, including but not limited to personal injury and product liability
insurance, insurance covering all personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against. The Company maintains insurance in amounts as
are usually maintained by companies engaged in the same or similar businesses
located in their geographic area. The Company is not aware of any facts or
circumstances which would require it to notify its insurers of any claim of
which notice has not been made or will not be made in a timely manner. To the
knowledge of the Company, there are no facts or circumstances under any existing
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any existing valid claim of the Company under such
policy or bond.
(o) The Company owns or otherwise possesses adequate, enforceable
and unrestricted rights to use all patents, patent rights, inventions,
trademarks, service marks, trade
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names and copyrights, rights, trade secrets, confidential information, processes
and formulations (including all other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), inventions, designs, works
of authorship, computer programs and technical data and information used or
proposed to be used in the conduct of its business as described in the
Registration Statement and Prospectus (collectively, the "Intangibles"). Except
as disclosed in the Registration Statement and Prospectus, the Company has not
infringed nor is it infringing upon the rights of others with respect to the
Intangibles and the Company has not received any notice that it has or may have
infringed or is infringing on the rights of others with respect to the
Intangibles; there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others challenging the Company's rights in
or to, or the validity or scope of, any such Intangibles, and the Company is
unaware of any facts which would form a reasonable basis for any such claim;
there is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim by others alleging that the Company infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others, and the Company is unaware of any other fact which would form
a reasonable basis for any such claim except where the Company has requested and
obtained a non-infringement opinion from its intellectual property counsel; to
the Company's knowledge, no others have infringed upon the Intangibles of the
Company; and to the Company's knowledge, there is no U.S. patent or published
U.S. patent application which contains claims that dominate any Intangibles
described in the Prospectus as being owned by or licensed to the Company or that
interferes with the issued or pending claims of any such Intangibles. Except as
disclosed in the Registration Statement and Prospectus, the Company is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
the Intangibles with respect to the use thereof or in connection with the
conduct of its business or otherwise. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all its
Intangibles in all material respects.
(p) Neither the Company nor any of its affiliates has incurred any
liability for, nor is there is any outstanding claim for services in the nature
of, a finder's fee or similar fee in connection with the transactions herein
contemplated.
(q) No officer or director of the Company, or any affiliate (as
such term is defined in Rule 405 promulgated under the Rules and Regulations) of
any such officer or director, has taken, and each officer or director has agreed
that he will not take, directly or indirectly, any action designed to constitute
or which has constituted or which might reasonably be expected to cause or
result in the stabilization of the price of the Common Stock or a violation of
Regulation M of the Rules and Regulations or in a manipulation of the price of
any security issued by the Company.
(r) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, no officer, director or stockholder of the Company, or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had during the past three (3) years, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or
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sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. There are no existing agreements,
arrangements, or transactions, between or among the Company and any officer,
director of the Company, or any partner, affiliate or associate of any of the
foregoing persons or entities which are required to be described in the
Registration Statement and Prospectus and which are not so described.
(s) The minute books of the Company have been made available to
the Underwriter and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(t) No labor problem exists with any of the Company's employees or
is imminent, nor is the Company aware of any bankruptcy, labor disturbance or
other event affecting any of its principal suppliers or customers, which could
materially adversely affect the condition, (financial or otherwise), prospects,
business, assets, properties or results of operation of the Company.
(u) The Company had at the date or dates indicated in the
Registration Statement and Prospectus a duly authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement or the Prospectus, on the Effective Date and on the Closing Date,
there will be no options to purchase, warrants or other rights to subscribe for,
or any securities or obligations convertible into, or any contracts or
commitments to issue or sell shares of the Company's capital stock or any such
warrants, convertible securities or obligations. Except as set forth in the
Registration Statement or the Prospectus, no holder of any of the Company's
securities has any rights, "demand," "piggyback" or otherwise, to have such
securities registered under the Act.
(v) The Securities and the other securities of the Company conform
to all statements in relation thereto in the Registration Statement and
Prospectus; the outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; the outstanding options
and warrants to purchase Common Stock have been duly authorized and validly
issued and constitute the valid and binding obligations of the Company,
enforceable in accordance with their terms; the holders of the outstanding
Common Stock are not subject to personal liability for obligations of the
Company solely by reason of being stockholders; and none of such outstanding
shares of Common Stock or warrants or options to purchase Common Stock were
issued in violation of the pre-emptive rights of any stockholder of the Company.
The offers and sales of the outstanding Common Stock and outstanding options and
warrants to purchase Common Stock were at all relevant times either registered
under the Act and the applicable state securities or Blue Sky laws or exempt
from such registration requirements. Except as forth in the Registration
Statement and Prospectus, on the Effective Date and on the Closing Date(s) there
will be no outstanding options or warrants for the purchase of, or other
outstanding
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rights to purchase or acquire, Common Stock or securities convertible or
exchangeable into Common Stock.
(w) The issuance and sale of the Shares have been duly authorized
and, upon delivery against payment therefor as contemplated by this Agreement,
the Shares will be validly issued, fully paid and non-assessable, and the
holders thereof will not be subject to personal liability solely by reason of
being such holders. The Shares will not be subject to pre-emptive rights of any
stockholder of the Company.
(x) The issuance and sale of the Underwriter's Warrants has been
duly authorized and when issued and delivered in accordance with the terms
hereof and the Underwriter's Warrant Agreement, shall constitute the valid and
binding obligations of the Company enforceable in accordance with their terms.
The issuance and sale of the Warrant Shares have been duly authorized, and, when
duly delivered against payment therefor as contemplated by the Underwriter's
Warrant Agreement, such Warrant Shares will be validly issued, fully paid and
non-assessable, and will conform to the description thereof contained in the
Registration Statement and Prospectus. Holders of Warrant Shares issuable upon
the exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Warrant Shares issuable upon exercise thereof will be subject
to pre-emptive rights of any stockholder of the Company. The Company has
reserved a sufficient number of shares of Common Stock from its authorized but
unissued Common Stock for issuance upon exercise of the Underwriter's Warrants
in accordance with the provisions of the Underwriter's Warrant Agreement.
(y) During the period of 365 days from the Effective Date hereof
(the "Lock-Up Period") neither the Company nor any of its officers, directors or
one percent (1%) stockholders will offer for sale or sell or otherwise dispose
of, directly or indirectly, any securities of the Company, in any manner
whatsoever, whether pursuant to Rule 144 of the Rules and Regulations or
otherwise without the prior written consent of the Underwriter; provided,
however, each such stockholder, to the extent permitted by law, may sell his
securities in a private transaction during the Lock-Up Period so long as the
acquirer of the securities at the time of acquisition enters into a written
agreement with Underwriter to be bound by the terms of the seller's Lock-Up
Agreement. The Company will deliver to GunnAllen the undertakings as of the date
hereof of its officers, directors and one percent (1%) stockholders to this
effect, which such Lock-Up Letter will be substantially in the form and
substance of Exhibit A annexed hereto.
(z) Neither the Company nor any officer, director or other agent
of the Company has, acting on behalf of the Company, at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, Federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law or (iii) made any payment of
funds of the Company or received or retained any funds in violation of any law,
rule or regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Registration Statement and
Prospectus. The Company's internal accounting controls and procedures are
sufficient to cause
-10-
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(aa) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended. After giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Registration Statement and Prospectus, the Company will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(ab) No securities of the Company have been sold by the Company or
by or on behalf of, or for the benefit of any person or persons controlling,
controlled by or under common control with the Company within the three (3)
years prior to the date hereof, except as disclosed in the Registration
Statement and Prospectus.
(ac) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants, described in the Registration Statement and Prospectus are binding
and enforceable obligations upon the respective parties thereto in accordance
with their terms, except to the extent enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought.
(ad) Except as set forth in the Registration Statement and
Prospectus, the Company has no employee benefit plans (including, without
limitation, profit sharing and welfare benefit plans) or deferred compensation
arrangements that are subject to the provisions of the Employee Retirement
Income Security Act of 1974. The Company has fulfilled its obligations, if any,
under the minimum funding standards of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Employee
Retirement Income Security Act of 1974 ("ERISA") and the regulations and
published interpretations thereunder with respect to each "plan" (as defined in
Section 3(3) of ERISA and such regulations and published interpretations) in
which employees of the Company are eligible to participate and each such plan is
in compliance in all material respects with the presently applicable provisions
of ERISA and such regulations and published interpretations. The Company has not
incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other
than for the payment of premiums in the ordinary course) or to any such plan
under Title IV of ERISA.
(ae) There are no voting or other stockholder agreements between
the Company and any stockholders of the Company or between or by and among any
stockholders of the Company.
(af) The Company has filed a registration statement on Form 8-A
with
-11-
respect to its Common Stock under Section 12(b) of the Securities Exchange Act
of 1934, as amended (the "1934 Act") and such registration statement has been
declared effective by the Commission. The Company has filed a listing
application with respect to its Common Stock with the American Stock Exchange,
Inc. ("AMEX") and such listing application has been accepted by the AMEX,
subject to official notice of issuance.
(ag) The Company is in compliance with all federal, state, local,
and foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company, by the U.S. Department of Labor or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the Company's best knowledge, threatened against or involving the
Company and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists or is imminent.
(ah) The Company has provided to ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, counsel
to the Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information requested by such
counsel, including in such counsel's Due Diligence Memorandum dated June 28,
2001.
(ai) Any certificate signed by an officer of the Company in his
capacity as such and delivered to the Underwriter or Underwriter's Counsel shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.
(aj) The Company is and has been doing business in material
compliance with all authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, and local laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company, taken as a whole.
(ak) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
-12-
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(al) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.
(am) The Company is (A) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants applicable to its business as
described in the Registration Statement and Prospectus ("Environmental Laws"),
(B) has received and is in compliance with all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its business
and (C) has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or toxic
substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Registration Statement
and Prospectus (exclusive of any supplement thereto). The Company has not
received notice that it has been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended.
2. Purchase, Delivery and Sale of the Shares and the Underwriter's
Warrants.
(a) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company at a purchase price of $6.30 per share (net of
commissions) the following Firm Shares:
GunnAllen............... 1,500,000
TOTAL................... 1,500,000
On the First Closing Date, definitive certificates in negotiable
form for the Firm Shares will be delivered by the Company to the Underwriter or
an electronic "fast" transfer of the Firm Shares from the Company's Transfer
Agent (as defined herein) to Depository Trust Company ("DTC") will be made,
against payment of the purchase price by the Underwriter by wire transfer or
certified or official bank check or checks in New York Clearing House funds,
payable to the order of the Company.
Delivery of the Firm Shares (either by regular way or by a "fast"
transfer) against payment therefor shall take place at the offices of GunnAllen,
at 10:00 a.m., local New
-13-
York Time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the Firm
Shares commences on the day following the Effective Date) or at such other
location as the Underwriter and the Company may agree, with such time and date
of payment and delivery for the Firm Shares being herein called the "First
Closing Date."
(b) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties and agreements contained herein,
for the purposes of covering any overallotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Registration
Statement and Prospectus, GunnAllen is hereby granted an option to purchase all
or any part of the Optional Shares from the Company. The purchase price to be
paid per share for the Optional Shares will be the same price as the price per
Firm Share set forth in Section 2(a) hereof. The option granted hereby may be
exercised solely by GunnAllen as to all or any part of the Optional Shares at
any time within thirty (30) days after the Effective Date. GunnAllen will not be
under any obligation to purchase any Optional Shares prior to the exercise by
GunnAllen of such option.
The option granted hereby may be exercised by GunnAllen by giving
oral notice to the Company, which must be confirmed by a letter, telex or
telegraph setting forth the number of Optional Shares to be purchased, the date
and time for delivery of and payment for the Optional Shares to be purchased and
stating that the Optional Shares referred to therein are to be used for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First Closing Date, the
date set forth therein for such delivery and payment will not be earlier than
either two (2) full business days thereafter or the First Closing Date,
whichever occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two (2) full business days thereafter. In either event, the date so
set forth will not be more than fifteen (15) full business days after the date
of such notice. The date and time set forth in such notice is herein called the
"Option Closing Date." Upon exercise of such option, through GunnAllen's
delivery of the aforementioned notice, the Company will become obligated to
convey to GunnAllen, and, subject to the terms and conditions set forth in this
Section 2(b) hereof, GunnAllen will become obligated to purchase, the number of
Optional Shares specified in such notice.
Payment for any Optional Shares purchased will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, against delivery of the Optional
Shares purchased to GunnAllen at the offices of GunnAllen (or at such other
location as GunnAllen and the Company may agree).
The obligation of GunnAllen to purchase and pay for any of the
Optional Shares is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the
-14-
Option Closing Date, set forth in this Section 2(b), and to the delivery to
GunnAllen of opinions, certificates and letters dated the Option Closing Date
substantially similar in scope to those specified in Section 8(d), (e) and (f)
hereof, but with each reference to "Firm Shares" and "First Closing Date" to be
changed, respectively, to the "Optional Shares" and the "Option Closing Date."
(c) The Company will make the certificates for the Shares to be
purchased by the Underwriter hereunder available to GunnAllen for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, Continental Stock Transfer and Trust Company, ▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇, not less than one (1) full business day
prior to the First Closing Date and the Option Closing Date, as the case may be
(both of which are collectively referred to herein as the "Closing Dates"). The
certificates representing the shares shall be in such names and denominations as
GunnAllen may request at least two (2) full business days prior to the
respective Closing Dates. In the event that GunnAllen determines to utilize DTC,
the parties will use their best efforts to make the offering of the Shares DTC
eligible and to comply with the procedures thereof.
(d) On the First Closing Date, the Company will issue and sell the
Underwriter's Warrants to GunnAllen or to GunnAllen's designees (limited to
officers and partners of GunnAllen, members of the selling group and/or their
officers or partners, collectively, "GunnAllen's Designees"). The Underwriter's
Warrants will be in the form of, and in accordance with, the provisions of the
Underwriter's Warrant substantially in the form filed as Exhibit 1.5 to the
Registration Statement. The aggregate purchase price for the Underwriters'
Warrants is One Hundred Dollars ($100.00). The Underwriter's Warrants will be
restricted from sale, transfer, assignment or hypothecation pursuant to
Corporate Financing Rule 2710 (currently a period of one (1) year from the
Effective Date), except to GunnAllen's Designees. Payment for the Underwriter's
Warrants will be made to the Company by check or checks payable to its order on
the First Closing Date against delivery of the certificates representing the
Underwriter's Warrants. The certificates representing the Underwriter's Warrants
will be in such denominations and such names as GunnAllen may request prior to
the Closing Date.
(e) The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in any Preliminary Prospectus or in the Prospectus
relating to the Shares proposed to be filed by the Company (insofar as such
information relates to the Underwriter) as heretofore filed and as presently
proposed to be amended constitutes the only information furnished by the
Underwriter to the Company for inclusion therein, and the Underwriter represents
and warrants to the Company that the statements made therein are correct and do
not include any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
3. Public Offering by the Underwriter. The Underwriter agrees to cause
the Shares to be offered to the public initially at the price and under the
terms set forth in the Registration Statement and Prospectus as soon, on or
after the effective date of this Agreement, as the Underwriter deems advisable,
but no more than five (5) full business days after such effective date. The
Underwriter may allow such concessions and discounts upon sales to other dealers
as set
-15-
forth in the Registration Statement and Prospectus. The Underwriter agrees to
notify the Company in writing when the offering is first made and when it is
completed. After the completion of the initial public offering, the public
offering price, the concessions and the reallowance may be changed by the
Underwriter.
4. Agreements of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and will not
at any time, whether before or after the Effective Date, file any amendment or
supplement to the Registration Statement, (i) which shall not have been
previously submitted to, and approved by, the Underwriter or counsel for the
Underwriter a reasonable time prior to the filing thereof, (ii) to which the
Underwriter or counsel for the Underwriter shall have reasonably objected in
writing as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it
shall have received notice of the effectiveness of the Registration Statement or
any amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, and of the time when the Registration Statement
or any post-effective amendment thereto has become effective or any supplement
to the Prospectus has been filed.
(c) The Company will advise the Underwriter promptly of any
request of the Commission for an amendment or supplement to the Registration
Statement or the Prospectus, or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, or of any judgment, order, injunction or decree
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or of the institution of any proceedings for any of such purposes,
of which it has knowledge, and will use its best efforts to prevent the issuance
of any stop order, and, if issued, to obtain as promptly as possible the lifting
thereof.
(d) If at any time when a Prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriter, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to counsel for the
Underwriter, and the Company will furnish to the Underwriter copies of such
amendment or supplement as soon as available and in such quantities as the
Underwriter may reasonably request.
-16-
(e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the 1934 Act
or the rules and regulations of the Commission promulgated under the 1934 Act,
each as now or hereafter amended or supplemented, and by any order of the
Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Shares and Warrant Shares.
(f) The Company will furnish to the Underwriter, without charge, a
signed copy of the Registration Statement and of any amendment or supplement
thereto which has been filed prior to the date of this Agreement, together with
two (2) copies of each exhibit filed therewith, and five (5) conformed copies of
such Registration Statement and as many amendments thereto (unsigned and
exclusive of exhibits) as the Underwriter may reasonably request. The signed
copies of the Registration Statement so furnished to the Underwriter will
include signed copies of any and all consents and reports of the independent
public auditors as to the financial statements included in the Registration
Statement and Prospectus, and signed copies of any and all consents and
certificates of any other person whose profession gives authority to statements
made by them and who are named in the Registration Statement or Prospectus as
having prepared, certified or reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without charge,
(i) prior to the Effective Date, copies of each Preliminary Prospectus filed
with the Commission bearing in red ink the statement required by Item 501 of
Regulation S-B of the Rules and Regulations; (ii) on and from time to time after
the Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be such as the Underwriter may reasonably request. The Company has
consented and hereby consents to the use of each Preliminary Prospectus for the
purposes permitted by the Act and the Rules and Regulations. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Shares and the Warrant Shares, for such period as, in the
opinion of counsel for the Underwriter, delivery of the Prospectus is required
to comply with the applicable provisions of the Act and the Rules and
Regulations.
(h) The Company will take such action as may be necessary to
qualify the Shares and the Warrant Shares for offer and sale under the blue sky
or securities laws of such states or other jurisdictions as is required and as
the Underwriter or counsel for the Underwriter may designate (provided that such
states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process) and to continue
such qualifications in effect so long as may be required for the purposes of the
distribution of the Shares and the Warrant Shares. In each state or jurisdiction
where the Company shall qualify the Shares and the Warrant Shares as above
provided, the Company will prepare and file such statements or reports as may be
required by the laws of such state or jurisdiction, and the Underwriter shall,
upon the written request of the Company, supply the Company with all information
known to the Underwriter and required to be included in such statements or
reports.
-17-
(i) During the period of two (2) years from the Effective Date,
the Company, at its expense, shall furnish the Underwriter with (i) copies of
each annual report of the Company; (ii) as soon as practicable and in any event
not later than ninety (90) days after the end of the Company's fiscal year, a
financial report of the Company, which will include a balance sheet as of the
end of such fiscal year, a statement of operations, a statement of stockholders'
equity (deficit) and a statement of cash flows covering such fiscal year, such
report being in reasonable detail and audited by independent public auditors;
(iii) for each fiscal quarter of the Company other than the last fiscal quarter
in any fiscal year, as soon as practicable and in any event not later than
forty-five (45) days after the end of each fiscal quarter, a financial report of
the Company, which will include a balance sheet as of the end of such fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E-4 received or filed by the Company from time to time; (v) a copy of each
report or document, including, without limitation, reports on Form 8-K, 10-K (or
10-KSB), 10-Q (or 10-QSB) and exhibits thereto, filed or furnished by the
Company, pursuant to the 1934 Act, to the Commission, any Securities Exchange or
the NASD on the date each such report or document is so filed or furnished; and
(vi) such additional information concerning the business and financial condition
of the Company as the Underwriter may from time to time reasonably request.
(j) For a period of three (3) years from the First Closing Date,
the Company shall continue to retain ▇▇▇▇▇▇▇▇▇ & Company, LLC (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent certified public accountants, and shall not change such
accountants without the Underwriter's prior written consent. For a period of
five (5) years from the First Closing Date, the Company shall promptly submit to
the Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.
(k) For a period of five (5) years from the First Closing Date, or
such shorter period as may be consented to by GunnAllen in writing, the Company,
at its expense, shall cause its then independent certified public accountants,
as described in Section 4(j) above, to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q (or 10-QSB) quarterly report (or other equivalent report) and the mailing
of quarterly financial information to stockholders.
(l) As soon as practicable, but in any event not later than forty
five (45) days after the end of the 12-month period beginning on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of such
fiscal quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders in accordance with Section 11 (a) of
the Act an
-18-
earnings statement of the Company meeting the requirements of Rule 158(a) under
the Act covering a period of at least twelve (12) months beginning after the
Effective Date, and advise the Underwriter that such statement has been so made
available.
(m) The Company will apply the net proceeds ("Proceeds") it
realizes from the sale of the Shares substantially in the manner set forth under
the caption "Use of Proceeds" in the Prospectus. The Company will provide on a
quarterly basis a report from its Chief Financial Officer which report shall
indicate the use of the proceeds for such quarterly period and the Company's
expenses and revenues.
(n) The Company, on the First Closing Date, will sell to GunnAllen
the Underwriter's Warrants according to the terms specified in Section 2(d)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriter's
Warrants.
(o) For the period of three (3) years following the Effective
Date, GunnAllen and its successors will have the right to designate one
representative to attend each meeting of the Board of Directors of the Company
and each meeting of any committee thereof and to participate, as a non-voting
observer, in all discussions of each such meeting. Such observer shall be
entitled to the same cash compensation and reimbursement of expenses as the
Company affords its directors who are not also officers or employees of the
Company and to receive all copies of all notices and other documents distributed
to the members of the Company's Board of Directors (including, but not limited
to, any unanimous consents prepared and advance notices of all proposed Board
actions or consents), as if such observer were a member of the Company's Board
of Directors. The Company agrees to indemnify and hold such observer harmless
against any and all claims, actions, awards and judgments arising out of his
service and in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
observer as an insured under such policy. In the event the Company does not have
a liability insurance policy in effect on the Effective Date, the Company agrees
to use its best efforts to obtain, as promptly as practicable but in any event
not later than thirty (30) days following the Effective Date, such a policy in
an amount not less than twenty-five (25%) of the gross proceeds of this
offering. The rights and benefits of such indemnification and the benefits of
such insurance shall, to the extent possible, extend to the Underwriter in so
far as it may be, or be alleged to be, responsible for such observer. During
such three (3) year period, the Company will cause its Board of Directors to
meet, either in person or telephonically, at least four (4) times per year.
(p) For a period of three (3) years from the Effective Date, the
Company agrees that it will maintain insurance in full force and effect of the
types and in the amounts which are customary for similarly situated companies,
including but not limited to, personal injury and product liability insurance
and insurance covering all personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.
(q) During the course of the distribution of the Shares, the
Company will not take, directly or indirectly, any action designed to or which
might, in the future, reasonably
-19-
be expected to cause or result in stabilization or manipulation of the price of
the Shares. During the so-called "quiet period" in which delivery of a
Prospectus is required, if applicable, the Company will not issue press releases
or engage in any other publicity without the Underwriters' prior written
consent.
(r) The Company will use its best efforts, at its cost and
expense, to take all necessary and appropriate action to maintain the listing of
the Shares on the AMEX and maintain such listing for as long as the Shares are
so qualified.
(s) In the event that the Company shall receive notice that its
securities are no longer qualified for listing on AMEX, the Company shall
prepare and file an application for listing in Standard & Poor's Corporation
Records Service (including annual report information) or ▇▇▇▇▇'▇ Industrial
Manual and shall use its best efforts to have the Company listed in such manual
and shall maintain such listing for a period of five (5) years from the date on
which the Company's securities are delisted from AMEX.
(t) The Company has filed with the Commission a registration
statement on Form 8-A and will, concurrently with the Effective Date, register
the class of equity securities of which the Shares are a part under Section
12(b) or 12(g) of the 1934 Act. The Company will maintain its registration under
the 1934 Act in effect for a period of five (5) years from the Effective Date.
(u) The Company will at all times, from the First Closing Date
until at least three (3) years from such date, maintain in full force, or cause
to be maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of ▇▇▇▇▇ ▇.
▇▇▇▇▇. Such policy shall be owned by the Company and all benefits thereunder
shall be payable to the Company.
(v) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Shares will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.
(w) For a period of three (3) years from the Effective Date, the
Company will provide to the Underwriter ten (10) days' written notice prior to
any issuance by the Company of any equity securities or securities exchangeable
for or convertible into equity securities of the Company, except for (i) the
Shares issuable pursuant to Section 2 of this Agreement, (ii) the Underwriter's
Warrants and Warrant Shares issuable upon exercise of the Underwriter's
Warrants, (iii) Common Stock issuable upon exercise of currently outstanding
options and warrants or conversion of currently outstanding convertible
securities and (iv) options available for future grant pursuant to any stock
option plan in effect on the Effective Date, limited solely to such number of
options as are available for grant on the Effective Date, and the issuance of
shares of Common Stock upon the exercise of such options.
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(x) The Company will not file any Registration Statement relating
to the offer or sale of any of the Company's securities, including any
Registration Statement on Form S-8 (except for a Form S-8 filed with respect to
the Company's 1999 Incentive Stock Option Plan), during the twenty-four (24)
months following the Effective Date without the Underwriter's prior written
consent.
(y) The Company shall retain a transfer agent for the Shares,
reasonably acceptable to the Underwriter, for a period of three (3) years from
the Effective Date, and will not, during such period change its transfer agent
for the Common Stock without the prior written consent of the Underwriter. In
addition, for a period of two (2) years from the Effective Date, the Company, at
its own expense, shall cause such transfer agent to provide to the Underwriter
on a monthly basis copies of the Company's daily stock transfer sheets;
provided, however, that any confidential information relating thereto which is
hereafter provided to the Underwriter pursuant to the terms of this Agreement
shall be kept confidential by it. In addition, for a period of two (2) years
from the Effective Date, the Company, at its own expense, shall cause DTC to
provide to the Underwriter as frequently as may be required by them, copies of a
securities position listing with respect to the Common Stock.
(z) Subsequent to the dates as of which information is given in
the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, prospects, income, net worth or properties, including any loss or
damage to the properties of the Company (whether or not such loss is insured
against), which could adversely affect the condition (financial or other),
business, operations, prospects, income, net worth, assets or properties of
the Company and its subsidiaries, taken as a whole; and (iii) the Company shall
not have paid or declared any dividend or other distribution on its Common Stock
or its other securities or redeemed or repurchased any of its Common Stock or
other securities.
(aa) For the period of two (2) years following the Effective Date,
the Company shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Effective Date without obtaining the Underwriter's prior written consent.
The Underwriter shall either approve or disapprove such contemplated redemption
of securities or dividend payment or distribution within five (5) business days
from the date it receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
(ab) The Company will not, for a period of three (3) years from
the Effective Date of the Registration Statement, increase or authorize an
increase in the compensation of its three (3) most highly paid employees greater
than those increases provided
-21-
for in their employment agreements with the Company in effect as of the
Effective Date and disclosed in the Registration Statement, without the prior
written consent of the Underwriter. In the event during this three (3) year
period the Company shall have pretax income greater than $750,000 during a
fiscal year, the Company may grant bonuses to such three most highly paid
employees, provided that the grant of such bonuses shall not result in the
Company's pretax income for such fiscal year to be less than $750,000.
(ac) The Company maintains and will continue to maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ad) For a period of five (5) years from the First Closing Date,
management of the Company shall provide the Board of Directors, on an annual
basis, with an internal budget for the next fiscal year, which budget must be
approved by the Board of Directors.
(ae) Prior to the Effective Date and for a period of three (3)
years thereafter, the Company shall retain a financial public relations firm
reasonably acceptable to the Underwriter.
(af) Except as set forth under the caption "Use of Proceeds" in
the Prospectus or otherwise consented to in writing by the Underwriter, no
proceeds from the sale of the Shares will be used to pay outstanding loans from
officers, directors or shareholders or to pay any accrued salaries or accrued
bonuses to any current or former employees or consultants or any affiliates
thereof or to pay off any other outstanding debt other than as described in the
Prospectus.
(ag) The Company agrees that for so long as the Common Stock is
registered under the Securities Act of 1934, as amended, and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act") the
Company will hold an annual meeting of stockholders for the election of
directors and will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by applicable rules
under the 1934 Act and shall be included in an annual report pursuant to the
requirements thereof.
(ah) The Company shall provide the Underwriter, at the First
Closing Date and at least annually thereafter, until the earlier of such time as
the Common Stock is listed on the American Stock Exchange or five years after
the First Closing Date, with a list setting forth those states in which the
Common Stock may be traded in non-issuer transactions under the blue sky laws of
the 50 states. For a period of three (3) years from the Effective Date, the
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Company shall not issue any shares of its Preferred Stock without the prior
written approval of the Underwriter. From the second anniversary of the
Effective Date through the fifth anniversary of the Effective Date, the Company
shall not issue any shares of its Preferred Stock without the unanimous consent
of its Board of Directors.
(ai) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities (i) pursuant to Regulation
S, or similar regulation, promulgated under the Act or (ii) at a discount to
market or in a discounted transaction, without the prior written consent of the
Underwriter, other than the issuance of Common Stock upon exercise of options
and warrants outstanding on the First Closing Date and described in the
Prospectus.
(aj) The Company will take such action as may be necessary to
cause the reinstatement of HBE Central Management, Inc. as a corporation validly
existing and in good standing in the State of New Jersey as soon as practicable
after the Effective Date.
5. Indemnity and Contribution by the Company and the Underwriter.
(a) The Company agrees to indemnify, defend and hold harmless the
Underwriter and any person who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the 1934 Act, from and against any loss,
expense, liability, damage or claim (including the reasonable cost of
investigation) which the Underwriter or any such controlling person may incur
under the Act, the 1934 Act or otherwise, insofar as such loss, expense,
liability, damage or claim arises out of or is based upon (A) any breach of any
representation, warranty or covenant of the Company contained herein, (B) any
failure on the part of the Company to comply with any applicable law, rule or
any regulation relating to the offering of securities being made pursuant to the
Prospectus, (C) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or in the Registration Statement
as amended by any post-effective amendment thereof by the Company), the
Prospectus (the term Prospectus for the purpose of this Section 5 being deemed
to include any Preliminary Prospectus, the Prospectus and any Prospectus
supplements, in each case as amended or supplemented by the Company), (D) any
application or other document, or any amendment or supplement thereto, executed
by the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction (domestic or foreign) in order to qualify
the Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or (E) any omission or alleged omission to state a material fact
required to be stated in any such Registration Statement, Prospectus or any
Application or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading, except to the
extent that any such loss, expense, liability, damage or claim arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in and in conformity with
information furnished in writing by the Underwriter to the Company expressly for
use in such Registration Statement or such Prospectus as specified in the
penultimate sentence of the first paragraph of Section 5(b) hereof; provided,
however, that the indemnity agreement contained in this subsection (a) with
respect to the Preliminary Prospectus
-23-
or the Prospectus shall not inure to the benefit of the Underwriter (or to the
benefit of any person controlling the Underwriter) with respect to any person
asserting any such loss, expense, liability, damage or claim which is the
subject thereof if the Prospectus or any supplement thereto prepared with the
consent of the Underwriter and furnished to the Underwriter prior to the Closing
Date corrected any such alleged untrue statement or omission and if the
Underwriter was required to, but failed to, send or give a copy of such
Prospectus or supplement thereto to such person at or prior to the written
confirmation of the sale of Shares to such person, to the extent that such
delivery would have prevented such loss, expense, liability, damage or claim.
If any action is brought against the Underwriter or controlling
person in respect of which indemnity may be sought against the Company pursuant
to the preceding paragraph, the Underwriter shall promptly notify the Company in
writing of the institution of such action and the Company shall assume the
defense of such action, including the employment of counsel not reasonably
objected to by the indemnified party and payment of expenses; provided, however,
that any failure or delay to so notify the Company will not relieve the Company
of any obligation hereunder, except to the extent that its ability to defend is
actually impaired by such failure or delay. The Underwriter or controlling
person 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 the
Underwriter or such controlling person unless the employment of such counsel
shall have been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have employed counsel (not
reasonably objected to by the indemnified party) to have charge of the defense
of such action within a reasonable time or such indemnified party or parties
shall have reasonably concluded (based on the advice of counsel) that there may
be defenses available to it or them which are different from or additional to
those available to the Company and which counsel to the Underwriter believes may
present an actual or potential conflict for counsel representing the Company and
the Underwriter (in which case the Company shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the Company and
paid as incurred (it being understood, however, that the Company shall not be
liable for the expenses of more than one separate firm of attorneys for the
Underwriter or controlling persons in any one action or series of related
actions in the same jurisdiction (other than local counsel in any such
jurisdiction) representing the indemnified parties who are parties to such
action). Anything in this paragraph to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent (which consent shall not be unreasonably withheld).
The indemnity agreement set forth in this Section 5(a) shall be in addition to
any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify, defend and hold harmless
the Company, the Company's directors, the officers that signed the Registration
Statement and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the 1934 from and against any loss, expense,
liability, damage or claim (including the reasonable cost of investigation)
which, jointly or severally, the Company or any such person may incur under the
Act, the 1934 Act or otherwise, but only insofar as such loss, expense,
liability, damage or claim arises out of or is based upon (A) any untrue
statement or alleged untrue statement of a material fact contained in and in
conformity with information furnished in
-24-
writing by the Underwriter to the Company expressly for use in the Registration
Statement (or in the Registration Statement as amended by any post-effective
amendment thereof by the Company) or the Prospectus, as specified in the
penultimate sentence of this Section 5(b), or (B) any failure on the part of the
Underwriter to comply with any applicable law, rule or regulation or (C) any
omission or alleged omission to state a material fact in connection with such
information required to be stated in such Registration Statement or the
Prospectus or necessary to make such information, in the light of the
circumstances under which made, not misleading. The Company and the Underwriter
acknowledge that the statements set forth on cover page of the Prospectus
regarding delivery of the Shares and the statements under the caption
"Underwriting" in the Prospectus (to the extent such statements relate to the
Underwriter) constitute the only information furnished by or on behalf of the
Underwriter to the Company for purposes of this Section 5. The indemnity
agreement set forth in this Section 5(b) shall be in addition to any liability
which the Underwriters may otherwise have.
If any action is brought against the Company or any such person in
respect of which indemnity may be sought against the Underwriter pursuant to the
foregoing paragraph, the Company or such person shall promptly notify the
Underwriter in writing of the institution of such action and the Underwriter
shall assume the defense of such action, including the employment of counsel not
reasonably objected to by the indemnified party and payment of expenses;
provided, however, that any failure or delay to so notify the Underwriter will
not relieve the Underwriter of any obligation hereunder, except to the extent
that its ability to defend is actually impaired by such failure or delay. The
Company or such person shall have the right to employ its own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
the Company or such person unless the employment of such counsel shall have been
authorized in writing by the Underwriter in connection with the defense of such
action or the Underwriter shall not have employed counsel (not reasonably
objected to by the indemnified party) to have charge of the defense of such
action within a reasonable time or such indemnified party or parties shall have
reasonably concluded (based on the advice of counsel) that there may be defenses
available to it or them which are different from or additional to those
available to the Underwriter and which counsel to the Company believes present
an actual or potential conflict for counsel representing the Company and the
Underwriter (in which case the Underwriter shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the Underwriter and
paid as incurred (it being understood, however, that the Underwriter shall not
be liable for the expenses of more than one separate firm of attorneys in any
one action or series of related actions in the same jurisdiction (other than
local counsel in any such jurisdiction) representing the indemnified parties who
are parties to such action). Anything in this paragraph to the contrary
notwithstanding, the Underwriter shall be liable for any settlement of any such
claim or action effected without the written consent of the Underwriter.
(c) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 5 in respect of any losses, expenses, liabilities, damages or claims
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, expenses,
liabilities, damages or
-25-
claims (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriter on the other hand
from the offering of the Shares or (ii) if (but only if) the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriter on the other in connection with the statements or omissions which
resulted in such losses, expenses, liabilities, damages or claims, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriter on the other shall be deemed to
be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company bear to the underwriting discounts and commissions received by
the Underwriter. The relative fault of the Company on the one hand and of the
Underwriter on the other shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages and liabilities referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any claim or action.
(d) The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in subsection (c)(i) and, if
applicable (ii), above. Notwithstanding the provisions of this Section 5, the
Underwriter shall not be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by the
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
6. [Intentionally Omitted]
7. Survival of Agreements etc. All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Shares. The provisions of Sections
5, 6, 10, 11 and 15 shall survive the termination or cancellation of this
Agreement.
8. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder will be subject to the accuracy of and compliance in all
material respects with the representations, warranties and agreements of the
Company herein, to the accuracy of the
-26-
statements of the Company or its officers made pursuant hereto, to the
performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m., New York City time, on the day following this Agreement,
or at such later time or on such later date as shall be consented to in writing
by the Underwriter; prior to the First Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or be pending or, to the
knowledge of the Company or the Underwriter, contemplated or threatened by the
Commission; and any request by the Commission for additional information to be
included in the Registration Statement or the Prospectus or otherwise shall have
been complied with to the satisfaction of counsel for the Underwriter, and
qualification under the securities laws of such states as the Underwriter may
designate of the issue and sale of the Shares upon the terms and conditions
herein set forth or contemplated and containing no provision unacceptable to the
Underwriter shall have been secured; and no stop order shall be in effect
denying or suspending effectiveness of such qualifications, nor shall any stop
order proceedings with respect thereto be instituted or pending or threatened
under such laws. If the Company has elected to rely upon Rule 430A of the Rules
and Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to the First Closing Date the Company shall have provided evidence
satisfactory to the Underwriter of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) No amendment to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriter, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein in light of the circumstances under which they were
made not misleading.
(d) The Underwriter shall have received from ▇▇▇▇▇▇▇▇▇ & Company,
LLC, two signed certificates or letters, one dated and delivered on the
Effective Date and one dated and delivered on the First Closing Date, in form
and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations;
-27-
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders, the Board of Directors and any committees of the Board of
Directors of the Company, as set forth in the minute books of the Company, and
other specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to believe
that:
(A) during the period from the date of the latest
financial statements of the Company appearing in the Registration Statement and
Prospectus to a specified date not more than three (3) business days prior to
the date of such letter, there has been any decreases in net current assets or
net assets, change in the Common Stock or other securities of the Company
(except as specifically disclosed in such certificates or letters), any
decreases in shareholders equity or working capital or any increases in net
current liabilities, net liabilities or long-term debt, in each case as compared
with amounts shown in such financial statements; and any decrease in revenues or
in the total or per share amounts of income before extraordinary items or net
income or loss, or any other material change in each case as compared with the
corresponding period in the preceding year or any change in the capitalization
or long term debt of the Company, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will or may occur.
(B) the unaudited interim financial statements of the
Company, if any, appearing in the Registration Statement and the Prospectus, do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
-28-
(e) At the First Closing Date, the Underwriter shall have received
from ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP counsel for the Company ("Company
Counsel"), a signed opinion dated as the First Closing Date, reasonably
satisfactory to the Underwriter's Counsel, in the form and substance of Exhibit
B annexed hereto.
(f) The Underwriter shall have received a certificate, dated and
delivered as of the First Closing Date, of the Chief Executive Officer and
President of the Company stating that:
(i) The Company and such officers have complied with all the
agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein in light of the circumstances in which they were made not
misleading and does not contain any untrue statement of a material fact, and
since the Effective Date there has occurred no event required to be set forth in
the amended or supplemented Prospectus which has not been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 1 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and certifying as to the matters referred to in
Sections 8(g) and (h).
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent (other than in the ordinary
course of business), or entered into any material transactions and there has not
been any change in the Common Stock or funded debt of the Company or any
material adverse change in the condition (financial or other), business,
operations, income, net worth, properties or prospects of the Company and its
Subsidiaries, taken as a whole, except for such changes as are contemplated by,
or disclosed in the Prospectus.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
-29-
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of the
Shares.
(viii) No action, suit or proceeding, at law or in equity,
which may (A) result in the imposition of damages or penalties against, or
payments by, the Company in excess of $25,000 or (B) adversely affect the
operation of the Company's business shall be pending or, to the knowledge of
such officers, threatened against the Company, or affecting any of its
properties, before or by any commission, board or other administrative agency,
except as otherwise set forth in the Registration Statement.
(ix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall not have lost any significant customers or been advised that it
may lose any such significant customers.
(x) The Company is the sole owner of all intellectual
property and proprietary information set forth in the Prospectus.
(g) On the First Closing Date, the Company shall not be a party
to, or be involved in, any arbitration, litigation (except as set forth in the
Registration Statement) or governmental proceeding, which is then pending, or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company shall not
have sustained any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter materially adversely affects the business of the Company.
(i) All of the certificates representing the Shares shall have
been tendered for delivery in accordance with the terms and provisions of this
Agreement.
(j) The Underwriter shall have received the Lock-Up Agreements
referred to in paragraph (x) of Section 1 hereof.
(k) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed, in all material respects, all its obligations due to be
performed prior thereto; (ii) the Registration Statement and the Prospectus and
any amendment or supplement thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations and conform in all material respects to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a
-30-
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances in
which they are made not misleading; (iii) there shall have been, since the date
as of which information is given, no material adverse change in the condition,
business, operations, properties, business prospects, securities, long-term or
short-term debt or general affairs of the Company from that set forth in the
Registration Statement or the Prospectus, except changes which the Registration
Statement and the Prospectus indicate will occur after the Effective Date and
prior to such Closing Date, and the Company shall not have incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transaction, contract or agreement not in the ordinary course of business other
than as referred to in the Registration Statement and the Prospectus; and (iv)
except as set forth in the Prospectus, no action, suit or proceeding, at law or
in equity, shall be pending or threatened against the Company which might be
required to be set forth in the Registration Statement, and no proceedings shall
be pending or threatened against the Company before or by any commission, board
or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding might materially adversely affect the
condition, business, operations, properties, prospects or general affairs of the
Company.
(l) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(m) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date or the Option Closing Date, as the case may be, for any member firm of the
NASD to execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of each of the Underwriter's or the Company's
knowledge, shall be contemplated by the Commission or the NASD. The Company
represents at the date hereof, and shall represent as of the Closing Date or
Option Closing Date, as the case may be, that it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD.
(n) The Company meets the criteria for inclusion of the Shares on
AMEX pursuant to a waiver granted the Company by the AMEX on October 24, 2001.
The Company has complied with all of the requirements set forth the October 24,
2001 letter from the AMEX, including without limitation the issuance of a public
announcement through the news media disclosing that it was approved for listing
pursuant to an exception granted by the AMEX, including the specific listing
eligibility guideline that was the subject of the exception.
(o) All proceedings taken at or prior to the First Closing Date or
the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in this Section 8 hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any
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covenants of the Company, or the compliance by the Company with any of the
conditions herein contained.
(p) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Shares will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of Company Counsel, in form and
substance reasonably satisfactory to counsel for the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinions furnished
to the Underwriter by Company Counsel at the First Closing Date pursuant to
Section 8 (e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer and
the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriter, substantially the same in
scope and substance as the certificates furnished to the Underwriter at the
First Closing Date pursuant to Section 8 (f).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter in form and substance
satisfactory to the Underwriter from ▇▇▇▇▇▇▇▇▇ & Company, LLC dated the Option
Closing Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 8(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
three (3) business days prior to the Option Closing Date which would require any
change in said certificate or letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Shares shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
counsel for the Underwriter shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(q) The Company shall have issued the Underwriter's Warrants.
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The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.
Any certificate signed by an officer of the Company delivered to the
Underwriter or to counsel for the Underwriter, will be deemed a representation
and warranty by the Company to the Underwriter as to the statements made
therein.
9. Effective Date. This Agreement will become effective no later than
10:00 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this Agreement will
become effective at such later time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company or by
release of any of the Shares for sale to the public or by any other action
constituting a commencement of the public offering. For the purposes of this
Section 9, the Shares will be deemed to be so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by the Underwriter of telegrams offering the Shares for sale to
securities dealers, whichever may occur first. The term "business day" shall
mean a calendar day other than a Saturday, Sunday or holiday. Notwithstanding
anything herein to the contrary, the provisions of this Section 9 and of
Sections 5, 6, 7, 10, 11 and 15 hereof will, however, be effective upon the
execution of this Agreement.
10. Termination. This Agreement may be terminated by GunnAllen, in its
absolute discretion, by notice to the Company (a) at any time before this
Agreement becomes effective in accordance with Section 9 hereof; or (b) if,
prior to the First Closing Date or the Option Closing Date, as the case may be,
(i) the Company shall have failed or refused to fully comply with any of the
provisions of this Agreement on its part to be performed prior thereto, (ii) any
of the agreements, conditions, covenants, representations or warranties of the
Company herein contained are not correct or shall not have been performed or
fulfilled within the times specified; (iii) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange will have been
suspended; (iv) limited or minimum prices will have been established on either
such exchange or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD; (v) a banking moratorium
will have been declared either by federal or New York State authorities; (vi)
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, will be
established by either of such Exchanges, by the Commission, by any other federal
or state agency, by action of the Congress or by Executive Order; (vii) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity; (viii) any action has been taken by
the Government of the United States or any department or agency thereof which,
in the sole judgment of the Underwriter, has had a material adverse effect upon
the general market for securities; (ix) there shall have occurred the outbreak
of any war or any other event or calamity which, in the sole judgment of the
Underwriter, materially disrupts the financial markets of the United States; (x)
the general market for securities or political, legal or financial conditions
should deteriorate so materially from that in effect on the date of this
Agreement that, in the sole judgment of the Underwriter, it becomes
impracticable for the Underwriter to commence or proceed with the public
offering of the Shares and with the payment for or acceptance thereof; (xi) if
trading of any
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securities of the Company shall have been suspended, halted or delisted on any
exchange or in any over-the-counter market or by the Commission; or (xii) any
materially adverse change shall have occurred in the sole judgment of the
Underwriter, since the date as of which information is given in the Registration
Statement and the Prospectus, in the financial condition, business, prospects,
operations, properties or obligations of the Company. Notwithstanding any
contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement, and whether or not this Agreement is otherwise
carried out, the provisions of Sections 5, 6, 7, 10, 11 and 15 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Expenses.
(a) Whether or not the offering is consummated, the Company will
pay all costs and expenses incident to the performance of the obligations of the
Company hereunder, including without limiting the generality of the foregoing,
(i) the preparation, printing, filing with the Commission, and copying of the
Registration Statement, each Preliminary Prospectus, Prospectus, this Agreement,
the Selected Dealer Agreement, and other underwriting documents, if any, and any
drafts, amendments or supplements thereto, including the cost of all copies
thereof supplied to the Underwriter in such quantities as reasonably requested
by the Underwriter and the costs of mailing Prospectuses to offerees and
purchasers of the Shares; (ii) the printing, engraving, issuance and delivery of
certificates representing the Shares, including any transfer or other taxes
payable thereon; (iii) the fees, expenses and other costs related to the
registration or qualification of the Shares under state securities or "blue sky"
laws, in accordance with the provisions of Section 11(c) below; (iv) fees, costs
and disbursements of Underwriter's Counsel in connection with the review and
analysis of certain blue sky matters related to the offering; (v) all reasonable
fees and expenses of the Company's counsel and accountants; (vi) all NASD filing
fees in connection with the offering and all expenses of Underwriter's Counsel
in connection with such NASD filings (up to a maximum of $5,000 in the
aggregate); (vii) all costs and expenses of any listing of the Shares on AMEX or
any other stock exchange or in Standard and Poor's Corporation Reports or any
other securities manuals; (viii) all costs and expenses of five (5) bound
volumes provided to the Underwriter of all documents, paper exhibits,
correspondence and records forming the materials included in the offering; (ix)
the cost of "tombstone" advertisements to be placed in one or more daily or
weekly periodicals as the Underwriter may request (up to a maximum of $10,000);
and (x) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section 11(a). The obligations of the Company under this subsection
(a) shall survive any termination or cancellation of this Agreement.
(b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to GunnAllen a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds of the offering,
including in such amount the proceeds from the exercise of the Underwriter's
over-allotment option. The non-accountable expense allowance due shall be paid
at the First Closing Date and any Option Closing Date, as applicable. GunnAllen
hereby acknowledges prior receipt from the Company of Thirty Five Thousand
Dollars ($35,000), which amount shall be applied to the non-accountable expense
allowance due when, and if, the offering is closed. If the sale of the
Securities provided for herein
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is not consummated because GunnAllen elects to terminate this Agreement in
accordance with Section 10 hereof, then the Company shall reimburse GunnAllen in
full for its actual out-of-pocket expenses incurred in connection with the
proposed purchase and sale of the Securities (including, without limitation, the
fees and disbursements of its counsel) inclusive of the Thirty Five Thousand
Dollars ($35,000) previously paid on account. Notwithstanding the foregoing, in
the event the offering is terminated, GunnAllen will not be entitled to retain
or receive more than an amount equal to its actual accountable out-of-pocket
expenses.
(c) The Underwriter shall determine in which states or
jurisdictions the Shares shall be registered or qualified for sale. Immediately
prior to the Effective Date, counsel for the Company shall advise the
Underwriters in writing of all states in which the offering has been registered
or qualified for sale or has been canceled, withdrawn or denied and the number
of Shares registered or qualified for sale in each such state.
12. Notices. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, or hand delivered, and confirmed in writing or by telecopier, addressed
as respectively indicated or to such other address as will be indicated by a
written notice similarly given, to the following persons:
(a) If to the Underwriter - addressed to GunnAllen Financial Inc.,
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇ ▇▇▇▇▇, with a
copy to ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
(b) If to the Company - addressed to Diversified Security Systems,
Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇.
▇▇▇▇▇, President, with a copy to ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Lerach LLP, ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Notice shall be deemed delivered upon receipt.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control the Underwriter within the
meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within
-35-
the meaning of Section 15 of the Act. No purchaser of any of the Shares from the
Underwriter will be deemed a successor or assign solely because of such
purchase.
14. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and warrants to the Underwriter
that it has not paid any compensation for services as a finder in connection
with any prior financing of the Company during the twelve-month period
immediately preceding the date hereof and that no person is entitled, directly
or indirectly, to compensation for services as a finder in connection with the
proposed transactions. The Company further represents and warrants that other
than as set forth below in subsection (c), no person holds a right of first
refusal or similar right in connection with the proposed offering, and the
Company hereby agrees to indemnify and hold harmless the Underwriter, its
officers, directors, agents and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder or alleged holder of a right of first refusal or similar right
in connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of the
Company.
(b) The Underwriter hereby represents and warrants to the Company
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions contemplated by this
Agreement; and the Underwriter hereby agrees to indemnify and hold harmless the
Company, its officers, directors and agents, from and against any loss,
liability, claim, damage or expense whatsoever arising out of a claim by an
alleged finder in connection with the proposed offering, insofar as such loss,
liability, claim, damage or expense arises out of any action or alleged action
of the Underwriter.
15. Applicable Law. This Agreement shall be a deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said state applicable to contracts made
and to be performed entirely within such State. The Company (i) agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement
shall be instituted exclusively in New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York, (ii) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (iii) irrevocably consents
to the jurisdiction of the New York State Supreme Court, County of New York and
the United States District Court for the Southern District of New York in any
such suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
-36-
16. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
17. Counterparts. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
18. Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
19. Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders and the singular shall include the plural, and vice versa.
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If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the spaces provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
among us.
Very truly yours,
DIVERSIFIED SECURITY SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
Confirmed and accepted on the
day and year first above written.
GUNNALLEN FINANCIAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President
-38-
EXHIBIT A
LOCK-UP LETTER
FOR DIVERSIFIED SECURITY SOLUTIONS, INC.
DIRECTORS, OFFICERS AND STOCKHOLDERS
[Date]
GunnAllen Financial, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned understands that GunnAllen Financial, Inc. (the
"Underwriter"), proposes to enter into an Underwriting Agreement with
Diversified Security Solutions, Inc., a Delaware corporation (the "Company"),
providing for the public offering (the "Public Offering") of common stock, par
value $0.01 per share (the "Common Stock") of the Company.
To induce the Underwriter to continue its efforts in connection with
the Public Offering, the undersigned, during the period commencing on the date
hereof and ending 365 days after the date of the final prospectus relating to
the Public Offering (the "Lock-Up Period"):
(i) agrees not to (x) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder or otherwise transfer or
dispose of, directly or indirectly, any shares of capital stock of the Company
or any securities convertible into or exercisable or exchangeable for any shares
of capital stock of the Company or (y) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any shares of capital stock of the Company, or publicly announce an
intention to effect any such transaction (regardless of whether any of the
transactions described in clause (x) or (y) is to be settled by the delivery of
Common Stock, or such other securities, in cash or otherwise), without the prior
written consent of the Underwriter;
(ii) agrees not to make any demand for, exercise any right, or file (or
participate in the filing of) a registration statement with respect to the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, without the prior written consent
of the Underwriter; and
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(iii) authorizes the Company to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any shares of Common Stock and any
securities convertible into or exercisable or exchangeable for Common Stock for
which the undersigned is the record holder and, in the case of any such shares
or securities for which the undersigned is the beneficial but not the record
holder, agrees to cause the record holder to cause the transfer agent to decline
to transfer and/or to note stop transfer restrictions on such books and records
with respect to such shares or securities.
The undersigned hereby represents and warrants that all of the shares
of capital stock held by such person are listed on the attached Annex 1 and that
the undersigned has full power and authority to enter into the agreements set
forth herein, and that, upon request, the undersigned will execute any
additional documents necessary or desirable in connection with the enforcement
hereof. All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors, and assigns of the undersigned.
Very truly yours,
----------------------------
--------------------------------
(Name - Please Type)
--------------------------------
--------------------------------
(Address)
--------------------------------
(Social Security or Taxpayer Identification No.)
-40-
Annex 1
Number (and type) of shares of capital stock owned:
------------------------
Certificate Numbers: ------------------------
------------------------
-41-
EXHIBIT B
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power and
authority, corporate and other, and with all Permits necessary to own or lease,
as the case may be, and operate its properties, whether tangible or intangible,
and to conduct its business as described in the Registration Statement and
Prospectus. The Company is qualified to do business as a foreign corporation and
is in good standing in all jurisdictions wherein such qualifications is
necessary and failure to so qualify could have a material adverse effect on the
financial condition, results of operation, business or properties of the
Company. The Company's subsidiaries are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, and with all Permits necessary to own
or lease, as the case may be, and operate their properties, whether tangible or
intangible, and to conduct their business as described in the Registration
Statement and Prospectus. The Company's subsidiaries are qualified to do
business as a foreign corporation and are in good standing in all jurisdictions
wherein such qualification is necessary and failure to so qualify could have a
material adverse effect on the financial condition, results of operation,
business or properties of the Company.
(ii) The Company has full power and authority, corporate and other, to
execute, deliver and perform the Underwriting Agreement and the Underwriter's
Warrant Agreement and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Underwriting Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions therein contemplated and the compliance by the Company with
the terms of the Underwriting Agreement and the Underwriter's Warrant Agreement
have been duly authorized by all necessary corporate action, and the
Underwriting Agreement has been duly executed and delivered by the Company. The
Underwriting Agreement is and, when executed and delivered by the Company on the
Closing Date, the Underwriter's Warrant Agreement will be, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable remedies
and except that enforceability of the indemnification and contribution
provisions set forth in the Underwriting Agreement and the Underwriter's Warrant
Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(iii) The execution, delivery and performance of the Underwriting
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement and the
Underwriter's Warrant Agreement do not, and will not, with or without the giving
of notice or the lapse of time, or both, (A) result in a violation of the
Certificate of Incorporation or By-Laws, each as amended, of the Company, (B)
result in a breach of or conflict with any terms or provisions of, or constitute
a default under, or result in the modification or termination of, or result in
the creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to
-42-
which the Company is a party or by which the Company, or any of the Company's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, or self regulatory organization,
including, without limitation, the NASD, NYSE and AMEX, having jurisdiction over
the Company or any of the Company's properties or business; or (D) have any
effect on any Permit necessary for the Company to own or lease, as the case may
be, and operate its properties or conduct its businesses or the ability of the
Company to make use thereof.
(iv) No Permits of any court or governmental agency or body (other than
under the Act, the Rules and Regulations and applicable state securities or Blue
Sky laws) are required for the valid authorization, issuance, sale and delivery
of the Shares or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by the Agreement or
the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective under the Act; no
stop order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as of the Effective
Date, and each amendment or supplement thereto as of its effective or issue date
(except for the financial statements and other financial data included therein
or omitted therefrom, as to which Company Counsel need not express an opinion)
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company.
(vii) The descriptions in the Registration Statement and the Prospectus
of statutes, regulations, government classifications, contracts and other
documents (including opinions of such counsel); and, based upon such review, are
accurate in all material respects and present fairly the information required to
be disclosed, and there are no material statutes, regulations or government
classifications, or, to the best of Company Counsel's knowledge, material
contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, or self regulatory organization, including, without limitation, the
NASD, NYSE and AMEX, having jurisdiction over the Company or any of its assets
or businesses, including, without limitation, those promulgated by the
Commission and comparable state and local regulatory authorities.
(viii) The outstanding Common Stock and outstanding options and
warrants to purchase Common Stock have been duly authorized and validly issued.
The outstanding Common Stock are fully paid and nonassessable. The outstanding
options and
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warrants to purchase Common Stock constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. None of the
outstanding Common Stock or options or warrants to purchase Common Stock has
been issued in violation of the preemptive rights of any stockholder of the
Company. None of the holders of the outstanding Common Stock is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Stock and outstanding options and warrants to purchase
Common Stock were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Stock and outstanding options and warrants
to purchase Common Stock conform to the descriptions thereof contained in the
Registration Statement and Prospectus. Except as set forth in the Prospectus, no
holders of any of the Company's securities has any rights, "demand", "piggyback"
or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly authorized and,
when the Shares have been issued and duly delivered against payment therefor as
contemplated by the Underwriting Agreement, the Shares will be validly issued,
fully paid and nonassessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. The Shares are not
subject to preemptive rights of any stockholder of the Company. The certificates
representing the Shares are in proper legal form.
(x) The issuance and sale of the Warrant Shares issuable upon exercise
of the Underwriter's Warrants have been duly authorized and, when such Warrant
Shares have been duly delivered against payment therefor, as contemplated by the
Underwriter's Warrant Agreement, such Warrant Shares will be validly issued,
fully paid and nonassessable. Holders of Warrant Shares issuable upon exercise
of the Underwriter's Warrants will not be subject to personal liability solely
by reason of being such holders. Neither the Underwriter's Warrants nor the
Warrant Shares issuable upon exercise thereof will be subject to preemptive
rights of any stockholder of the Company. The Company has reserved a sufficient
number of Common Stock from its authorized, but unissued Common Stock for
issuance upon exercise of the Underwriter's Warrants in accordance with the
provisions of the Underwriter's Warrant Agreement. The Underwriter's Warrants
conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Firm Shares to the Underwriter against
payment therefor as provided in the Underwriting Agreement, the Underwriters
will acquire good title to the Firm Shares, free and clear of all liens,
encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the over-allotment option
to purchase any of the Optional Shares and makes payment therefor in accordance
with the terms of the Underwriting Agreement, upon delivery of the Optional
Shares to the Underwriter hereunder, the Underwriter (assuming it is a bona fide
purchaser within the meaning of the Uniform Commercial Code) will acquire good
title to such Optional Shares, free and clear of any liens, encumbrances,
equities, security interests and claims.
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(xiii) To the best of Company Counsel's knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company, or
involving the Company's properties or businesses, other than as described in the
Prospectus, such description being accurate, and other than litigation incident
to the kind of business conducted by the Company which, individually and in the
aggregate, is not material.
(xiv) The Company owns or possesses adequate and enforceable rights to
use all patents, patent applications, trademarks, service marks, copyrights,
rights, trade secrets, confidential information, processes and formulations used
or proposed to be used in the conduct of its business as described in the
Prospectus (collectively the "Intangibles"); to the best of Company Counsel's
knowledge, the Company has not infringed nor is infringing the rights of others
with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, the Company has not received any notice that it has or may have
infringed, is infringing upon or is conflicting with the asserted rights of
others with respect to the Intangibles which might, singly or in the aggregate,
materially adversely affect its business, results of operations or financial
condition and such counsel is not aware of any licenses with respect to the
Intangibles which are required to be obtained by the Company other than those
licenses which the Company has obtained. The opinions described in this Section
6(b)(xiv) may be given by Company Counsel in reliance on the opinion of an
attorney, reasonably acceptable to Underwriter's Counsel, practicing in the
patent area.
Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or that (B) the Prospectus (except as to the financial statements
and other financial data contained therein, as to which Company Counsel need not
express an opinion) contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Each counsel giving an opinion must give the opinion
set forth in this paragraph as to such subject matter of its opinion.
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