SHERWOOD BRANDS, INC.
1,550,000 Shares of Class A Common Stock
(Par Value $.01 Per Share)
and
Warrants to Purchase 775,000 Shares of Class A Common Stock
UNDERWRITING AGREEMENT
Paragon Capital Corporation New York, New York
0 Xxxxxxx Xxxxxx ___________, 1998
New York, New York 10004
Dear Sirs:
Sherwood Brands, Inc., a North Carolina corporation (the
"Company"), proposes to issue and sell to Paragon Capital Corporation (the
"Underwriter") an aggregate of one million five hundred and fifty thousand
(1,550,000) shares of Class A common stock of the Company, par value $.01 per
share (the "Offered Shares"), which Offered Shares are presently authorized but
unissued shares of the Class A common stock, par value $.01 per share
(individually, a "Class A Common Share" and collectively the "Class A Common
Shares"), of the Company, at a price of Five Dollars and Ninety-Five Cents
($5.95) per Offered Share, and seven hundred and seventy-five thousand (775,000)
Class A Common Share purchase warrants (the "Offered Warrants"), at a price of
Ten Cents ($.10) per Offered Warrant, entitling the holder of each Offered
Warrant to purchase, during the four (4) year period commencing ________, 1999,
one (1) Class A Common Share, at an exercise price of Seven Dollars and Fifty
Cents ($7.50) (subject to adjustment in certain circumstances). The Company
shall have the right to call each Offered Warrant for redemption upon not less
than thirty (30) days' written notice at any time at a redemption price of Ten
Cents ($.10) per Offered Warrant, provided that the closing bid quotation of the
Company's Class A Common Stock has been at least 134% of the effective exercise
price of the Offered Warrants for all twenty (20) trading days ending upon the
third day prior to the day on which notice of redemption is given. In addition,
the Underwriter, in order to cover over-allotments in the sale of the Offered
Shares and/or Offered Warrants, may purchase an aggregate of not more than two
hundred thirty-two thousand five hundred (232,500) Class A Common Shares (the
"Optional Shares") and/or one hundred sixteen thousand two hundred and fifty
(116,250) Class A Common Share purchase warrants (the "Optional Warrants")
entitling the holder of each Optional Warrant to purchase one (1) Class A Common
Share on the same terms as the Offered Warrants. The Offered Shares and the
Optional Shares are hereinafter collectively referred to as the "Shares"; and
the Offered Warrants and the Optional Warrants are
hereinafter collectively referred to as the "Warrants." The Warrants will be
issued pursuant to a Warrant Agreement (the "Warrant Agreement") to be dated as
of the Closing Date (as hereinafter defined) by and among the Company, the
Underwriter and Continental Stock Transfer & Trust Company, as warrant agent
(the "Warrant Agent").
The Company also proposes to issue and sell to the Underwriter for its
own account and the accounts of its designees, warrants (the "Underwriter's
Warrants") to purchase an aggregate of one hundred fifty-five thousand (155,000)
Class A Common Shares (collectively, the "Underlying Shares") at an exercise
price of $7.14 per Underlying Share and up to 77,500 warrants (each exercisable
to purchase one Class A Common Share at a price of $7.14 per share) at an
exercise price of $.12 per warrant (collectively, the "Underwriter's Warrants"),
which sale will be consummated in accordance with the terms and conditions of
the form of Underwriter's Warrant filed as an exhibit to the Registration
Statement. The Underlying Shares and the Class A Common Shares issuable upon
exercise of the Warrants and the Underlying Warrants are hereinafter sometimes
referred to as the "Warrant Shares." The Class A Common Shares, the Warrants,
the Underwriter's Warrants, the Underlying Warrants and the Warrant Shares
(collectively, the "Securities") are more fully described in the Registration
Statement and the Prospectus, as defined below.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares and Offered Warrants.
On the basis of the representations and warranties herein contained, but subject
to the terms and conditions herein set forth, the Company hereby agrees to sell
the Offered Shares and the Offered Warrants to the Underwriter, and the
Underwriter agrees to purchase the Offered Shares and the Offered Warrants from
the Company, at purchase prices of $____ per Offered Share and $____ per Offered
Warrant. The Underwriter plans to offer the Offered Shares and Offered Warrants
to the public at a public offering price of $____ per Offered Share and $____
per Offered Warrant.
2. Payment and Delivery.
(a) Payment for the Offered Shares and Offered
Warrants will be made to the Company by wire transfer or certified or official
bank check or checks payable to its order in New York Clearing House funds, at
the offices of the Underwriter, Paragon Capital Corporation, 0 Xxxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, against delivery of the Offered Shares and Offered
Warrants to the Underwriter. Such payment and delivery will be made at ____, New
York City 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 Offered Shares and/or Offered Warrants commences on the day following the
Effective Date), the
-2-
date and time of such payment and delivery being herein called the "Closing
Date." The certificates representing the Offered Shares and Offered Warrants to
be delivered will be in such denominations and registered in such names as the
Underwriter may request not less than two full business days prior to the
Closing Date, and will be made available to the Underwriter for inspection,
checking and packaging at the office of the Company's transfer agent or
correspondent in New York City, Continental Stock Transfer & Trust Company, 0
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the designees of the Underwriter
limited to officers, directors and partners of the Underwriter, members of the
selling group and/or their officers, directors or partners (collectively, the
"Underwriter's Designees"). The Underwriter's Warrants will be in the form of,
and in accordance with, the provisions of the Underwriter's Warrant attached as
an exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is $100.00. The Underwriter's Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the Effective Date, except to the Underwriter's Designees. Payment for the
Underwriter's Warrant Agreement will be made to the Company by check or checks
payable to its order on the 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 the
Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares and /or Optional
Warrants.
(a) For the purposes of covering any overallotments
in connection with the distribution and sale of the Offered Shares and Offered
Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an
option to purchase all or any part of the Optional Shares from ______________
and/or Optional Warrants from the Company. The purchase price to be paid for the
Optional Shares and Optional Warrants will be the same price per Optional Share
and Optional Warrant as the price per Offered Share or Optional Warrant, as the
case may be, set forth in Section 1 hereof. The option granted hereby may be
exercised by the Underwriter as to all or any part of the Optional Shares and/or
the Optional Warrants at any time within 45 days after the Effective Date. The
Underwriter will not be under any obligation to purchase any Optional Shares or
Optional Warrants prior to the exercise of such option.
(b) The option granted hereby may be exercised by
the Underwriter by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares and/or
Optional Warrants to be purchased, the
-3-
date and time for delivery of and payment for the Optional Shares and Optional
Warrants to be purchased and stating that the Optional Shares and Optional
Warrants referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Offered
Shares and Offered Warrants. If such notice is given prior to the Closing Date,
the date set forth therein for such delivery and payment will not be earlier
than either two full business days thereafter or the Closing Date, whichever
occurs later. If such notice is given on or after the Closing Date, the date set
forth therein for such delivery and payment will not be earlier than two full
business days thereafter. In either event, the date so set forth will not be
more than 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, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares and Optional Warrants specified in such notice.
(c) Payment for any Optional Shares and Optional
Warrants purchased will be made to the Company by wire transfer or certified or
official bank check or checks payable to its order in New York Clearing House
funds, at the office of the Underwriter, against delivery of the Optional Shares
and Optional Warrants purchased to the Underwriter. The certificates
representing the Optional Shares and Optional Warrants to be delivered will be
in such denominations and registered in such names as the Underwriter requests
not less than two full business days prior to the Option Closing Date, and will
be made available to the Underwriter for inspection, checking and packaging at
the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to the Option Closing Date.
(d) The obligation of the Underwriter to purchase
and pay for any of the Optional Shares or Optional Warrants is subject to the
accuracy and completeness (as of the date hereof and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy and completeness of the
statements of the Company or its officers made in any certificate or other
document to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions, as of the date
hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and
to the delivery to the Underwriter of opinions, certificates and letters dated
the Option Closing Date substantially similar in scope to those specified in
Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered
Shares," "Offered Warrants" and "Closing Date" to be, respectively, to the
Optional Shares, Optional Warrants and the Option Closing Date.
-4-
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina, with full power and authority, corporate and other, to own or lease
and operate, as the case may be, its properties, whether tangible or intangible,
and to conduct its business as described in the Registration Statement 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 as a foreign corporation and is 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 operations, business or properties of the Company. Other
than the companies listed on Schedule A to this Agreement (the "Subsidiaries"),
the Company has no subsidiaries.
(b) Sherwood Brands, L.L.C. ("Sherwood LLC"), a
wholly-owned subsidiary of the Company, is a limited liability corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, with full power and authority, corporate and other, and with all
permits necessary to own or lease and operate, as the case may be, its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Sherwood LLC is duly qualified to do
business as a foreign corporation and is 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 operations,
business or properties of Sherwood LLC.
(c) Sherwood Brands Overseas, Inc. ("Overseas"), a
wholly-owned subsidiary of Sherwood LLC, is a Bahamas Corporation duly
organized, validly existing and in good standing under the laws of the Bahamas,
with full power and authority, corporate and other, and with all permits
necessary to own or lease and operate, as the case may be, its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. Overseas is duly qualified to do business as a foreign
corporation and is 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 operations, business or
properties of Overseas.
(d) Except as otherwise stated herein, the Company
owns all of the issued and outstanding shares of capital stock of each
Subsidiary, free and clear of any security interests, liens, encumbrances,
claims and charges, and all of such shares have been duly authorized and validly
issued and are fully paid and non-assessable. There are no options or warrants
for the purchase of,
-5-
or other rights to purchase, or outstanding securities convertible into or
exchangeable for, any capital stock or other securities of any Subsidiary.
(e) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and each of the Warrant Agreement, the Underwriter's Warrant Agreement
and the Consulting Agreement described in Section 5(r) hereof (the "Consulting
Agreement"), when executed and delivered by the Company on the Closing Date,
will be the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms. The execution, delivery
and performance of this Agreement, the Warrant Agreement, the Consulting
Agreement and the Underwriter's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement, the Warrant
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Certificate of Incorporation or By-Laws, each as
amended, 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 result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties or
businesses; or (iv) have any effect on any permit, certification, registration,
approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties and to conduct their respective
businesses or the ability of the Company to make use thereof.
(f) No Permits of any court or governmental agency
or body, other than under the Securities Act of 1933, as amended (the "Act"),
the Regulations (as hereinafter defined) and applicable state securities or Blue
Sky laws, are required (i) for the valid authorization, issuance, sale and
delivery of the Securities to the Underwriter, and (ii) the consummation by the
Company of the transactions contemplated by this Agreement, the Consulting
Agreement or the Underwriter's Warrant Agreement.
(g) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to
-6-
Form SB-2 have been satisfied with respect to the Company, the transactions
contemplated herein and in the Registration Statement. The Company has prepared
in conformity with the requirements of the Act and the rules and regulations
(the "Regulations") of the Securities and Exchange Commission (the "Commission")
and filed with the Commission a registration statement (File No. 333-___) on
Form SB-2 and has filed one or more amendments thereto, 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") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(a)(5) of Regulation
S-B of the Regulations and, if applicable, Rule 430A of the Regulations. Such
registration statement including any documents incorporated by reference therein
and all financial schedules and exhibits thereto, as amended at the time it
becomes effective, and the final prospectus included therein are herein,
respectively, called the "Registration Statement" and the "Prospectus," except
that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the
Regulations differs from the Prospectus, the term "Prospectus" will also include
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the date the
Registration Statement is declared effective by the Commission (the "Effective
Date") and prior to the Option Closing Date, the terms "Registration Statement"
and "Prospectus" shall include the Registration Statement as amended or
supplemented.
(h) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(i) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date, referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions 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.
-7-
(j) The Company had at the date or dates indicated
in the 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 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.
(k) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(l) XXX Xxxxxxx, LLP, the accountants who have
certified certain of the consolidated financial statements filed and to be filed
with the Commission as part of the Registration Statement and the Prospectus,
are independent public accountants within the meaning of the Act and
Regulations. The consolidated financial statements and schedules and the notes
thereto filed as part of the Registration Statement and included in the
Prospectus are complete, correct and present fairly the financial position of
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company for the periods indicated therein, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as otherwise stated in the
Registration Statement and the Prospectus. 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.
(m) The Company and each Subsidiary have 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 consolidated financial statements filed with or as
-8-
part of the Registration Statement 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. Except as
disclosed in writing to the Underwriter, neither the Company nor any Subsidiary
has 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 or any Subsidiary.
(n) The outstanding Class A Common Shares and
outstanding options to purchase Class A Common Shares have been duly authorized
and validly issued. [Class B Common Shares] The outstanding Class A Common
Shares are fully paid and nonassessable. The outstanding options to purchase
Class A Common Shares constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms. None of the outstanding
Class A Common Shares or options to purchase Class A Common Shares has been
issued in violation of the preemptive rights of any shareholder of the Company.
None of the holders of the outstanding Class A Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Class A Common Shares and outstanding options to purchase
Class A Common Shares 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 Class A Common Shares and outstanding
options to purchase Class A Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. Except as set forth in
the Registration Statement and the Prospectus, on the Effective Date and the
Closing Date, there will be no outstanding options or warrants for the purchase
of, or other outstanding rights to purchase, Class A Common Shares or securities
convertible into Class A Common Shares.
(o) 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 years prior to the date hereof, except as disclosed in the Registration
Statement.
(p) The issuance and sale of the Class A Common
Shares and the Warrant Shares have been duly authorized and, when the Class A
Common Shares and the Warrant Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement and the Warrants, as the case
may be, the Class A Common Shares and the Warrant 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 Securities will
not be subject to preemptive rights of any shareholder of the Company.
-9-
(q) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrants, as the case may be, the Warrants, the
Underwriter's Warrants and the Underlying Warrants will constitute valid and
binding obligations of the Company, enforceable as to the Company in accordance
with their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement and Prospectus.
(r) Neither the Company nor any Subsidiary is in
violation of, or in default under, (i) any term or provision of its Certificate
of Incorporation or By-Laws, each as amended; (ii) any material term or
provision or any financial covenants of any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by which
it or any of its property or business is or may be bound or affected; or (iii)
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of the Company's or any Subsidiary's properties
or business. The Company and each Subsidiary owns, possesses or has obtained all
governmental and other (including those obtainable from third parties) Permits,
necessary to own or lease, as the case may be, and to operate its properties,
whether tangible or intangible, and to conduct the business and operations of
the Company as presently conducted and all such Permits are outstanding and in
good standing, and there are no proceedings pending or, to the best of the
Company's knowledge, threatened, or any basis therefor, seeking to cancel,
terminate or limit such Permits.
(s) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or any Subsidiary or
involving the Company's or any Subsidiary's properties or business which, if
determined adversely to the Company or any Subsidiary, would, individually or in
the aggregate, result in any material adverse change in the financial position,
shareholders' equity, results of operations, properties, business, management or
affairs of the Company or any Subsidiary or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's knowledge, is there any basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding
-10-
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or any Subsidiary and enjoining the Company or any Subsidiary
from taking, or requiring the Company or any Subsidiary to take, any action, or
to which the Company or any Subsidiary, or the Company's or any Subsidiary's
properties or businesses is bound or subject.
(t) Neither the Company nor any of its affiliates
has incurred any liability for any finder's fees or similar payments in
connection with the transactions herein contemplated.
(u) The Company and each of the Subsidiaries 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 their businesses as described in the Prospectus (collectively
the "Intangibles"); to the best of the Company's knowledge, neither the Company
nor any Subsidiary has infringed nor is infringing upon the rights of others
with respect to the Intangibles; and neither the Company nor any Subsidiary has
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company or any Subsidiary, and the Company knows
of no basis therefor; and, to the best of the Company's knowledge, no others
have infringed upon the Intangibles of the Company or any Subsidiary.
(v) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest consolidated financial statements, neither the Company nor any
Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not incurred in
the ordinary course of business, and has not sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
there have not been, and prior to the Closing Date referred to below there will
not be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any material adverse change in or affecting the
general affairs, management, financial condition, shareholders' equity, results
of operations or prospects of the Company or any Subsidiary, otherwise than as
set forth or contemplated in the Prospectus.
(w) The Company and each Subsidiary have good and
marketable title in fee simple to all real property and good title to all
personal property (tangible and intangible) owned by them, free and clear of all
security interests, charges, mortgages,
-11-
liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, 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 or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company nor any Subsidiary has
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. The Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses
located in its geographic area.
(x) Each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their properties or businesses are or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or any Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge, any
other party, is in default thereunder and, to the best of the Company's
knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any Subsidiary or any of their respective assets or businesses,
including, without limitation, the Food, Drug and Cosmetic Act, as amended (the
"FD&C Act") and the rules and regulations promulgated thereunder.
(y) The employment, consulting, confidentiality and
non-competition agreements between the Company and between each Subsidiary and
its officers, employees and consultants, described in the Registration
Statement, are binding and enforceable obligations upon the respective parties
thereto in accordance with
-12-
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(z) Except as set forth in the 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.
(aa) Except as set forth in the Prospectus, neither
the Company nor any Subsidiary manufactures, fabricates or markets any product
or performs any service which is subject to regulation by the Federal Food and
Drug Administration (the "FDA"), or to any provision of the FD&C Act or any rule
or regulation promulgated thereunder.
With respect to the products manufactured,
fabricated or marketed by the Company and/or any Subsidiary and the services
performed by them which are subject to such regulation, the Company and each
subsidiary are in compliance with the provisions of the FD&C Act and the rules
and regulations promulgated thereunder.
(ab) To the best of the Company's knowledge, no
labor problem exists with any of the Company's or any Subsidiary's employees or
is imminent which could adversely affect the Company or any Subsidiary.
(ac) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(ad) The Class A Common Shares, Warrants and Warrant
Shares have been approved for listing on the Nasdaq SmallCap Market System.
(ae) The Company has provided to Xxxxxx Xxxxxxxxxx
LLP, counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated November 19, 1997.
Any certificate signed by an officer of the Company
or of any Subsidiary and delivered to the Underwriter or to
-13-
Underwriter's Counsel shall be deemed to be a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Securities
by the Underwriter or a dealer, file or publish any amendment or supplement to
the Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
two signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, two copies of all exhibits filed therewith and two signed
copies of all consents and certificates of experts.
-14-
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and Offered Warrants and in any
Optional Shares and Optional Warrants which may be issued and sold, and in the
Warrant Shares underlying such Warrants. If, at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
occurs as a result of which the Registration Statement and Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or if it shall
be necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper informa-
tion as may be required and otherwise cooperate in qualifying the Securities for
offering and sale under the securities or Blue Sky laws relating to the offering
in such jurisdictions as the Underwriter may reasonably designate, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Underwriter and to Underwriter's Counsel
on a timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K (or 10-K SB), 10-Q (or 10-Q SB) and
10-C and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) monthly statements setting forth
-15-
such information regarding the Company's results of operations and financial
position (including balance sheet, profit and loss statements and data regarding
outstanding purchase orders) as is regularly prepared by management of the
Company; and (v) such additional information concerning the business and
financial condition of the Company as the Underwriter may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that con-
trols, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Class A Common Shares
or the Warrants.
(i) If the transactions contemplated by this
Agreement are consummated, the Underwriter shall retain the $50,000 previously
paid to it, and the Company will pay or cause to be paid the following: all
costs and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing and mailing of the Selected Dealer Agreement,
the issuance and delivery of the Securities to the Underwriter; all taxes, if
any, on the issuance of the Securities; the fees, expenses and other costs of
qualifying the Securities for sale under the Blue Sky or securities laws of
those states in which the Securities are to be offered or sold, including fees
and disbursements of counsel in connection therewith, and including those of
such local counsel as may have been retained for such purpose; the filing fees
incident to securing any required review by the NASD and either the Boston Stock
Exchange or Pacific Stock Exchange; the cost of printing and mailing the "Blue
Sky Survey," the cost of furnishing to the Underwriter copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of placing "tombstone advertisements" in any publications
which may be selected by the Underwriter; and 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 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Underwriter will deduct from the payment
for the Offered Shares and Offered Warrants or any Optional Shares and/or
Optional Warrants purchased, three percent (3%) of the gross proceeds of the
offering (less the sum of $50,000 previously paid to the Underwriter), as
payment for the
-16-
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).
(j) If the transactions contemplated by this
Agreement or related hereto because the Company decides not to proceed with the
offering for any reason or because the Underwriter decides not to proceed with
the offering as a result of a breach by the Company of its representations,
warranties or covenants in the Agreement or as a result of adverse changes in
the affairs of the Company, then the Company will be obligated to reimburse the
Underwriter for its accountable out-of-pocket expenses up to the sum of $75,000,
inclusive of $50,000 previously paid to the Underwriter by the Company. In all
cases other than those set forth in the preceding sentence, if the Company or
the Underwriter decide not to proceed with the offering, the Company will only
be obligated to reimburse the Underwriter for its accountable out-of-pocket
expenses up to $50,000, and inclusive of $50,000 previously paid to the
Underwriter by the Company. In no event, however, will the Underwriter, in the
event the offering is terminated, be entitled to retain or receive more than an
amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Securities for the purposes set forth in the Prospectus.
(l) During the period of eighteen (18) months from
the Effective Date without the prior written consent of the Underwriter, (i)
neither the Company nor any of its officers, directors or securityholders will
offer for sale or otherwise dispose of, directly or indirectly, any securities
of the Company, in any manner whatsoever, whether pursuant to Rule 144 of the
Regulations or otherwise, other than by bona fide gift, will or the laws of
descent and distribution to the securityholder's spouse, children or
grandchildren, a trust for the benefit of such securityholder's spouse, children
or grandchildren, a partnership the general partner of which is the
securityholder (or a corporation, a majority of whose outstanding stock is owned
of record or beneficially by the securityholder or any of the forgoing) or
partners of the securityholder in connection with the securityholder
partnership's distribution of its securities to its partners; provided in each
case that the transferee first executes and delivers to the Underwriter the
transferee's written agreement to be bound by the provisions set forth in this
Section 5(l); and (ii) no holder of registration rights relating to securities
of the Company will exercise any such registration rights. In addition, for a
period of one (1) year following the foregoing lock-up
-17-
period, no officer, director or securityholder beneficially owning 5% or more of
the outstanding Class A Common Shares of the Company (calculated in accordance
with Rule 13d-3(d)(1) under the Exchange Act) (the "Principal Shareholders")
may, without the Underwriter's prior written consent, sell any of its Common
Shares during any three-month period in excess of the amount that the Principal
Shareholder would be allowed to sell if it were deemed an "affiliate" of the
Company and its Class A Common Shares were deemed "restricted" as those terms
are defined in Rule 144 promulgated under the Securities Act, i.e., in general,
no more than the greater of (a) 1% of the then outstanding Class A Common Shares
and (b) the average weekly trading value of the Class A Common Shares during the
four (4) calendar weeks preceding such sale. The Company will deliver to the
Underwriter the agreements (the "Lock-Up Agreements") of its officers,
directors, securityholders and registration rights holders to such effect prior
to Closing Date.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the eighteen (18)
months from the Effective Date, without the Underwriter's prior written consent
other than a registration statement relating to a public offering by the Company
of shares of its Common Stock in connection with which the Underwriter is
participating, or has been given the opportunity to participate, as a lead (name
on the Prospectus cover) underwriter on terms as favorable as the most favorable
underwriting terms given in connection with such offering.
(n) 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.
(o) The Company will use its best efforts to
maintain the listing of the Class A Common Shares and Warrants on NASDAQ and, if
so qualified, list the Securities and maintain such listing for so long as
qualified, on the NASDAQ National Market System.
(p) The Company will, concurrently with the
Effective Date, register the classes of equity securities of which the Class A
Common Shares are a part under Section 12(g) of the
-18-
Exchange Act and the Company will maintain such registration for a minimum of
five (5) years from the Effective Date.
(q) Subject to the provisions of applicable law, the
Underwriter shall be entitled to receive a warrant solicitation fee of 5% of the
aggregate exercise price of the Warrants for each Warrant exercised during the
period commencing one year after the Effective date.
(r) Subject to the sale of the Offered Shares and
Offered Warrants, the Underwriter and its successors will have the right to
designate a nominee for election, at its or their option, either as a member of
or a non-voting advisor to the Board of Directors of the Company (which Board,
during such period, shall be comprised of five (5) persons, a majority of the
members of which Board must, during such period, be persons not otherwise
affiliated with the Company, its management or its founders), and the Company
will use its best efforts to cause such nominee to be elected and continued in
office as a director of the Company or as such advisor until the expiration of
three (3) years from the Effective Date. Each of the Company's current officers,
directors and shareholders agrees to vote all of the Class A Common Shares and
shares of Class B common stock, par value $.01 (the "Class B Common Shares")
owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to indemnify
and hold such director or advisor harmless, to the maximum extent permitted by
law, against any and all claims, actions, awards and judgments arising out of
his service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured under such policy.
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Underwriter insofar as it
may be or may be alleged to be responsible for such director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
-19-
(s) The Company agrees to employ the Underwriter or
a designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written consulting agreement between the Company and the Underwriter and/or such
designee (the "Consulting Agreement"), at an annual rate of Forty-Eight Thousand
Dollars ($48,000) (exclusive of any accountable out-of-pocket expenses). In the
event that the underwriter's discount afforded to the Underwriter in connection
with its role as underwriter of the Company's initial public offering of Common
Stock is reduced from nine percent (9%) to eight percent (8%) or less, the
entire Ninety-Six Thousand Dollars ($96,000) is payable in full, in advance, on
the Closing Date. In the event that the underwriter's discount referred to above
remains at nine percent (9%), then Forty-Eight Thousand Dollars ($48,000) shall
be payable monthly, at the rate of Two Thousand Dollars ($2,000) per month,
commencing on the first day of the month following the Closing Date, until such
amount is paid in full. In addition, the Consulting Agreement shall provide that
the Company will pay the Underwriter a finder's fee in the event that the
Underwriter originates a financing, merger, acquisition, joint venture or other
transaction to which the Company is a party. The Company further agrees to
deliver a duly and validly executed copy of said Consulting Agreement, in form
and substance acceptable to the Underwriter, on the Closing Date.
(t) The Company shall retain a transfer agent for
the Class A Common Shares and Warrants, reasonably acceptable to the
Underwriter, for a period of five (5) years from the Effective Date. In
addition, for a period of five (5) years from the Effective Date, the Company,
at its own expense, shall cause such transfer agent to provide the Underwriter,
if so requested in writing, with copies of the Company's daily transfer sheets,
and, when requested by the Underwriter, a current list of the Company's
securityholders, including a list of the beneficial owners of securities held by
a depository trust company and other nominees.
(u) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(v) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Xxxxx'x Industrial Manual (Xxxxx'x OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of five years from the Effective Date.
-20-
(w) For a period of five (5) years from the
Effective Date, the Company shall provide the Underwriter, on a not less than
annual basis, with internal forecasts setting forth projected results of
operations for each quarterly and annual period in the two (2) fiscal years
following the respective dates of such forecasts. Such forecasts shall be
provided to the Underwriter more frequently than annually if prepared more
frequently by management, and revised forecasts shall be prepared and provided
to the Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(x) For a period of five (5) years from the
Effective Date, or until such earlier time as the Class A Common Shares and
Warrants are listed on the New York Stock Exchange or the American Stock
Exchange, the Company shall cause its legal counsel to provide the Underwriter
with a list, to be updated at least annually, of those states in which the Class
A Common Shares and Warrants may be traded in non-issuer transactions under the
Blue Sky laws of the 50 states.
(y) For a period of five (5) years from the
Effective Date, the Company shall continue to retain BDO Xxxxxxx, LLP (or such
other nationally recognized accounting firm acceptable to the Underwriter) as
the Company's independent public accountants.
(z) For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its then independent
certified public accountants, as described in Section 5(x) 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 shareholders.
(aa) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(ab) The Company will not increase or authorize an
increase in the compensation of its five (5) most highly paid employees greater
than those increases provided for in their employment agreements with the
Company in effect as of the Effective Date and disclosed in the Registration
Statement without the prior written consent of the Underwriter, for a period of
three (3) years from the Effective Date.
-21-
(ac) For a period of five (5) years from the
Effective Date, the Company will promptly submit to the Underwriter copies of
accountant's management reports and similar correspondence between the Company's
accountants and the Company.
(ad) For a period of five (5) years from the
Effective Date, the Company will not offer or sell any of its securities
pursuant to Regulation S promulgated under the Act without the prior written
consent of the Underwriter.
(ae) For a period of three (3) years from the
Effective Date, the Company will provide to the Underwriter ten day's written
notice prior to any issuance by the Company or its subsidiaries of any equity
securities or securities exchangeable for or convertible into equity securities
of the Company, except for (i) Class A Common Shares or Class B Common Shares
issuable upon exercise of currently outstanding options and warrants or
conversion of currently outstanding convertible securities and (ii) options
available for future grant pursuant to any stock option plan in effect on the
Effective Date and the issuance of Class A Common Shares or Class B Common
Shares upon the exercise of such options.
(af) Prior to the Effective Date and for a period of
three (3) years thereafter, the Company will retain a financial public relations
firm reasonably acceptable to the Underwriter.
(ag) For a period of three (3) years from the
Effective Date, the Company will cause its Board of Directors to meet, either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
6. Conditions of the Underwriter's Obligation to Purchase
Securities from the Company. The obligation of the Underwriter to purchase and
pay for the Offered Shares and Offered Warrants which it has agreed to purchase
from the Company is subject (as of the date hereof and the Closing Date) to the
accuracy of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company or its officers made pursuant hereto, to the performance in all material
respects by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement will have become
effective not later than ____ .M., New York City time, on the day following the
date of this Agreement, or at such later time or on such later date as the
Underwriter may agree to in writing; prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no proceedings for that purpose will have been initiated or will be pending
or, to the best of the Underwriter's or the Company's knowledge, will be
-22-
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriter's Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Underwriter a signed
opinion of Xxxxxxxxx Xxxxxxx Xxxxxxx Xxxxxx Xxxxx & Xxxxxxx, P.A., with offices
located at 0000 Xxxxxxxx Xxxxxx, Xxxxx, Xxxxxxx 00000, counsel for the Company
("Company Counsel"), dated as of the date hereof or the Closing Date, as the
case may be (and any other opinions of counsel referred to in such opinion of
Company Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina, 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. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company. To the best of Company Counsel's
knowledge, other than the Subsidiaries the Company has no subsidiaries.
Sherwood LLC, a wholly owned subsidiary of the
Company, is a limited liability corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland, with full power and
authority, corporate and other, and with all permits necessary to own or lease
and operate, as the case may be, its properties, whether tangible or intangible,
and to conduct its business as described in the Registration Statement. Sherwood
LLC is duly qualified to do business as a foreign corporation and is 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 operations, business or properties of Sherwood LLC.
Overseas, a wholly-owned subsidiary of Sherwood LLC,
is a Bahamas Corporation duly organized, validly existing and in good standing
under the laws of the Bahamas, with full power and authority, corporate and
other, and with all permits necessary to own or lease and operate, as the case
may be, its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement. Overseas is duly qualified
to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure to so qualify
could have a material adverse
-23-
effect on the financial condition, results of operations, business or
properties of Overseas.
Except as otherwise stated herein, the Company owns
all of the issued and outstanding shares of capital stock of each Subsidiary,
free and clear of any security interests, liens, encumbrances, claims and
charges, and all of such shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement,
the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant
Agreement have been duly authorized by all necessary corporate action, and this
Agreement and each of the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement has been duly executed and delivered by the
Company. This Agreement is (assuming for the purposes of this opinion that it is
valid and binding upon the other party thereto) and, when executed and delivered
by the Company on the Closing Date, each of the Consulting Agreement, the
Warrant Agreement and 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 provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.
(iii) The execution, delivery and performance of
this Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrant Agreement by the Company, the consummation by the Company
of the transactions herein and therein contemplated and the compliance by the
Company with the terms of this Agreement, the Consulting Agreement, the Warrant
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 or any Subsidiary, (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
-24-
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of the Company's or any Subsidiary'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, having jurisdiction over the Company or any Subsidiary or
any of the Company's or any Subsidiary's properties or business; or (D) have any
effect on any Permit necessary for the Company or any Subsidiary to own or lease
and operate their respective properties or conduct its their businesses or the
ability of the Company to make use thereof.
(iv) To the best of Company Counsel's knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
for the valid authorization, issuance, sale and delivery of the Securities to
the Underwriter, and the consummation by the Company of the transactions
contemplated by this Agreement, the Consulting Agreement, the Warrant Agreement
or the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company Counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are pending, threatened
or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus,
as of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or government classifications, or, to the best of Company Counsel's
knowledge, material contracts or documents, of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits
-25-
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 having
jurisdiction over the Company or any Subsidiary or any of their assets or
businesses, including, without limitation, those relating to the FD&C Act and
the rules and regulations promulgated therein.
(viii) The outstanding Class A Common Shares and
outstanding options and warrants to purchase Class A Common Shares have been
duly authorized and validly issued. [Class B Common Shares] The outstanding
Class A Common Shares are fully paid and nonassessable. The outstanding options
to purchase Class A Common Shares constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. None of the
outstanding Class A Common Shares or options to purchase Class A Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Class A Common Shares is subject
to personal liability solely by reason of being such a holder. The offers and
sales of the outstanding Class A Common Shares and outstanding options to
purchase Class A Common Shares 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 Class A Common Shares and
outstanding options to purchase Class A Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus. To
the best of Company Counsel's knowledge, except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand",
"piggyback" or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Class A Common
Shares and the Warrant Shares have been duly authorized and, when the Class A
Common Shares and Warrant Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement or by the Warrants, as the
case may be, the Class A Common Shares and the Warrant 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 Class
A Common Shares and Warrant Shares are not subject to preemptive rights of any
shareholder of the Company. The certificates representing the Class A Common
Shares and Warrant Shares are in proper legal form.
(x) The issuance and sale of the Warrants, the
Underwriter's Warrants and the Underlying Warrants have been duly authorized
and, when issued, paid for and delivered pursuant to the terms of this Agreement
or the Underwriter's Warrants, as the case may be, the Warrants, the
Underwriter's
-26-
Warrants and the Underlying Warrants will constitute valid and binding
obligations of the Company, enforceable as to the Company in accordance with
their terms. The Warrant Shares have been duly reserved for issuance upon
exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants
in accordance with the provisions of the Warrants, the Underwriter's Warrants
and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying
Warrants will conform to the descriptions thereof contained in the Registration
Statement.
(xi) Upon delivery of the Offered Shares and Offered
Warrants to the Underwriter against payment therefor as provided in this
Agreement, the Underwriter (assuming it is a bona fide purchaser within the
meaning of the Uniform Commercial Code) will acquire good title to the Offered
Shares and Offered Warrants, 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/or Optional
Warrants and makes payment therefor in accordance with the terms of this
Agreement, upon delivery of the Optional Shares and/or Optional Warrants 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 and/or Optional Warrants, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any Subsidiary, or involving the Company's or any
Subsidiary'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 and each Subsidiary each 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, neither the Company
nor any Subsidiary has infringed nor is infringing with the rights of others
with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, neither the Company nor any Subsidiary has 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
-27-
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.
(xv) Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
The opinion letter delivered pursuant to this
Section 6(b) shall state that any opinion given therein qualified by the phrase
"to the best of our knowledge" is being given by Company Counsel after due
investigation of the matters therein discussed.
(c) At the time this Agreement is executed and at
the Closing Date, there will have been delivered to the Underwriter a signed
opinion of _________________, regulatory counsel to the Company, dated as of the
date hereof and the Closing Date, in form and substance satisfactory to the
Underwriter and its counsel.
(d) At the Closing Date (i) the Registration State-
ment and the Prospectus and any amendments or supplements thereto will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations and will conform in all material respects to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur
-28-
after the Effective Date; (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no material transaction, contract or agreement entered into by
the Company, other than in the ordinary course of business, which would be
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein; and (iv) no action, suit or proceeding at law or in
equity will be pending or, to the best of the Company's knowledge, threatened
against the Company which is required to be set forth in the Registration
Statement and the Prospectus, other than as set forth therein, and no
proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the Underwriter a certificate signed by the Chairman
of the Board or the President or a Vice President of the Company, dated the
Closing Date, evidencing compliance with the provisions of this Section 6(d) and
stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to the best of his knowledge, are contemplated or threatened. In
addition, the Underwriter will have received such other and further certificates
of officers of the Company as the Underwriter or Underwriter's Counsel may
reasonably request.
(e) At the time that this Agreement is executed and
at the Closing Date, the Underwriter will have received a signed letter from BDO
Xxxxxxx, LLP, dated the date such letter is to be received by the Underwriter
and addressed to it, confirming that it is a firm of independent public
accountants within the meaning of the Act and Regulations and stating that: (i)
insofar as reported on by them, in their opinion, the financial statements of
the Company included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of
-29-
the Company responsible for financial and accounting matters as to the
transactions and events subsequent to the date of the latest audited financial
statements of the Company, and a reading of the minutes of meetings of the
shareholders, the Board of Directors of the Company and any committees of the
Board of Directors, as set forth in the minute books of the Company, nothing has
come to their attention which, in their judgment, would indicate 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 business days prior to the date of such letter, there have been
any decreases in net current assets or net assets as compared with amounts shown
in such financial statements or decreases in net sales or decreases in total or
per share net income compared with the corresponding period in the preceding
year or any change in the capitalization or long-term debt of the Company,
except in all cases as set forth in or contemplated by the Registration
Statement and the Prospectus, and (B) the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited financial
statements included in the Registration Statement or the Prospectus; and (iii)
they have compared specific dollar amounts, numbers of shares, numerical data,
percentages of revenues and earnings, and other financial information pertaining
to the Company set forth in the Prospectus (with respect to all dollar amounts,
numbers of shares, percentages and other financial information contained in the
Prospectus, to the extent that such amounts, numbers, percentages and
information may be derived from the general accounting records of the Company,
and excluding any questions requiring an interpretation by legal counsel) with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter, and found them to be in agreement.
(f) There shall have been duly tendered to the
Underwriter certificates representing the Offered Shares and Offered Warrants to
be sold on the Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Securities by the Underwriter.
(h) 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 Securities, and no proceedings for the purpose of taking such action
shall have been
-30-
instituted or shall be pending, or, to the best 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.
(i) The Company meets the current and any existing
and proposed criteria for inclusion of the Class A Common Shares and Warrants on
Nasdaq.
(j) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Securities 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 Section 6(c) hereof and in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company, the performance of any covenants of the Company,
or the compliance by the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriter the written undertakings of its officers, directors
and securityholders and/or registration rights holders, as the case may be, to
the effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6
have not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter, each officer, director, partner, employee and agent of
the Underwriter, and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration
-31-
Statement or Prospectus as from time to time amended or supplemented) or (ii) in
any application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Securities under the securities laws thereof
(hereinafter "application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from the Underwriter or other indemnified person; (B) the
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Securities to such person; and (C) the Prospectus did not contain any
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which they or
any of them may become subject under the Act or under any other statute or at
common law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Securities under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the
-32-
circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to be represented by separate counsel, the indemnified party or parties
shall have the right to employ a single counsel to represent the indemnified
parties who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriter (including, for this purpose, any
contribution by or on behalf of each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and
-33-
expenses whatsoever to which any of them may be subject, so that the Underwriter
is responsible for the proportion thereof equal to the percentage which the
underwriting discounts per Class A Common Share and per Warrant set forth on the
cover page of the Prospectus represents of the initial public offering price per
Class A Common Share and per Warrant set forth on the cover page of the
Prospectus and the Company is responsible for the remaining portion; provided,
however, that if applicable law does not permit such allocation, then, if
applicable law permits, other relevant equitable considerations such as the
relative fault of the Company and the Underwriter in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, 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, alleged statement,
omission or alleged omission. The Company and the Underwriter agree that it
would be unjust and inequitable if the respective obligations of the Company and
the Underwriter for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee and
agent of the Underwriter will have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
-34-
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Securities.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares and Offered Warrants for public offering.
The time when the Underwriter "releases the Offered Shares and Offered Warrants
for public offering" for the purposes of this Section 10 means the time when the
Underwriter releases for publication the first newspaper advertisement, which is
subsequently published, relating to the Offered Shares and/or the Offered
Warrants, or the time when the Underwriter releases for delivery to members of a
selling group copies of the Prospectus and an offering letter or an offering
telegram relating to the Offered Shares and Offering Warrants, whichever will
first occur.
(b) This Agreement, including without limitation,
the obligation to purchase the Offered Shares and the Offered Warrants and the
obligation to purchase the Optional Shares and/or the Optional Warrants after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares and
Offered Warrants or such Optional Shares and/or Optional Warrants, as the case
may be, if, prior to such time, any of the following shall have occurred: (i)
the Company withdraws the Registration Statement from the Commission or the
Company does not or cannot expeditiously proceed with the public offering; (ii)
the representations and warranties in Section 4 hereof are not materially
correct or cannot be complied with; (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; (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, including any of the Offered Shares, the Offered Warrants,
the Optional Shares or the Optional Warrants, 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) trading in any securities of
the Company shall have been suspended or halted by any national securities
exchange, the NASD or the Commission; (viii) there has been a materially adverse
change in the condition (financial or otherwise), prospects or obligations of
the Company; (ix) the Company will have sustained a material loss, whether or
not
-35-
insured, by reason of fire, flood, accident or other calamity; (x) any action
has been taken by the government of the United States or any department or
agency thereof which, in the judgment of the Underwriter, has had a material
adverse effect upon the market or potential market for securities in general; or
(xi) the market for securities in general or political, financial or economic
conditions will have so materially adversely changed that, in the judgment of
the Underwriter, it will be impracticable to offer for sale, or to enforce
contracts made by the Underwriter for the resale of, the Offered Shares, the
Offered Warrants, the Optional Shares or the Optional Warrants, as the case may
be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 10 or if the purchases provided for herein are
not consummated because any condition of the Underwriter's obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Securities, the
information in the __ paragraph on page __ with respect to concessions and
reallowances, and the information in the ___ paragraph on page ___ with respect
to the determination of the public offering price, as such information appears
in any Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Paragon Capital Corporation,
Attention: Xxxxxx X. Xxxxxx, President, 0 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, with a copy to Xxxxxx Xxxxxxxxxx LLP, Attention: Xxxxxx X. Xxxxxxx, Esq.,
000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000; if to the Company, to Sherwood
Brands, Inc., Attention, Xxxxx Xxxxxxx, President and Chief Executive Officer,
0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxxxxxx, Xxxxxxxx 00000, with a copy to
Xxxxxxxxx Xxxxxxx Xxxxxxx Xxxxxx Xxxxx & Xxxxxxx, P.A., Attention: Xxxx Xxxxxxx,
Esq., 0000 Xxxxxxxx Xxxxxx, Xxxxx, Xxxxxxx 00000.
-36-
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) 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, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) 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
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in 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.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Securities from
the Underwriter, as such purchaser.
-37-
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
SHERWOOD BRANDS, INC.
By
----------------------------------
Name:
Title:
Confirmed and accepted in New York, N.Y., as of the date first above written:
PARAGON CAPITAL CORPORATION
By
----------------------------------
Name:
Title:
-38-
Schedule A
1. Sherwood Brands, LLC
2. Sherwood Brands Overseas, Inc.