Exhibit 1.1
Draft 12/31/97
CONNECTICUT VALLEY SPORTS, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1998
Briarwood Investment Counsel
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned, Connecticut Valley Sports, Inc., a Delaware corporation
(the "Company"), hereby confirms its agreement with Briarwood Investment
Counsel (the "Underwriter" or "You"), as follows:
1. Introduction. The Company proposes to issue and sell to the
Underwriter an aggregate of 1,500,000 units (the "Offered Units") at a price
of $5.10 per Offered Unit, consisting of an aggregate of 1,500,000 shares of
Common Stock, $.0001 par value (the "Common Stock"), of the Company and
1,500,000 redeemable Common Stock purchase warrants (the "Redeemable
Warrants"), each Redeemable Warrant exercisable to purchase one share of
Common Stock. Each Redeemable Warrant shall be exercisable for a period of
three (3) years, commencing two years after the Effective Date, and shall
entitle the holder to purchase one share of Common Stock at a price equal to
$6.00 per share, which price is subject to adjustment in certain
circumstances to prevent dilution; provided, however, that in the event the
Company calls the Redeemable Warrants for redemption prior to the second
anniversary of the Effective Date, the Redeemable Warrants shall be
exercisable from the date on which the Redeemable Warrants are called for
redemption until the redemption date. The Company shall have the right, upon
the written consent of the Underwriter, to call each of the Redeemable
Warrants for redemption upon not less than thirty (30) days' prior written
notice at any time commencing one year from the Effective Date at a
redemption price of $.10 per Redeemable Warrant, subject to adjustment,
provided that the closing bid quotation of the Common Stock as reported on
The Nasdaq Stock Market or the last sales price if quoted on a national
securities exchange for a period of 20 consecutive trading days, which period
ends on the third trading day prior to the date on which the
Company gives notice of redemption, equals or exceeds $7.50 per share,
subject to adjustment in certain circumstances to prevent dilution. The
Redeemable Warrants will be issued pursuant to a warrant agreement dated the
date hereof between the Company and Continental Stock Transfer and Trust
Company (the "Public Warrant Agreement"), a form of which has been filed as
Exhibit 4.4 to the Registration Statement. It is contemplated that the
shares of Common Stock and the Redeemable Warrants comprising the Offered
Units will become detachable and trade separately and be purchasable
separately immediately upon issuance.
The 1,500,000 Offered Units, and the 1,500,000 shares of Common Stock
and 1,500,000 Redeemable Warrants included therein, are hereinafter referred
to as the "Firm Securities." Upon your request, as provided in Section 3 of
this Agreement, the Company shall also issue and sell to you up to an
additional 225,000 Units, for the purpose of covering over-allotments in the
sale of the Firm Securities. Such additional securities are hereinafter
referred as the "Option Securities." The Firm Securities and the Option
Securities are hereinafter sometimes referred to as the "Offered Securities."
The 1,725,000 shares of Common Stock included as part of the Offered
Securities are hereinafter referred to as the "Shares"; the 1,725,000 shares
of Common Stock issuable upon exercise of the Redeemable Warrants included as
part of the Offered Securities are hereinafter referred to as the "Public
Warrant Shares"; and the Offered Securities and Public Warrant Shares are
sometimes hereinafter referred to collectively as the "Public Securities."
The Company also proposes to issue and sell to you, pursuant to the
terms of a warrant agreement, dated as of the First Closing Date (as
hereinafter defined), between you and the Company (the "Underwriter's Warrant
Agreement"), warrants (the "Underwriter's Warrants) to purchase up to 150,000
shares of Common Stock and 150,000 Redeemable Warrants. The Underwriter's
Warrants shall be exercisable during the four-year period commencing 12
months from the Effective Date, at $5.50 per share of Common Stock and $.11
per Redeemable Warrant, subject to adjustment in certain events to protect
against dilution. The 150,000 shares of Common Stock issuable upon exercise
of the Underwriter's Warrants are hereinafter referred to as the
"Underwriter's Shares"; the 150,000 Redeemable Warrants issuable upon
exercise of the Underwriter's Warrants are hereinafter referred to as the
"Underwriter's Redeemable Warrants"; the 150,000 shares of Common Stock
issuable upon exercise of the Underwriter's Redeemable Warrants are
hereinafter referred to as the "Underwriter's Warrant Shares"; and the
Underwriter's Warrants, the Underwriter's Shares, the Underwriter's
Redeemable Warrants and the Underwriter's
-2-
Warrant Shares are sometimes hereinafter referred to collectively as the
"Underwriter's Securities." The Public Securities and the Underwriter's
Securities are sometimes hereinafter referred to collectively as the
"Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
2. Representations and Warranties. The Company represents and
warrants to, and agrees with, the Underwriter:
(a) A registration statement on Form SB-2 (File No. 333-37507)
including a preliminary form of prospectus, relating to the registration of
the Registered Securities has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and
said registration statement has been filed with the Commission under the Act.
One or more amendments to said registration statement has or have, as the
case may be, been similarly prepared and filed with the Commission and the
Company may file on or prior to the Effective Date of said registration
statement an additional amendment thereto which will include the final
prospectus. The Company will not, so long as any Redeemable Warrants or
Underwriter's Warrants remain outstanding and exercisable, file any amendment
thereto or any amendment or supplement to the Preliminary Prospectus or the
Prospectus (as those terms are defined below) unless the Company has given
reasonable and prior notice thereof to the Underwriter and counsel for the
Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and
unless the context indicates otherwise, the term "Registration Statement"
refers to and means said registration statement, including any exhibit,
financial statement and prospectus included therein, as finally amended and
revised on or prior to the effective date (the "Effective Date") of said
registration statement. The term "Preliminary Prospectus" refers to and
means any prospectus filed with the Commission and included in said
registration statement before it becomes effective, and the term "Prospectus"
refers to and means the prospectus included in the Registration Statement,
except that if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from the Prospectus, the
term "Prospectus" shall refer to the prospectus filed pursuant to Rule
424(b). If the Registration Statement or the Prospectus is amended or
supplemented after the Effective Date and prior to or on the Closing Dates
(as hereinafter defined), then the terms
-3-
"Registration Statement" and "Prospectus" shall refer to such documents as so
amended or supplemented. The terms used herein shall have the same meaning
as in the Prospectus unless the context hereof otherwise requires.
(b) Neither the Commission nor any state regulatory authority has
issued an order preventing or suspending the use of the Preliminary
Prospectus nor has the Commission or any such authority instituted or, to the
best knowledge of the Company, threatened to institute any proceedings with
respect to such an order; the Preliminary Prospectus, at the time of filing
with the Commission, conformed in all material respects to the requirements
of the Act and the Rules and Regulations, contained all statements which were
required to be stated therein by the Act and the Rules and Regulations and
did not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and the Registration Statement at the time when it
becomes effective, and the Prospectus (and any amendments or supplements
thereto) at all subsequent times up to the date set forth in the Prospectus
as required by Item 502(e) of Regulation S-B of the Rules and Regulations,
will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and will conform in all
material respects to the requirements of the Act and the Rules and
Regulations, and at such times neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
except that the representations and warranties in this Section 2(b) do not
apply to statements or omissions made in the Registration Statement or
Prospectus by or on behalf of the Underwriter 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.
(c) Each of the Company and the Subsidiaries (as defined in
paragraph (d) of this Section 1 below) has been duly organized and is now,
and at the Closing Dates will be, validly existing and in good standing as a
corporation or partnership, as the case may be, under the laws of the
jurisdiction of its organization, and has (i) with respect to the Company, an
authorized and outstanding capitalization and indebtedness as set forth in
the Registration Statement at the respective dates referred to therein and
(ii) full power and authority to own its
-4-
properties and conduct its business as presently conducted and as described in,
or contemplated by, the Registration Statement. Each of the Company and the
Subsidiaries is duly qualified and in good standing as a foreign corporation in
all jurisdictions in which the nature of the business transacted by it or the
character or location of its properties makes such qualification necessary.
Except where the failure to be so qualities would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Each of the
Company and the Subsidiaries holds all material authorizations, approvals,
licenses, certificates, franchises and permits from state, federal or other
regulatory authorities necessary for the conduct of its business as presently
conducted and as described in or contemplated by the Registration Statement and
is in material compliance with all laws and regulations and all orders and
decrees applicable to it or to such business or assets, and there are no
proceedings pending or, to the best knowledge of the Company, threatened,
seeking to cancel, terminate or limit such authorizations, approvals, licenses,
certificates, franchises or permits.
(d) The Company does not own, directly or indirectly, any capital
stock or other equity interest in or of any corporation, partnership or other
legal entity whatsoever, except that the Company owns approximately 97% of
the outstanding securities of Connecticut Valley Classics, Inc., a ________
corporation ("CVC"). CVC owns all of the outstanding securities of Stock
Shop, Inc., a ________ corporation ("Stock Shop"), and ▇▇▇▇▇▇ Firearms, Inc.,
a ________ corporation ("▇▇▇▇▇▇ Firearms" and collectively with CVC, the
"Subsidiaries"). All of the securities owned by the Company, directly or
indirectly, in the Subsidiaries are free and clear of all liens, charges,
encumbrances and restrictions. There are no options or warrants for the
purchase of, or other rights to purchase, or outstanding securities
convertible into or exchangeable for, any capital stock or other securities
of the Subsidiaries. [Add other representations/covenants re: Subsidiaries.]
(e) The financial statements of the Company, including the related
notes included as part of the Registration Statement, present fairly the
financial condition of the Company and Subsidiaries as of the dates thereof
and the results of operations for the respective periods to which they apply.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as otherwise stated therein, and all adjustments necessary
for a fair presentation of results for such periods have been made.
-5-
(f) BDO ▇▇▇▇▇▇▇, LLP, who have audited the financial statements
included as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations. [Add language
re: ▇▇▇▇▇ ▇▇▇▇▇▇ & Co., P.C. re: ▇▇▇▇▇▇ Firearms' financial statements]
(g) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus, except as disclosed in or contemplated by
the Registration Statement and Prospectus, (i) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions other than in the ordinary course of business; (ii) there has not
been any change in the capital stock, funded debt (other than regular repayments
of principal and interest on existing indebtedness) or other securities of the
Company; (iii) there has not been any adverse change in the condition (financial
or otherwise), business, operations, income, net worth or properties, including
any loss or damage to the properties, of the Company (whether or not such loss
is insured against); and (iv) the Company has not paid or declared any dividend
or other distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities.
(h) This Agreement, the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement (as defined in Section 5(u)
hereof), have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement, when executed and delivered
pursuant to this Agreement (assuming due execution by the Underwriter and/or the
appropriate parties to such agreements), will each constitute, a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
(i) The Units and the Shares have been duly authorized and, when
issued and delivered pursuant to this Agreement, the Shares will be duly
authorized, validly issued,
-6-
fully paid and non-assessable. The Redeemable Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Public Warrant Agreement. The
Public Warrant Shares have been reserved for issuance upon exercise of the
Redeemable Warrants and, when issued in accordance with the terms of the
Redeemable Warrants and Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's Warrants have
been duly authorized and, when issued and delivered pursuant to this Agreement
and the Underwriter's Warrant Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Underwriter's Warrant Agreement. The Underwriter's Shares have
been reserved for issuance upon exercise of the Underwriter's Warrants and, when
issued in accordance with the terms of the Underwriter's Warrants and
Underwriter's Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriter's Redeemable Warrants, when issued in
accordance with the terms of the Underwriter's Warrants and Underwriter's
Warrant Agreement, will be duly authorized and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Public Warrant Agreement. The Underwriter's Warrant Shares have
been reserved for issuance upon exercise of the Underwriter's Redeemable
Warrants and, when issued in accordance with the terms of the Underwriter's
Redeemable Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. Neither the issuance of any of
the Public Securities nor any of the Underwriter's Securities will violate or
otherwise be subject to the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company, and none of
the holders of any of the Public Securities or any of the Underwriter's
Securities will be subject to personal liability by reason of being such
holders.
(j) All issued and outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and non-assessable; the
issuances and sales of all such capital stock complied in all respects with
applicable Federal and state securities laws; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any
-7-
holders of any security of the Company or similar contractual rights granted by
the Company.
(k) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage, deed
of trust, note, loan or credit agreement, or any other agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary may be bound or to which any of the property or assets of the Company
or any Subsidiary are subject.
(l) The Company and the Subsidiaries are not in violation of any term
or provision of their respective Certificate of Incorporation or By-Laws.
Neither the execution and delivery of this Agreement, nor the issuance and/or
sale of any of the Public Securities or the Underwriter's Securities, nor the
consummation of any of the transactions contemplated herein, nor the compliance
by the Company with the terms and provisions hereof, has conflicted with or will
conflict with, or has resulted in or will result in a breach of, any of the
terms and provisions, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien, charge
or encumbrance upon the property or assets of the Company or any Subsidiary
pursuant to the terms of, any indenture, mortgage, deed of trust, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company or
any Subsidiary is a party, or by which the Company or any Subsidiary is or may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject; nor will such actions result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company or
any Subsidiary or of any contract or agreement, or of any statute or any order,
rule or regulation applicable to the Company or any of the Subsidiaries or of
any other regulatory authority or other governmental body having jurisdiction
over the Company or any of the Subsidiaries.
(m) Except as set forth in the Registration statement, there is
neither pending nor, to the best knowledge of the Company, threatened, any
action, suit, or proceeding at law or in equity or any arbitration (or
circumstances that may give rise to the same) to which the Company or any
Subsidiary or any of the respective officers, directors or securityholders
thereof is a party before or by any court, arbitration tribunal or governmental
instrumentality, agency, or body, which might result in any materially adverse
change in the condition (financial or otherwise), business, operations, income,
net worth or properties of the Company or any Subsidiary, or which might
materially
-8-
adversely affect the properties or assets thereof, or prevent consummation of
the transactions contemplated hereby; nor except as set forth in the
Registration Statement, are there any such actions, suits or proceedings against
the Company related to environmental matters or matters related to
discrimination on the basis of age, sex, religion or race; and no labor
disturbance by the employees of the Company or any Subsidiary exists or to the
best knowledge of the Company is imminent which might be expected to materially
adversely affect the conduct of the business, property, operations, financial
condition or earnings of the Company or any Subsidiary.
(n) There is no contract or other document which is required by the
Act or by the Rules and Regulations to be filed as an exhibit to the
Registration Statement which has not been so filed, and each contract which is
filed as an exhibit to the Registration Statement is and shall be in full force
and effect at each of the Closing Dates or shall have been terminated in
accordance with its terms or as set forth in the Registration Statement and
Prospectus, and no party to any such contract has given notice to the Company of
the cancellation of or, to the knowledge of the Company, shall have threatened
to cancel, any such contract, and, except as set forth in the Prospectus, the
Company and the Subsidiaries are not or shall not be in default thereunder.
(o) Except as set forth in the Registration Statement, neither the
Company nor any Subsidiary owns any real property. Except as set forth in the
Registration Statement, each of the Company and the Subsidiaries has good and
marketable title to all of its property and assets, including any licenses,
trademarks and copyrights, described in the Registration Statement as owned by
it, free and clear of all liens, charges, encumbrances and restrictions other
than such as do not materially affect the value or transferability of such
property and assets and do not interfere with the use of such property or assets
made or proposed to be made by the Company or any Subsidiary, and other than as
described in the Registration Statement (including the financial statements and
notes included therein), all of the leases, subleases and licenses under which
it holds or uses any real or personal property, including those described or
referred to in the Prospectus, are in full force and effect, and the Company and
the Subsidiaries are not in default in respect of any of the terms or provisions
of any such leases, subleases and licenses, and, to the best of the Company's
knowledge, no claim of any sort has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any such leases, subleases or
licenses affecting or questioning the rights of the Company or such Subsidiary
to the continued use or enjoyment of the rights and property covered
-9-
thereby. Each of the Company and the Subsidiaries owns or leases all such
properties as are necessary to its operations as now conducted and as proposed
to be conducted as set forth in the Prospectus.
(p) Each of the Company and the Subsidiaries has timely (giving
effect to permitted extensions) and properly prepared and filed all necessary
Federal, state, local and foreign income and franchise tax returns and has paid
all taxes shown on such returns and all assessments received by it to the extent
the same have become due, other than those due without interest or penalty, and
except to the extent the Company is in good faith contesting any such tax or
assessment in appropriate proceedings and has established reserves in accordance
with normal accounting practices. Except as set forth in the Registration
Statement, the Company has no knowledge of any tax deficiency which might be
asserted against the Company or any Subsidiary which could adversely affect the
business or properties thereof, and has established adequate reserves for such
taxes which are not yet due and payable.
(q) Each of the Company and the Subsidiaries maintains insurance,
which is in full force and effect, of the types and in the amounts currently
adequate for its business, including but not limited to personal injury and
product liability insurance, insurance covering all personal property owned or
leased by the Company or any Subsidiary against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against. The Company and
the Subsidiaries have not (i) failed to give notice or present any insurance
claim with respect to any matter, including but not limited to the Company's
business, property or employees, under the insurance policy or surety bond in a
due and timely manner, (ii) had any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to pay any premiums due
and payable thereunder, or (iii) failed to comply with all conditions contained
in such insurance policies and surety bonds. To the best knowledge of the
Company, there are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company or any Subsidiary.
(r) Except as set forth in the Registration Statement, the Company
and the Subsidiaries own or possess adequate rights to use all patents,
patent rights, inventions, trademarks, service marks, trade names and
copyrights necessary for the conduct of their business as described in the
Prospectus and the Company and the Subsidiaries have not received any notice
of infringement of or conflict with, and the Company and the Subsidiaries, to
the
-10-
best of the Company's knowledge, are not infringing or in conflict with
asserted rights of others with respect to, any patents, patent rights,
inventions, trademarks, service marks, trade names or copyrights.
(s) Except as set forth in the Prospectus, neither the Company nor
any Subsidiary is obligated or under any liability whatsoever to make any
payment by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, trademark, service ▇▇▇▇, trade name,
copyright, know-how, technology or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business or
otherwise. In addition, the Company and the Subsidiaries own and have the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively herein
"intellectual property") that are material to the development, manufacture,
operation and sale of all products and services sold or proposed to be sold
by the Company and any Subsidiary, free and clear of and without violating
any right, lien, or claim of others, including without limitation, former
employers of its employees. The Company is not aware of any development by
any other person or entity of trade secrets or items of technical information
similar to those of the Company. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of its
intellectual property in all material aspects.
(t) Except as set forth in the Registration Statement, the Company
is not obligated to pay and has not paid within the past twelve months, and
has not obligated, and will not obligate, the Underwriter to pay, any
finder's fee in connection with the underwriting contemplated hereby or any
other fee (cash, securities or otherwise) in consideration of financial,
consulting or investment banking services.
(u) No officer or director of the Company or any affiliate (as
such term is defined in Rule 405 promulgated under the Rules and Regulations)
of any such officer or director has taken, and each officer or director has
agreed that he will not take, directly or indirectly, any action designed to
or which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security issued by the Company.
(v) No officer, director or greater than 5% stockholder of the
Company or any Subsidiary, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated
-11-
under the Rules and Regulations) of any of the foregoing persons or entities
has or has had, either directly or indirectly, (i) an interest (other than
ownership of an immaterial number of shares of capital stock of an entity
whose securities are publicly traded) in any person or entity which (A)
furnishes or sells products or services which are furnished or sold or are
proposed to be furnished or sold by the Company or any Subsidiary, or (B)
purchases from or sells or furnishes to the Company or any Subsidiary any
goods or services, or (ii) a beneficial interest in any contract or agreement
to which the Company or any Subsidiary is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, or
transactions, between or among the Company or any of its Subsidiaries and any
officer or director of the Company or any Subsidiary, or any partner,
affiliate or associate of any of the foregoing persons or entities.
(w) The minute books of each of the Company and the Subsidiaries
have been made available to the Underwriter and contain a complete summary of
all meetings and actions of the directors and stockholders or partners, as
the case may be, of each of the Company and the Subsidiaries since the time
of their respective dates of organization, and reflect all transactions
referred to in such minutes accurately in all respects.
(x) The Company is not aware of any bankruptcy, labor disturbance
or other event affecting any of its principal suppliers or customers which is
reasonably likely to result in a material adverse change in the condition,
financial or otherwise, prospects, business or results of operation of the
Company and the Subsidiaries, taken as a whole.
(y) The Registered Securities and all the other securities of the
Company conform to all statements in relation thereto in the Registration
Statement.
(z) On the Effective Date, (i) the authorized capital stock of the
Company will be as set forth in the Registration Statement, and (ii) not more
than an aggregate of 2,797,476 shares of Common Stock shall be issued and
outstanding, not including: (A) an aggregate of 600,000 shares of Common
Stock reserved for issuance under the Company's 1997 Stock Option Plan (the
"Stock Option Plan") and (B) up to an aggregate of 475,000 shares of Common
Stock upon exercise of options and warrants which are anticipated to be
outstanding on the First Closing Date (collectively the "Non-Plan Options").
Other than the shares of Common Stock already issued (or reserved for
issuance as described in the immediately preceding sentence), the 1,725,000
Public
-12-
Warrant Shares reserved for issuance upon the Redeemable Warrants, the
150,000 Underwriter's Shares reserved for issuance upon exercise of the
Underwriter's Warrants, the 150,000 Underwriter's Warrant Shares reserved for
issuance upon exercise of the Underwriter's Redeemable Warrants, and the
Public Securities and Underwriter's Securities to be offered in or in
connection with the proposed public offering ("Public Offering"), no other
shares of capital stock or securities convertible into capital stock shall be
outstanding or reserved for issuance at the completion of the Public
Offering, without the consent of the Underwriter.
(aa) Except for the registration rights granted (i) under the
Underwriter's Warrant Agreement, (as described in the Registration
Statement), no holder of any securities of the Company has the right to
require that the Company include such securities in the Registration
Statement or any registration statement to be filed by the Company.
(bb) The Units, Common Stock and the Redeemable Warrants are
eligible for quotation on The Nasdaq SmallCap Market ("NASDAQ") and have been
approved for listing on the Boston Stock Exchange, subject to official notice
of issuance. The Company has filed a registration statement with the
Commission pursuant to Sections 12(g) and 12(b) of the 1934 Act, and has used
its best efforts to have same declared effective by the Commission on an
accelerated basis on the Effective Date.
(cc) Neither the Company or any Subsidiary nor any officer,
director or other agent thereof has, acting on behalf of the Company or any
Subsidiary, at any time (i) made any contributions to any candidate for
political office in violation of law, or failed to disclose fully any such
contributions in violation of law, (ii) made any payment to any state,
Federal or foreign governmental officer or official, or any other person
charged with similar public or quasi-public duties, other than payments
required or not prohibited by law or (iii) made any payment of funds of the
Company or any Subsidiary or received or retained any funds in violation of
any law, rule or regulation and under circumstances requiring the disclosure
of such payment, receipt or retention of funds in the Prospectus.
(dd) Since December 31, 1996, neither the Company nor any
Subsidiary has sustained any material casualty loss or interference with its
business from fire, storm, explosion, flood or other like or unlike casualty,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree which is not disclosed or reflected in
the Prospectus.
-13-
(ee) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
(ff) No unregistered securities of the Company have been sold by
the Company within the three years prior to the date hereof, except as
disclosed in Part II of the Registration Statement.
(gg) The employment agreements between the Company and its
respective officers, as disclosed in the Registration Statement, are or will
be on or before the First Closing Date binding and enforceable obligations
upon the respective parties thereto in accordance with their respective
terms, subject to the Enforceability Exceptions.
(hh) 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.
(ii) There are no voting or other shareholder agreements between
the Company and any shareholders of the Company or between or by and among
any shareholders of the Company.
(jj) Each of the Company and the Subsidiaries has generally enjoyed
a satisfactory employer-employee relationship with its employees and is in
material compliance with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of the Subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or
any of the Subsidiaries pending before the National Labor Relations Board or
any strike, picketing, boycott, dispute, slowdown or stoppage pending or, to
the Company's best knowledge, threatened against or involving the Company or
the Subsidiaries or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or any
of the Subsidiaries, and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any of the
Subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements to which the Company or
any of the Subsidiaries is or was a party. No
-14-
labor dispute with the employees of the Company or any of the Subsidiaries
exists, or is imminent.
(kk) The statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, regulations or legal conclusions are correct in all
material respects.
(ll) The Company warrants that consummation of the transactions
contemplated herein will not, as of the Effective Date or the First Closing
Date, result in a material breach of any of the terms, provisions or
conditions of any agreement to which it or any Subsidiary is a party.
(mm) [The Company has delivered to the Underwriter a business plan
covering a three year period setting forth its best estimates of sales,
earnings, cash flow and other significant items.]
Any certificate signed by an officer of the Company in his capacity as such
and delivered to the Underwriter or counsel for the Underwriter shall be
deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.
3. Purchase, Delivery and Sale of the Offered Securities and the
Underwriter's Warrants.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter the Firm Securities, consisting of
1,500,000 Units, and the Underwriter agrees to purchase such Firm Securities
from the Company, on a firm commitment basis, at a purchase price of $4.59
per Unit, of which $4.50 shall be ascribed to each Share and $.09 shall be
ascribed to each Redeemable Warrant therein, to be sold by the Underwriter at
an initial public offering price of $5.10 per Unit, of which $5.00 shall be
ascribed to each Share and $.10 shall be ascribed to each Redeemable Warrant
therein.
(b) In addition, the Company hereby grants the Underwriter the
option (the "Over-allotment Option) to purchase from the Company, at any time
or from time to time during a period of forty-five (45) days from the date of
the Prospectus, all or any part of the Option Securities at a purchase price
of $4.50 per share of Common Stock and/or $.09 per Redeemable Warrant, to be
sold by the Underwriter at an initial public offering price of $5.00 per
share and $.10 per Redeemable Warrant. Notice of
-15-
exercise of the Over-allotment Option, in whole or in part, shall be
delivered by the Underwriter to the Company at least two (2) days in advance
of the date on which the Option Securities are to be delivered to the
Underwriter, provided that delivery of the Option Securities shall be made
concurrently with tender of payment therefor. Option Securities may be
purchased by the Underwriter only for the purpose of covering over-allotments
in the sale of the Firm Securities, and the Underwriter shall have no
obligation to make any over-allotments. No Option Securities shall be
delivered and paid for unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered and paid for as herein
provided.
(c) On the First Closing Date, the Company shall issue and sell to
the Underwriter the Underwriter's Warrants. The total purchase price of the
Underwriter's Warrants shall be $10. The Underwriter's Warrants shall be
exercisable for a period of four years commencing 12 months from the
Effective Date, at prices of $5.50 per Underwriter's Share and $.11 per
Underwriter's Redeemable Warrant, respectively. The Underwriter's Warrant
Agreement, including the forms of Underwriter's Warrant Certificates, shall
be substantially in the form filed as Exhibit 4.3 to the Registration
Statement. Payment for the Underwriter's Warrants shall be made on the First
Closing Date.
(d) Payment for the Firm Securities and the Option Securities
shall be made on each of the First Closing Date and Option Closing Date (as
hereinafter defined), respectively, by certified or bank cashier's check in
New York Clearing House funds, payable to the order of the Company, or by
Federal Funds wire transfer, at the offices of counsel to the Underwriter, or
at such other place as agreed upon by the Underwriter and the Company, upon
delivery of certificates (in form and substance reasonably satisfactory to
the Underwriter) representing the Firm Securities and Option Securities to be
sold at such closing or by confirmation of electronic transfer of the Firm
Securities or Option Securities, as the case may be, to the Underwriter for
the accounts of the Underwriter. Delivery and payment for the Firm
Securities shall be made at 10:00 A.M. New York time, on or before the [third]
business day following the Public Offering or at such earlier time as the
Underwriter shall determine or as required by law, or at such other time as
shall be agreed upon by the Underwriter and the Company. The hour and date
of delivery and payment for the Firm Securities are called the "First Closing
Date." The Firm Securities shall be registered in such name or names and in
such authorized denominations as the Underwriter may request in writing at
least two (2) full business days prior to Closing Date. The Company will
permit the Underwriter to examine and package any certificates
-16-
representing the Firm Securities for delivery, at least one (1) full business
day prior to the First Closing Date. Delivery for each of the Option
Securities as provided above shall be made within two (2) business days after
notice of exercise to the Company, and against payment therefor, as provided
above. The hour and date of such delivery and payment made subsequent to the
First Closing Date for Option Securities is referred to as the "Option
Closing Date." The Option Securities shall be registered in such name or
names and in such denominations as the Underwriter may request in writing at
the time of exercise of the Over-allotment Option. The First Closing Date
and Option Closing Date are collectively referred to herein as the "Closing
Dates."
(e) The Company shall not be obligated to sell or deliver any Firm
Securities except upon tender of payment by the Underwriter for all the Firm
Securities.
4. Public Offering by the Underwriter. The Underwriter agrees to
cause the Firm Securities to be offered to the public initially at the prices
and under the terms set forth in the Prospectus as soon, on or after the
effective date of this Agreement, as the Underwriter deems advisable, but no
more than five (5) full business days after such effective date. The
Underwriter may allow such concessions and discounts upon sales to other
dealers as set forth in the Prospectus. The Underwriter agrees to notify the
Company in writing when the Public Offering is first made and when it is
completed. After the completion of the initial public offering, the public
offering prices, the concessions and the reallowance may be changed by the
Underwriter.
5. Agreements of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and will
not at any time, whether before or after the Effective Date, file any
amendment or supplement to the Registration Statement, (i) which shall not
have been previously submitted to, and approved by, the Underwriter or
counsel for the Underwriter a reasonable time prior to the filing thereof,
(ii) to which the Underwriter or counsel for the Underwriter shall have
reasonably objected in writing as not being in compliance with the Act or the
Rules and Regulations or (iii) which is not in compliance with the Act or the
Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it
shall have received notice of the effectiveness of the Registration Statement
or any amendment or supplement
-17-
thereto, of the receipt of any comments of the Commission with respect
thereto, of the time when the Registration Statement or any post-effective
amendment thereto has become effective or any supplement to the Prospectus
has been filed.
(c) The Company will advise the Underwriter promptly of any
request of the Commission for an amendment or supplement to the Registration
Statement or the Prospectus, or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or of any judgment, order, injunction or decree
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or of the institution of any proceedings for any of such
purposes, of which it has knowledge, and will use its best efforts to prevent
the issuance of any stop order, and, if issued, to obtain as promptly as
possible the lifting thereof.
(d) If at any time when a prospectus relating to the Public
Securities and/or the Underwriter Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or counsel for the Underwriter, the
Prospectus, as then amended or supplemented, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section
10 of the Act, each such amendment or supplement to be satisfactory to
counsel for the Underwriter, and the Company will furnish to the Underwriter
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriter may request.
(e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in
the Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the Act, the Rules and Regulations, the
1934 Act or the rules and regulations of the Commission promulgated under the
1934 Act, each as now or hereafter amended or supplemented, and by any order
of the Commission so far as necessary to permit the continuance of sales of,
or dealings in, the Registered Securities.
(f) The Company will furnish to the Underwriter, without charge,
two (2) signed copies of the Registration Statement and of any amendment of
supplement thereto which has been filed
-18-
prior to the date of this Agreement, together with two (2) copies of each
exhibit filed therewith, and of five (5) conformed copies of such
Registration Statement and amendments thereto (unsigned and exclusive of
exhibits). The signed copies of the Registration Statement so furnished to
the Underwriter will include signed copies of any and all consents and
reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies of
any and all consents and certificates of any other person whose profession
gives authority to statements made by them and who are named in the
Registration Statement or Prospectus as having prepared, certified or
reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without charge,
(i) prior to the Effective Date, copies of each Preliminary Prospectus
distributed to the public and filed with the Commission bearing in red ink
the statement required by Item 501 of Regulation S-B of the Rules and
Regulations; (ii) on and from time to time after the Effective Date, copies
of the Prospectus; and (iii) as soon as they are available, and from time to
time thereafter, copies of each amended or supplemented Prospectus, and the
number of copies to be delivered in each such case will be such as the
Underwriter may reasonably request. The Company has consented and hereby
consents to the use of each Preliminary Prospectus for the purposes permitted
by the Act and the Rules and Regulations. The Company authorizes the
Underwriter and dealers to use the Prospectus in connection with the sale of
the Offered Securities and the Public Warrant Shares, for such period as, in
the opinion of counsel for the Underwriter, delivery of the Prospectus is
required to comply with the applicable provisions of the Act and the Rules
and Regulations.
(h) For so long as any Redeemable Warrant is outstanding, the
Company shall, at its own expense, use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or a new
registration statement relating to the Public Warrant Shares, to become
effective in compliance with the Act and without any lapse of time between
the effectiveness of the Registration Statement and of any such
post-effective amendment or new registration statement. The Company also
agrees to take such action as may be necessary to qualify the Registered
Securities for offer and sale under the Blue Sky or securities laws of such
states or other jurisdictions as is required and as the Underwriter or
counsel for the Underwriter may designate (provided that such states or
jurisdictions do not require the Company to qualify as a foreign corporation
or to file a general consent to service of process) and to continue such
qualifications in effect so long as may be required for the purposes of the
distribution of
-19-
the Registered Securities. In each state or jurisdiction where the Company
shall qualify the Registered Securities as above provided, the Company will
prepare and file such statements or reports as may be required by the laws of
such state or jurisdiction, and the Underwriter shall, upon the written
request of the Company, supply the Company with all information known to the
Underwriter and required to be included in such statements or reports.
(i) Except as otherwise provided in (iii) below, during the period
of three years from the First Closing Date, the Company, at its expense,
shall furnish the Underwriter with (i) copies of each annual report of the
Company; (ii) as soon as practicable and in any event upon filing such report
with the Commission, a financial report of the Company, which will include a
balance sheet as of the end of the preceding fiscal year, a statement of
operations, a statement of stockholders' equity (deficit) and a statement of
cash flows covering such fiscal year, such report being in reasonable detail
and audited by independent public auditors; (iii) during the period of two
years from the First Closing Date, for each fiscal quarter of the Company
other than the last fiscal quarter in any fiscal year, as soon as practicable
and in any event upon filing such report with the Commission, a financial
report of the Company, which will include a balance sheet as of the end of
the fiscal quarter, a statement of operations, a statement of stockholders'
equity (deficit) and a statement of cash flows covering such fiscal quarter,
together with notes thereto, for such fiscal quarter and, with respect to the
statement of operations, for the fiscal year to date, setting forth in each
case in comparative form the corresponding figures for the preceding year,
such report being in reasonable detail and certified by the Chief Financial
Officer of the Company to be correct and complete, to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except
for normal year end adjustments; and (iv) a copy of any Schedule 13D, 13G,
14D-1, 13E-3 or 13E-4 received or filed by the Company from time to time; (v)
a copy of any report filed by the Company pursuant to the 1934 Act; (vi)
copies of all statements, documents or other information which the Company
shall mail or otherwise make available to any class of its security holders,
or shall file with the Commission or with any exchange upon which the
securities issued by the Company shall then be listed or registered; and
(vii) such other publicly available information as the Underwriter may from
time to time request. If, and so long as, the Company has an active
subsidiary or subsidiaries, the Company's financial statements will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are
-20-
consolidated in reports furnished to its stockholders generally. Separate
financial statements shall be furnished for all subsidiaries whose accounts
are not consolidated but which at the time are significant subsidiaries as
defined by the Rules and Regulations. With respect to each consolidated and
unconsolidated significant subsidiary and affiliate, if any, the financial
reports shall be in sufficient detail to show the basis of any consolidated
reports required hereunder. Notwithstanding the foregoing, the Company's
financial statements shall be deemed to comply with the requirements of this
paragraph if they comply with the Rules and Regulations.
(j) For a period of five years from the First Closing Date, the
Company shall not change its independent public accountants without the
Underwriter's prior consent. For a period of five years from the First
Closing Date, the Company shall promptly submit to the Underwriter copies of
all accountants' management reports and similar correspondence between the
Company and its independent public accountants.
(k) The Company on the First Closing Date will sell to the
Underwriter the Underwriter's Warrants according to the terms specified in
Section 3 hereof. The Company has reserved and shall continue to reserve a
sufficient number of shares of Common Stock for issuance upon exercise of
the Underwriter's Warrants and the Underwriter's Redeemable Warrants.
(l) For the five year period following the First Closing Date, the
Company agrees that the Underwriter shall have the right to nominate, and the
Company shall use its best efforts to cause the election of, one member of
the Company's Board of Directors, who shall be reasonably acceptable to the
Company. The Underwriter may also appoint a designee to be engaged as an
advisor at all meetings of the Company's Board of Directors, which advisor
would be entitled to the same cash compensation and the same reimbursement of
expenses as the Company affords its directors who are not also officers or
employees of the Company (and would, in any event, be reimbursed for all
reasonable costs incurred in attending Board meetings, including but not
limited to, food, lodging and transportation) and to receive all copies of
all notices and other documents distributed to the members of the Company's
Board of Directors (including, but not limited to, any unanimous consents
prepared and advance notices of all proposed Board actions or consents), as
if such advisor were a member of the Company's Board of Directors; provided,
however, that during any period a person designated by the Underwriter is
engaged by the Board as an advisor, the Underwriter shall not be entitled to
designate a director. To the extent permitted by law, the Company
-21-
agrees to indemnify and hold the designee (as a director or advisor) and the
Underwriter harmless against any and all claims, actions, awards and judgments
arising out of his service. The Company shall immediately after the First
Closing Date use its best efforts to obtain directors' and officers' liability
insurance in amounts reasonable and customary for similarly situated companies,
at a premium that the Company can reasonably afford. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it will, if possible, include the Underwriter and its
designee (as a director or advisor) as insureds 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 be
alleged to be, responsible for such advisor. The Company will deliver, on or
before the date hereof, the agreements of each of its officers, directors and
holders of 5% or more of its Common Stock, to vote, during the five (5) year
period commencing on the First Closing Date, for the election of the
Underwriter's designee for director, if any.
(m) The Company will maintain insurance in full force and effect of
the types and in the amounts adequate for its business and in line with
insurance maintained by similar companies and businesses, including but not
limited to, personal injury and product liability insurance and insurance
covering all personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against.
(n) During the course of the distribution of the Offered Securities,
the Company will not take, directly or indirectly, any action designed to or
which might, in the future, reasonably be expected to cause or result in
stabilization or manipulation of the prices of the Common Stock and/or
Redeemable Warrants. During the so-called "quiet period" in which delivery of a
prospectus is required, if applicable, the Company will not issue press releases
or engage in any other publicity regarding the Company, its business or any
terms of the Public Offering, without the Underwriter's prior written consent
which shall not be unreasonably withheld or unduly delayed. During such period,
copies of all documents which the Company or its public relations advisors
intend to distribute will be provided to the Underwriter for review prior to
such distribution.
(o) The Company will use its best efforts at its cost and expense, to
take all necessary and appropriate action to maintain the listing of the Common
Stock and the Redeemable Warrants on NASDAQ and the Boston Stock Exchange for a
period of
-22-
five years from the First Closing Date and will, as promptly as practicable
following determination by the Company that the Common Stock and Redeemable
Warrants will qualify therefor, use its best efforts to list such securities on
The Nasdaq National Market and maintain such listing for as long as such
securities remain qualified.
(p) On or prior to the Effective Date, the Company shall register
with (i) the Corporation Records Service (including annual report information)
published by Standard & Poor's Corporation or (ii) ▇▇▇▇▇'▇ Industrial Manual
(▇▇▇▇▇'▇ OTC Industrial Manual not being sufficient for these purposes).
(q) The Company has filed a registration statement with the
Commission pursuant to Sections 12(b) and 12(g) of the 1934 Act with respect to
the Common Stock and Redeemable Warrants and will use its best efforts to have
same declared effective by the Commission on or before the Effective Date. The
Company will use its best efforts to maintain such registration in effect for a
period of not less than 5 years from the First Closing Date.
(r) The Company will at all times from the First Closing Date until
at least five (5) years from such date, maintain in full force, or cause to be
maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of ▇▇▇ ▇▇▇▇▇▇.
Such policy shall be owned by the Company and all benefits thereunder shall be
payable to the Company.
(s) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Offered Securities and the Underwriter's Warrants will have been
fully paid by the Company and all laws imposing such taxes will have been fully
complied with.
(t) On the First Closing Date, the Company and the Underwriter shall
enter into a consulting agreement, substantially in the form filed as Exhibit
1.3 to the Registration Statement, pursuant to which the Underwriter will offer
to provide financial consulting services to the Company for a two-year period
(the "Consulting Agreement").
(u) Except for (i) the Public Securities, (ii) the Underwriter's
Securities, (iii) the issuance of Common Stock pursuant to the exercise of any
Non-Plan Options and (iv) the issuance, subject to the terms hereof, to
employees, officers and
-23-
directors of stock options to purchase a number of shares of Common Stock not to
exceed 600,000 shares pursuant to the Stock Option Plan, the Company will not,
from and after the date hereof until thirty-six (36) months after the First
Closing Date, sell or issue any shares of Common Stock, preferred stock or other
equity securities of the Company or sell or grant options, warrants or rights to
purchase any shares of equity securities of the Company, without the
Underwriter's prior written consent. Notwithstanding the foregoing, during the
36-month period following the First Closing Date, the Company may issue
securities in connection with an acquisition, merger or similar transaction
without the Underwriter's prior consent, provided that such securities are not
publicly registered and the acquirer of the securities is not granted
registration rights with respect thereto which may be exercised prior to
thirty-six (36) months after the First Closing Date.
(v) 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 thirty-six (36) months following the First
Closing Date without the Underwriter's prior written consent. Furthermore, for
a period of five years after the First Closing Date, the Company shall notify
the Underwriter in writing at least fifteen (15) days before the proposed filing
of any registration statement for any public offering of any equity or debt
securities of the Company or its Subsidiaries (other than securities issued
pursuant to an employee benefit plan or a transaction subject to Rule 145
promulgated under the Act), or at least fifteen (15) days before the private
offering of any debt or equity securities by the Company or its Subsidiaries
through a private financing, in order that the Underwriter or, at its option, a
group of associated investment bankers of which the Underwriter shall be a
co-manager, shall have a right of first refusal to effect such offering on terms
at least as favorable as otherwise offered in writing to the Company. A private
offering of securities shall not include shares given as compensation to
employees of the Company.
The Underwriter agrees to notify the Company if the Underwriter intends to
exercise its right of first refusal within 15 days of receipt by the Underwriter
of such notice from the Company. A refusal by the Underwriter in respect of any
offering made by the Company shall not prejudice any further rights of first
refusal during the five year period, including without limitation the right of
first refusal of the Underwriter with respect to any revised terms otherwise
offered to the Company.
-24-
(w) The Company shall retain Continental Stock transfer & Trust
Company ("Continental Stock") as transfer agent for the Common Stock and as
warrant agent for the Redeemable Warrants. For the five (5) year period
following the First Closing Date, the Company will not change its transfer agent
or warrant agent without the prior written consent of the Underwriter.
(x) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or otherwise), business, operations, income, net worth
or properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect the
condition (financial or otherwise), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not have paid or declared
any dividend or other distribution on its Common Stock or its other securities
or redeemed or repurchased any of its Common Stock or other securities. The
Company shall furnish to the Underwriter as early as practicable prior to each
of the date hereof, the First Closing Date and each Option Closing Date, if any,
but no later than two (2) full business days prior thereto, a copy of the latest
available unaudited interim financial statements of the Company (which in no
event shall be as of a date more than sixty (60) days prior to the date of the
Registration Statement) which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to Section 9(d)
hereof.
(z) [Address employment agreements] The Company will not, for a
period of three (3) years from the First Closing Date increase or authorize an
increase in the compensation of its five (5) most highly paid employees in any
year without the prior written consent of the Underwriter or unless permitted by
the terms of employment contracts satisfactory to the Underwriter.
(aa) 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
-25-
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.
(bb) For a period of three years from the Effective Date, the Company
will retain a financial public relations firm reasonably acceptable to
Underwriter.
(cc) The Company agrees that for so long as the Common Stock is
registered under the 1934 Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
applicable rules under the 1934 Act and shall be included in an annual report
pursuant to the requirements thereof.
(dd) For a period equal to the lesser of (i) seven (7) years from the
date hereof and (ii) the sale to the public of the Underwriter's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 or Form SB-2 (or other appropriate form) for the
registration under the Act of the Underwriter's Redeemable Warrants, the
Underwriter's Shares or the Underwriter's Warrant Shares.
(ee) Subject to the provisions of applicable law, the Underwriter
shall be entitled to receive a warrant solicitation fee of five percent (5%) of
the aggregate exercise price of the Redeemable Warrants for each Redeemable
Warrant exercised during the period commencing one year after the Effective
Date; provided, however, that the Underwriter will not be entitled to receive
such compensation in Redeemable Warrant exercise transactions in which (i) the
market price of the Common Stock at the time of exercise is lower than the
exercise price of the Redeemable Warrants; (ii) the Redeemable Warrants are held
in any discretionary account; (iii) disclosure of compensation arrangements is
not made in the Registration Statement and in documents provided to holders of
Redeemable Warrants at the time of exercise; (iv) the holder thereof has not
confirmed in writing that the Underwriter solicited the exercise of the
Redeemable Warrants; or (v) the solicitation
-26-
or exercise of the Redeemable Warrants was in violation of Regulation M
promulgated under the 1934 Act.
(ff) Promptly following the First Closing Date the Board of Directors
shall designate an Audit Committee, at least one of whose members shall be the
director, if any, who is designated by the Underwriter. A majority of the
members of the Audit Committee shall be independent directors.
(gg) The Company shall cause each director, officer and shareholder of
the Company, to enter into an agreement with the Underwriter pursuant to which
he, she or it will agree not to sell or otherwise transfer any shares of Common
Stock and or options or warrants to acquire Common Stock of the Company for a
period of 24 months following the First Closing Date without the prior consent
of the Underwriter.
(hh) The Company shall engage the Underwriter's counsel, at such
counsel's regular hourly rates, to provide the Underwriter, on the First Closing
Date and annually thereafter, until the earlier of (i) such time as the Common
Stock is listed on the New York Stock Exchange or American Stock Exchange or
quoted on NASDAQ/NMS or (ii) the second anniversary of the First Closing Date,
with an opinion, setting forth those states in which the Common Stock and
Redeemable Warrants may be traded in non-issuer transactions under the Blue Sky
laws of the 50 states. The cost of the same shall not exceed $10,000.
(ii) There shall be no agreements between the Company and any
securityholder except those which are disclosed in the Registration Statement.
(jj) The Company will arrange to have its securityholders agree to be
bound by such "lock-up" or similar transfer restrictions as may be required by
the NASD or any exchange or similar entity.
(kk) For a period of three (3) 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.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act against any losses, claims, damages, expenses or
liabilities, joint or several
-27-
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all reasonable attorney's fees),
to which the Underwriter or any such controlling person may become subject,
under the Act or otherwise, but only as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damages or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, in reliance upon, and in conformity
with, written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. The information set forth on
the cover page concerning the Underwriter and under the caption "Underwriting"
or otherwise specifically relating to the Underwriter in the Registration
Statement shall be deemed to have been furnished to the Company by the
Underwriter for purposes hereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter agrees that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act, against any losses, claims, damages, expenses or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorney's fees), joint or
several, to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, but only as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration
-28-
Statement, any Preliminary Prospectus or the Prospectus or such amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof, provided, however, that the obligation of each Underwriter
to indemnify the Company (including any controlling person, director or officer
thereof) shall (i) only relate to any untrue statement or alleged untrue
statement or any omission or alleged omission which applies to such Underwriter
and (ii) be limited in amount to the net proceeds received by the Company from
the Underwriter.
This indemnity will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than solely pursuant to this Section 6. In case any such action is brought
against any indemnified party, which notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may choose, jointly with any other indemnifying party
similarly notified, reasonably assume the defense thereof. Subject to the
provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the consent of
the indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, (ii) the named parties to such
action (including any impleaded parties) include both the indemnified and the
indemnifying party and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different
-29-
from or in conflict with any legal defenses which may be available to the
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of the indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party), or (iii) the professional
competence of the counsel to be employed by the indemnifying party is not
reasonably acceptable to the indemnified party. No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld. The
indemnifying party shall not be liable to indemnify the indemnified party for
any settlement of any action effected without the indemnifying party's prior
written consent to any such settlement, which consent shall not be unreasonably
withheld.
7. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which (i) the Underwriter makes a claim for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriter, then the Company and the Underwriter shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) in such proportions such that the
Underwriter shall be responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities by the difference between
the aggregate public offering price of the Units (or underlying Shares and
Redeemable Warrants) and the aggregate purchase price of the Units (or
underlying Shares and Redeemable Warrants) to such Underwriter and dividing the
product by the aggregate public offering price of the Units (or underlying
Shares and Redeemable Warrants), and the Company shall be responsible for that
portion of such losses, claims, damages or liabilities determined by multiplying
the total amount of such losses, claims, damages or liabilities by the aggregate
purchase price of the Units
-30-
(or underlying Shares and Redeemable Warrants) to the Underwriter and dividing
the product thereof by the aggregate public offering price of the Units (or
underlying Shares and Redeemable Warrants). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriter. As used in this Section 7,
the term "Underwriter" includes any person who controls the Underwriter within
the meaning of Section 15 of the Act. If the full amount of the contribution
specified in this Section 7 is not permitted by law, then the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the fullest extent permitted by law. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7, or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Survival of Agreements, etc. All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities, and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Offered Securities, for a period of
five years from the date hereof, except that, if a party hereto has actual
knowledge at the time of the Closing Dates of facts which would constitute a
breach of the representations and warranties contained herein, such breaches
shall be waived by such party if such party consummates the transactions
contemplated by this Agreement.
-31-
9. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder will be subject to the accuracy of and compliance with (as
of the date of this Agreement and as of the Closing Dates) the representations,
warranties and agreements contained in Sections 2 and 5 hereof and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m., New York City time, on the date of this Agreement, or such later
date as shall be consented to in writing by the Underwriter; and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or be
pending or, to the best knowledge of the Company or the Underwriter,
contemplated or threatened by the Commission; any request by the Commission for
additional information to be included in the Registration Statement or the
Prospectus or otherwise shall have been complied with to the satisfaction of
counsel for the Underwriter; qualification under the securities laws of such
states as the Underwriter may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or contemplated and
containing no provision unacceptable to the Underwriter shall have been secured;
and no stop order shall be in effect denying or suspending effectiveness of such
qualifications, nor shall any stop order proceedings with respect thereto be
instituted or pending or, to the best knowledge of the Company and the
Underwriter, threatened under such laws. If the Company has elected to rely
upon Rule 430A of the Rules and Regulations, the price of the Units (or
underlying Shares and Redeemable Warrants) and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to the First Closing Date the Company shall have provided evidence
satisfactory to the Underwriter of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) No amendments to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or
-32-
supplement thereto, contains an untrue statement of fact which, in the
reasonable opinion of counsel for the Underwriter, is material, or omits to
state a fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(d) The Underwriter shall have received from BDO ▇▇▇▇▇▇▇, LLP, two
certificates or letters, one dated and delivered on the Effective Date and one
dated and delivered on the First Closing Date, in form and substance
satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of a registration statement on Form
SB-2 is required insofar as it relates to them;
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
registration statements on Form SB-2 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements included in the
Registration Statement;
(iii) on the basis of inquiries and procedures conducted
by them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders and the Board of Directors of the Company and its subsidiaries
since December 31, 1996, and other specified inquiries and procedures, nothing
has come to their attention as a result of the foregoing inquiries and
procedures that causes them to believe that:
(A) during the period from (and including) December
31, 1996 to a specified date not more than five days prior to the date of such
letter, there has been any change in the Common Stock or other securities of the
Company (except as specifically disclosed in such certificates or letters), any
decreases in shareholders' equity or working capital or any increases in net
current liabilities, net liabilities or long-term debt (except,
-33-
regarding the foregoing, for decreases resulting from operating losses
continuing at rates commensurate with those incurred in prior periods) or in any
other item appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with amounts shown in
the audited balance sheet as of December 31, 1996, as included in the
Prospectus, except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or will or may occur; and
(B) during the period from (and including) December
31, 1996 to such specified date there was any decrease in revenues or in the
total or per share amounts of income before extraordinary items or net income or
loss, or any other material change in such other items appearing in the
Company's financial statements as to which the Underwriter may request advice,
in each case as compared with the corresponding period in the fiscal period
ended December 31, 1996, except in each case for increases, changes or decreases
which the Prospectus discloses have occurred or will or may occur.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
Any changes, increases or decreases in the items set forth in such
letter which, in the sole judgment of the Underwriter, are materially adverse
with respect to the financial position or results of operations of the Company
shall be deemed to constitute a failure of the Company to comply with the
conditions of the obligations to the Underwriter hereunder.
(e) The Underwriter shall have received from Gersten, Savage,
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ LLP ("GSK&F") counsel for the Company, two opinions, one
dated and delivered on the Effective Date and one dated and delivered on the
First Closing Date, in form and substance satisfactory to Zimet, Haines,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the Underwriter.
(f) All corporate proceedings relating to this Agreement, the
Registered Securities, the Registration Statement, each Preliminary Prospectus,
the Prospectus and other related
-34-
matters shall be satisfactory to, or approved by, counsel for the Underwriter,
and the Underwriter shall have received from such counsel a signed opinion, in
form and substance reasonably satisfactory to the Underwriter, dated the First
Closing Date, with respect to such corporate proceedings and other legal matters
in connection with this Agreement, the Registered Securities, the Registration
Statement, the Prospectus (other than the financial statements and other
financial data contained therein) and related matters as the Underwriter may
reasonably require, and the Company shall have furnished to such counsel such
documents, certificates and opinions as they may have requested for the purpose
of enabling them to pass upon such matters.
(g) The Underwriter shall have received a certificate, dated and
delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company stating that:
(i) The Company and such officers have complied with all
the agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section 5
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the
Registration Statement and the Prospectus and any supplement or amendment
thereto, each of which contains all statements required to be stated therein or
necessary to make the statements therein not misleading and does not contain any
untrue statement of a material fact, and since the Effective Date there has
occurred no event required to be set forth in the amended or supplemented
prospectus which has not been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 2 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and further certifying as to the matters
referred to in Sections 9(h) and (i).
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and
-35-
Prospectus, and except as contemplated in the Prospectus, the Company has not
incurred any liabilities or obligations, direct or contingent, or entered into
any material transactions and there has not been any change in the Common Stock
or funded debt of the Company or any adverse change in the condition (financial
or otherwise), business, operations, income, net worth, properties or prospects
of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor, to the knowledge of the
officers executing such certificate, any of its officers or affiliates shall
have taken, and the Company, its officers and affiliates will not take, directly
or indirectly, any action designed to, or which might reasonably be expected to,
cause or result in the stabilization or manipulation of the price of the
Company's securities to facilitate the sale or resale of the Offered Securities.
(viii) No action, suit or proceeding, at law or in
equity, shall be pending or, to the knowledge of such officers, threatened
against the Company, or affecting any of its properties, before or by any
commission, board or other administrative agency, except as otherwise set forth
in the Registration Statement.
(h) On the First Closing Date, the Company shall not be a party to,
or be involved in, any arbitration, litigation (except as set forth in the
Registration Statement) or governmental proceeding, which is then pending, or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(i) The Company shall not have sustained, at any time since December
31, 1996, any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter, adversely affects the business of the Company.
(j) All of the Units, Shares and Redeemable Warrants shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.
-36-
(k) The Underwriter shall have received the agreements referred to in
Sections________and________hereof.
(l) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all its obligations due to be performed prior thereto; (ii)
the Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and conform in all
material respects to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the date as of which
information is given, no material adverse change in the condition, business,
operations, properties, business prospects, securities, long-term or short-term
debt or general affairs of the Company from that set forth in the Registration
Statement or the Prospectus, except changes which the Registration Statement and
the Prospectus indicate will occur after the Effective Date and prior to such
Closing Date, and the Company shall not have incurred any material liabilities
or obligations, direct or contingent, or entered into any material transaction,
contract or agreement not in the ordinary course of business other than as
referred to in the Registration Statement and the Prospectus; and (iv) except as
set forth in the Prospectus, no action, suit or proceeding, at law or in equity,
shall be pending or threatened against the Company which might be required to be
set forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might adversely affect the condition, business,
operations, properties, prospects or general affairs of the Company.
(m) Upon exercise of the Over-allotment Option provided for in
Section 3(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Shares and/or the Redeemable Warrants will be subject to the
following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending,
-37-
or, to the knowledge of the Underwriter or the Company, shall be contemplated by
the Commission, and any request on the part of the Commission for additional
information shall have been complied with to the satisfaction of counsel for the
Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of GSK&F, counsel for the
Company, in form and substance reasonably satisfactory to Zimet, Haines,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinions furnished to the
Underwriter by such counsel at the First Closing Date pursuant to Section 9(e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer and
the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriter, substantially the same in
scope and substance as the certificates furnished to the Underwriter at the
First Closing Date pursuant to Section 9(g).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter, in form and substance
satisfactory to the Underwriter, from BDO ▇▇▇▇▇▇▇, LLP, dated the Option Closing
Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 9(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
five business days prior to the Option Closing Date which would require any
change in said certificate or letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Securities shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
counsel for the Underwriter, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(n) The Company shall have executed and delivered the Public Warrant
Agreement, the Underwriter's Warrant Agreement
-38-
and the Consulting Agreement, and shall have issued the Underwriter's Warrants.
(o) The Company shall have furnished to the Underwriter such other
certificates, documents, and opinions as the Underwriter may have reasonably
requested (including certificates of officers of the Company) as to the
accuracy, at the Closing Dates, of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder and as to other conditions concurrent and precedent to the obligations
of the Underwriter hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.
Any certificate signed by an officer of the Company delivered to the
Underwriters or to counsel for the Underwriters, will be deemed a representation
and warranty by the Company to the Underwriters as to the statements made
therein.
10. Effective Date. This Agreement will become effective at 9:30 a.m. on
the first business day following the date on which the Registration Statement
becomes effective; provided, however, this Agreement will become effective at
such later time after the Registration Statement becomes effective as the
Underwriter may determine on and by notice to the Company or by release of any
of the Offered Securities for sale to the public or by any other action
constituting a commencement of the Public Offering. For the purposes of this
Section 10, the Offered Securities will be deemed to be so released upon the
release for publication of any newspaper advertisement relating to the Offered
Securities or upon the release by the Underwriter of telegrams offering the
Offered Securities for sale to securities dealers, whichever may occur first.
The term "business day" shall mean a calendar day other than a Saturday, Sunday
or holiday. Notwithstanding anything herein to the contrary, the provisions of
this Section and of Sections 6, 7, 11 and 12 hereof will, however, be effective
upon the execution of this Agreement.
11. Termination. This Agreement may be terminated by the Underwriter by
notice to the Company (i) at any time before this Agreement becomes effective in
accordance with Section 9 hereof; (ii) if, prior to the First Closing Date, the
Company shall have failed or refused to fully comply with any of the provisions
of this Agreement on its part to be performed prior thereto, or if any of the
agreements, conditions, covenants, representations or
-39-
warranties of the Company herein contained shall not have been performed or
fulfilled within the times specified; (iii) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange will have been
suspended; (iv) limited or minimum prices will have been established on either
such Exchange or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD; (v) a banking moratorium
will have been declared either by federal or New York State authorities; (vi)
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, will be
established by either of such Exchanges, by the Commission by any other federal
or state agency, by action of the Congress or by Executive Order; (vii) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity; (viii) any action has been taken by
the Government of the United States or any department or agency thereof which,
in the sole judgment of the Underwriter, has had a material adverse effect upon
the general market for securities; (ix) if, prior to the First Closing Date,
there shall have occurred the outbreak of any war or any other event or calamity
which, in the sole judgment of the Underwriter, materially disrupts the
financial markets of the United States; (x) if, prior to the First Closing Date,
the general market for securities or political, legal or financial conditions
should deteriorate so materially from that in effect on the date of this
Agreement that, in the sole judgment of the Underwriter, it becomes
impracticable for the Underwriter to commence or proceed with the Public
Offering of the Offered Securities and with the payment for or acceptance
thereof; (xi) if trading of any securities of the Company shall have been
delisted on any exchange or in any over-the-counter market; or (xii) if, prior
to the First Closing Date, the Underwriter determines, in its sole discretion,
that any materially adverse change shall have occurred, since the date as of
which information is given in the Registration Statement and the Prospectus, in
the financial condition, business, prospects, operations, properties or
obligations of the Company. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 7, 8 and 12 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Expenses; Blue Sky Filings and Expenses.
(a) Whether or not the Public Offering is consummated, the Company
will pay all costs and expenses incident to the performance of the obligations
of the Company hereunder,
-40-
including without limiting the generality of the foregoing, (i) the preparation,
printing, filing, and copying of the Registration Statement, Prospectus, this
Agreement, the Selected Dealer Agreement, and other underwriting documents, if
any, and any drafts, amendments or supplements thereto, including the cost of
all copies thereof supplied to the Underwriter in such quantities as reasonably
requested by the Underwriter and the costs of mailing Prospectuses to offerees
and purchasers of the Offered Securities; (ii) the out-of-pocket travel expenses
of the Underwriter and counsel to the Underwriter or other professionals
designated by the Underwriter to visit the Company's facilities for purposes of
discharging due diligence responsibilities (and if conferences and discussions
are held outside New York, New York, the Company shall pay such reasonable
amount of pre-approved traveling and lodging out-of-pocket expenses as may be
incurred by the Underwriter and its counsel, payable when incurred and billed);
(iii) the printing, engraving, issuance and delivery of certificates
representing the Offered Securities, including any transfer or other taxes
payable thereon; (iv) the registration or qualification of the Offered
Securities under state securities or "blue sky" laws (including attorneys fees
of $35,000 (payable on the First Closing Date) and disbursements of counsel to
the Underwriter (to be paid monthly as incurred, except that the amount of blue
sky filing fees shall be paid by the Company to the Underwriter's counsel at the
time application for qualification of the offering under blue sky laws is made);
(v) all reasonable fees and expenses of the Company's counsel and accountants;
[(vi) all costs, expenses and filing fees in connection with review of the terms
of the offering by the NASD (it being agreed that all reasonable fees and
expenses of the Underwriter and Underwriter's counsel in securing NASD approval,
shall be paid by the Company)]; (vii) all costs and expenses of any listing of
the Offered Securities on NASDAQ and Boston Stock Exchange; (viii) all costs and
expenses of three (3) bound volumes provided to the Underwriter of all
documents, paper exhibits, correspondence and records forming the materials
included in the offering; (ix) the cost of "tombstone" advertisements to be
placed in one or more daily or weekly periodicals as the Underwriter may
request; (x) all expenses incurred in connection with presentation of two "due
diligence" meetings and (xi) all other costs and expenses incurred or to be
incurred by the Company in connection with the transactions contemplated by this
Agreement. The aforementioned $35,000 payment shall not include fees of special
counsel if the same is required to be incurred in a "merit review" state which
may require local counsel; the Underwriter will not retain special counsel in
any state without the prior consent of the Company. The obligations of the
Company under this subsection (a) shall survive any termination or cancellation
of this Agreement, except as provided in paragraph of this Section 12.
-41-
(b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of the
offering, including in such amount the proceeds from the exercise of the
Underwriter's over-allotment option. The non-accountable expense allowance due
shall be paid at the First Closing Date and any Option Closing Date, as
applicable.
(c) If the Company decides not to proceed with the Public Offering
for any reason, and subsequently engages in any public offering, private
placement, merger, acquisition, joint venture or corporate reorganization with
any other business entity within 12 months after the Company notifies the
Underwriter of its decision not to proceed with the Public Offering, the
Underwriter shall be entitled to receive from the Company a cash fee equal to 5%
of the consideration paid or received in any such transaction, less any payments
previously made to the Underwriter pursuant to paragraph (b). The Company and
the Underwriter mutually agree that since the amount of monetary damages
suffered by the Underwriter would be difficult to calculate in the event of
abandonment of the Public Offering, the amount of such fee is a fair measure of
compensation due to the Underwriter in such event. The Company and the
Underwriter shall negotiate in good faith the terms of an investment banking
finders' fee, if any, if the Underwriter is instrumental in arranging such
transaction.
(d) The Underwriter shall determine in which states or jurisdictions
the Offered Securities shall be registered or qualified for sale, provided that
such states or jurisdictions do not require the Company to qualify as a foreign
business corporation or to file a general consent to service of process.
Immediately prior to the Effective Date, counsel for the Underwriter shall
advise counsel for the Company in writing of all states in which the offering
has been registered or qualified for sale or has been cancelled, withdrawn or
denied and the number of Offered Securities registered or qualified for sale in
each such state. The Company shall be responsible for the cost of state
registration or qualification, including the filing fees (which filing fees are
payable to Underwriter's counsel in advance of such filings) and the legal fees
and disbursements of Underwriter's counsel in connection with obtaining such
registration or qualification; provided, however, that the legal fees of
Underwriter's counsel payable by the Company with respect to blue sky filings
shall be $35,000, subject to paragraph (a) above. The disbursements of
Underwriter's counsel shall be paid by the Company monthly as incurred by such
legal counsel. The Underwriter hereby acknowledge that the Company has
previously paid $10,000 to
-42-
Underwriter's counsel to be applied towards the legal fees payable pursuant to
this paragraph (d) and the Company hereby acknowledges that any remaining
balance with respect to legal fees or blue sky filing fees, and any unpaid
disbursements, shall be due and payable on the First Closing Date.
13. Notices. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, or hand delivered, and confirmed in writing or by telegraph, addressed
as respectively indicated or to such other address as will be indicated by a
written notice similarly given, to the following persons:
(a) If to the Underwriter -- addressed to Briarwood Investment
Counsel, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇, President, with a copy to Zimet, Haines, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, Esq.
(b) If to the Company -- addressed to Connecticut Valley Sports,
Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief
Executive Officer, with a copy to: Gersten, Savage, Kaplowitz & ▇▇▇▇▇▇▇▇▇▇ LLP,
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Esq.
Notice shall be deemed delivered upon receipt.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control any of the Underwriter within
the meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the
-43-
Offered Securities from the Underwriter will be deemed a successor or assign
solely because of such purchase.
15. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and warrants to the Underwriter
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions or holds a right of
first refusal or similar right in connection with the proposed offering, and the
Company hereby agrees to indemnify and hold harmless the Underwriter, its
officers, directors, agents and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the Act, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder or alleged holder of a right of first refusal or similar right
in connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of the
Company.
(b) The Underwriter hereby represents and warrants to the Company
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions; and the Underwriter
hereby agrees to indemnify and hold harmless the Company, its officers,
directors and agents, from and against any loss, liability, claim, damage or
expense whatsoever arising out of a claim by an alleged finder in connection
with the proposed offering, insofar as such loss, liability, claim, damage or
expense arises out of any action or alleged action of the Underwriter.
16. Applicable Law. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said state applicable to contracts made and to be
performed entirely within such State. The Company (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 procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇,
-▇▇-
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ and the United States District Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
17. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
19. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
20. Representation of the Underwriter. The Underwriter hereby represents
that it is registered as a broker-dealer with the Commission and is registered
as a broker-dealer in all states in which it of conducts business and it is a
member in good standing of the NASD.
21. Terminology. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders and the singular shall include the plural, and vice versa.
-45-
If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the space provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
between us.
Very truly yours,
CONNECTICUT VALLEY SPORTS, INC.
By -----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
Confirmed and accepted on the
day and year first above written.
BRIARWOOD INVESTMENT COUNSEL
By:---------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
-▇▇-
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ SPORTS, INC.
[SELECTED DEALER AGREEMENT]
-47-
