EXHIBIT 1.01
KIDS STUFF, INC.
0000 XXXXXX XXXXXXX, X.X.
XXXXX 000
XXXXXX, XX 00000
UNDERWRITING AGREEMENT
VTR Capital Inc. __________, 1997
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
Kids Stuff, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to VTR Capital Inc. ("VTR" or the "Representative") and to each
of the other underwriters named in Schedule I hereto (the "Underwriters"), for
each of whom you are acting as Representative, an aggregate of 300,000 Units
(the "Units" or sometimes the "Firm Units"), each Unit consisting of two (2)
shares of Common Stock, par value $.001 ("Common Stock"), and eight (8)
Redeemable Class A Common Stock Purchase Warrants (the "Warrants") of the
Company at a public offering price of $12.00 per Unit.
Each Warrant shall entitle the holder to purchase one share of Common
Stock for a four year period commencing one year from the Effective Date
(hereinafter defined) at a price of $5.00 per share. The Unit Warrants will be
immediately detachable from the Common Stock on the Effective Date. The Warrants
may be called by the Company commencing one year from the Effective Date upon at
least thirty days prior written notice at a price of $.05 per Warrant at any
time provided the closing bid for the Common Stock is at least $14.40 during
each day of the twenty (20) trading day period ending on the fifth day preceding
the date of the written notice. The Warrant Agreement will provide that no such
notice will be given until there is a current Registration Statement and
Prospectus on file with the Securities and Exchange Commission at the time such
notice is given to Warrant Holders and that the notice may not be mailed to
Warrant Holders during the aforesaid one-year period from the Effective Date.
All of the securities which are the subject of this Agreement are more fully
described in the Prospectus of the Company described below. In the event that
the Representative does not form an underwriting group but decides to act as the
sole Underwriter, then all references to VTR herein as Representative shall be
deemed to be to it as such sole Underwriter and Section 14 hereof shall be
deemed deleted in its entirety.
1
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The Company
hereby confirms its agreement with the Representative and the other Underwriters
as follows:
SECTION 1. DESCRIPTION OF SECURITIES. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants and other securities will be as set forth in the Prospectus
(hereinafter defined).
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments
thereto (No. 333-19423) with respect to the Units, including a form of
prospectus relating thereto, copies of which have been previously delivered to
you, have been prepared by the Company in conformity with the requirements of
the Act, and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission under the Act. The Company, subject to the provisions
of Section 6(a) hereof, may file one or more amendments to such Registration
Statement and Prospectus. The Underwriters will receive copies of each such
amendment.
The date on which such Registration Statement is
declared effective under the Act and the public offering of the Units as
contemplated by this Agreement is therefore authorized to commence, is herein
called the "Effective Date." The Registration Statement and Prospectus, as
finally amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations which differs from the Prospectus, the term "Prospectus"
shall also include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time
it becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the Rules and Regulations, and will not contain an untrue statement of a
material fact and will not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subsection (b)
shall extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon information
furnished in writing to the Company by the
2
Underwriters specifically for use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on
the Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which the conducts of its business or the character or location
of its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company (audited and
unaudited) included in the Registration Statement and Prospectus present fairly
the financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved, and are in accordance with the books and
records of the Company.
(e) To the best of the Company's knowledge, Xxxxxxx & Xxxxxx,
independent auditors, who have given their report on certain financial
statements which are included as a part of the Registration Statement and the
Prospectus are independent public accountants as required under the Act and the
Rules and Regulations.
(f) Subsequent to the respective dates as of which information
is given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus, (i) the Company has not incurred,
nor will it incur, any material liabilities or obligations, direct or
contingent, nor has it, nor will it have entered into any material transactions,
in each case not in the ordinary course of business; (ii) there has not been,
and will not have been, any material change in the Company's Certificate of
Incorporation or in its capital stock or funded debt; and (iii) there has not
been, and will not have been, any material adverse change in the business, net
worth or properties or condition (financial or otherwise) of the Company whether
or not arising from transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real
and personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company by
good and marketable title free and clear of all liens and encumbrances, except
those specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as
3
disclosed in the Prospectus and Registration Statement, the Company in all
material respects has full right and licenses, permits and governmental
authorizations required to maintain and operate its business and properties as
the same are now operated and, to its best knowledge, none of the activities or
business of the Company is in material violation of, or causes the Company to
violate any laws, ordinances and regulations applicable thereto, the violation
of which would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
(h) The Company has no material contingent obligations, nor
are its properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
Federal or State Commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and Series A
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid, and non-assessable, and are free of preemptive rights (the "Preferred
Stock"). The Common Stock and the shares of Common Stock issuable upon exercise
of the Warrants, when paid for, issued and delivered in accordance with this
Agreement and the Warrant Agreement between the Company and American Stock
Transfer & Trust Company, dated as of _______________, will be duly authorized,
validly issued, fully paid and non-assessable and will not be issued in
violation of any preemptive rights. The Underwriters will receive good and
marketable title to the Units purchased by them from the Company, free and clear
of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever. Except as set forth in
the Prospectus, there are no outstanding options, warrants, or other rights,
providing for the issuance of, and no commitments, plans or arrangements to
issue, any shares of any class of capital stock of the Company, or any security
convertible into, or exchangeable for, any shares of any class of capital stock
of the Company. All of the securities of the Company to which this Agreement
relates conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
4
(k) The certificate or certificates required to be
furnished to the Underwriters pursuant to the provisions of Section
11 hereof will be true and correct.
(l) The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and it is a
valid and binding obligation of the Company, enforceable against it in
accordance with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining to
creditors rights generally.
(m) No default exists, and no event has occurred which, with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any material term, covenant or condition by the
Company or any other party, of any material indenture, mortgage, deed of trust,
note or any other material agreement or instrument to which the Company is a
party or by which it or its business or its properties may be bound or affected,
except (i) as disclosed in the Prospectus, (ii) such defaults as have been
waived by all parties who would otherwise have a remedy or right with respect
thereto or (iii) such defaults which will not cause any material adverse change
in the business, net worth, properties or conditions (financial or otherwise),
of the Company. The Company has full power and lawful authority to authorize,
issue and sell the Units to be sold by it hereunder on the terms and conditions
set forth herein and in the Registration Statement and in the Prospectus. No
consent, approval, authorization or other order of any regulatory authority is
required for such authorization, issue or sale, except as may be required under
the Act or State securities laws. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated, and compliance with
the terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or affected; the Certificate of Incorporation and any
amendments thereto; the by-laws of the Company, as amended; or any law, order,
rule or regulation, writ, injunction or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over the
Company or its business or properties, except for the SEC's position on
indemnification of officers, directors or persons controlling the Company.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Units, the
Common Stock or the Warrants in the open market following the Closing Date or
any other type of action designed to, or that may reasonably be expected to
cause or result in such stabilization or manipulation, or that may reasonably be
expected to facilitate the initial sale, or resale, of any of the securities
which are the subject of this Agreement.
(o)
5
The Company will have duly authorized, reserved and set aside the
shares of its Common Stock issuable upon exercise of the Underwriters' Purchase
Option, and such stock, when issued and paid for upon exercise of the
Underwriters' Purchase Option in accordance with the provisions thereof, will be
duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements,
and warranties shall survive delivery of, and payment for, the Units.
SECTION 3. ISSUANCE, SALE AND DELIVERY OF THE FIRM UNITS AND THE
UNDERWRITERS' PURCHASE OPTION.
(a) Upon the basis of the representations, warranties,
covenants and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
Units, and the Underwriters, severally and not jointly, agree to purchase from
the Company, the number of the Firm Units set forth opposite the respective
names of the Underwriters in Schedule I hereto, plus any additional Units which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 14 hereof.
The purchase price of the Units to be paid by the
several Underwriters shall be $10.80 per Unit ($12.00 per Unit less a ten
percent discount equal to $1.20 per Unit).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company, at the offices of the Representative, or its clearing agent, or at
such other place as shall be agreed upon by the Representative and the Company,
upon delivery of the Firm Units to the Representative for the respective
accounts of the Underwriters. In making payment to the Company with respect to
the Units, the Representative may first deduct all sums due to it for the
balance of the non-accountable expense
6
allowance and under the Financial Consulting Agreement (as hereinafter defined).
Such delivery and payment shall be made at 9:30 A.M., New York City Time on the
third business day after the Effective Date which may be extended by the
Representative to not later than the fifth business day, following the Effective
Date (unless postponed in accordance with the provisions of Section 14 hereof)
or at such other time as shall be agreed upon by the Representative and the
Company. The time and date of such delivery and payment are hereby defined as
the Closing Date. It is understood that each Underwriter has authorized the
Representative, for the account of such Underwriter, to accept delivery of,
receipt for, and make payment of the purchase price for, the Firm Units which it
has agreed to purchase. You, individually, and not as Representative may (but
shall not be obligated to) make payment of the purchase price for the Firm Units
to be purchased by any Underwriter whose check shall not have been received by
the Closing Date, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from its obligations hereunder.
(c) [intentionally omitted]
(d) Certificates for the Firm Units shall be registered in
such name or names and in such authorized denominations as the Representative
may request in writing at least two business days prior to the Closing Date. The
Company shall permit the Representative to examine and package said certificates
for delivery at least one full business day prior to the Closing Date. The
Company shall not be obligated to sell or deliver any of the Firm Units except
upon tender of payment by the Underwriters for all of the Firm Units agreed to
be purchased by them hereunder.
(e) At the time of making payment for the Firm Units, the
Company also hereby agrees to sell to the Representative for $25 an option, to
purchase 60,000 shares of Common Stock at an exercise price of $9.90 per share
(hereinafter referred to as the "Underwriters' Purchase Option"). Such
Underwriters' Purchase Option is to become exercisable one year from the
Effective Date, and shall remain exercisable for a period of four years
thereafter. From the Effective Date and until one (1) year thereafter, such
option may be transferred only to officers or partners of the Underwriters and
selling group members and their officers or partners.
7
The Underwriters' Purchase Option shall contain
customary clauses protecting the holders thereof in the event the Company pays
stock dividends, effects stock splits, or effects a sale of assets, merger or
consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent and Depository Trust Company to
deliver to the Representative (at the Company's expense) for a period of five
years from the Closing Date, daily transfer sheets showing any transfers of the
Securities and in the case of the transfer agent, from time to time during the
aforesaid period a complete stockholders' list will be promptly furnished by the
Company when requested by the Representative on not more than two occasions per
year.
SECTION 4. PUBLIC OFFERING. The several Underwriters agree, subject to
the terms and provisions of this Agreement, to offer the Units to the public as
soon as practicable after the Effective Date, at the initial offering price of
$12.00 per Unit and upon the terms described in the Prospectus. The
Representative may, from time to time, decrease the public offering price, after
the initial public offering, to such extent as the Representative may determine,
however, such decreases will not affect the price payable to the Company
hereunder.
SECTION 5. REGISTRATION STATEMENT AND PROSPECTUS. The Company will
furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for distribution
to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many
printed copies of a Preliminary Prospectus and of the Prospectus as the
Representative may request for the purposes contemplated by this Agreement. If,
while the Prospectus is required to be delivered under the Act or the Rules and
Regulations, any event known to the Company relating to or affecting the Company
shall occur which should be set forth in a supplement to or an amendment of the
Prospectus in order to comply with the Act (or other applicable law) or with the
Rules and Regulations, the Company will forthwith prepare, furnish and deliver
to the Representative and to each of the other Underwriters and to others whose
names and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the
selected dealers, if any, in connection with the distribution of the Units and
all dealers to whom any of the Units may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
8
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each Underwriter that:
(a) After the date hereof, the Company will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or the Prospectus, or any supplement to the Prospectus,
of which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative or the Underwriters' counsel shall
have reasonably objected in writing on the ground that it is not in compliance
with the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective (provided, however, the Company shall
not cause the Registration Statement to become effective without the written
consent of VTR) and will advise the Representative, (i) when the Registration
Statement shall have become effective and when any amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus
shall be filed with the Commission, (ii) when the Commission shall make request
or suggestion for any amendment to the Registration Statement or the Prospectus
or for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission,
promptly upon the request of the Representative, such amendments, or supplements
to the Registration Statement or Prospectus, in form and substance satisfactory
to counsel to the Company, as in the reasonable opinion of Xxxxxxxxx &
Xxxxxxxxx, LLP, as counsel to the Underwriters, may be necessary or advisable in
connection with the offering or distribution of the Units, and will diligently
use its best efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by
the Representative, supply all necessary documents, exhibits and information,
and execute all such applications, instruments and papers as may be required, in
the opinion of the Underwriters' counsel, to qualify the Units or such part
thereof as the Representative may determine, for sale under the so-called "Blue
Sky" Laws of such states as the Representative shall designate, and to continue
such qualification in effect so long as required for the purposes of the
distribution of the Units, provided, however, that the Company shall not be
required to qualify as a foreign corporation or dealer in securities or to file
a consent to service of process in any state in any action other than one
arising out of the offering or sale of the Units.
9
(e) The Company will, at its own expense, file and provide,
and continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the States in which the Units may be qualified for sale, for so long as required
by applicable law, rule or regulation and will provide the Representative with
copies of all such registrations, filings and reports on a timely basis.
(f) During the period of five years from the Effective Date,
the Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as at the end of such quarter-yearly period, together with a
statement of its income and a statement of changes in its cash flow for such
period (Form 10-Q or 10-QSB), all in reasonable detail, signed by its principal
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of cash flow for such
fiscal year (Form 10-K or 10-KSB), such balance sheet and statement of cash flow
for such fiscal year to be in reasonable detail and to be accompanied by a
certificate or report of independent public accountants, (who may be the regular
accountants for the Company), (iii) as soon as available a copy of every other
report (financial or other) mailed to the stockholders, and (iv) as soon as
available a copy of every non-confidential report and financial statement
furnished to or filed with the Commission or with any securities exchange
pursuant to requirements by or agreement with such exchange or the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any regulations of the Commission thereunder. If and for so long as the Company
has one or more active subsidiaries, the financial statements required by (i)
and (ii) above shall be furnished on a consolidated basis in respect of the
Company and all of the Company's subsidiaries. The financial statements referred
to in (ii) shall also be furnished to all of the stockholders of the Company as
soon as practicable after the 105 days referred to therein.
(g) The Company represents that with respect to the Warrants
and the shares of Common Stock, it will prepare and file a Registration
Statement with the Commission pursuant to Section 12 of the 1934 Act, prior to
the Effective Date with a request that such Registration Statement will become
effective on the Effective Date. The Company understands that, to register, it
must prepare and file with the Securities and Exchange Commission a General Form
of Registration of Securities (Form 8-A or Form 10). In addition, the Company
agrees to qualify its Units, Common Stock and the Warrants for listing on the
OTC Bulletin Board on the Effective Date and will take all reasonable and
necessary and appropriate action so that the securities continue to be listed
for trading on the OTC Bulletin Board for at least ten years from the Effective
Date provided the Company otherwise complies with the prevailing maintenance
requirements. In addition, at such time as the Company
10
qualifies for listing its securities on the National Market System of NASDAQ,
the Company will use its best efforts to have the Company's Units and components
thereof listed on the National Market System of NASDAQ in lieu of both listing
as Small-Cap Issues on NASDAQ and on the _________ Exchange. For so long as the
Company is a reporting company under the 1934 Act, the Company shall comply with
all periodic reporting and proxy solicitation requirements imposed by the
Commission pursuant to the 1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply
for listing in Standard and Poor's Corporation Records and Standard & Poor's
Monthly Stock Guide and shall use its best efforts to have the Company listed in
such reports for a period of not less than ten (10) years from the Closing Date.
The Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
(j) The Company shall cause the Board of Directors to meet, at
least quarterly, upon proper notice; and, the Representative shall receive
notice of any regular or special meetings of the Company's Board of Directors
concurrently with the sending of such notice to the Company's directors and
shall have the right to have a representative attend such meeting as an
observer, but this right shall be suspended (i) three years after the Effective
Date or (ii) at any time a designee of the Underwriter is a member of or advisor
to the Company's Board of Directors as more fully set forth in Section 17 below.
(k) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement and
shall continue to appoint such auditors or such other auditors as are reasonably
acceptable to the Representative for a period of five (5) years following the
Effective Date of the Registration Statement. Said financial statements shall be
prepared in accordance with Item 310 of Regulation S-B under the Rules and
Regulations. The Company shall appoint American Stock Transfer & Trust Co., New
York, New York as transfer agent for the Common Stock (the "Transfer Agent") and
as warrant agent for the Warrants.
(l) Prior to the Effective Date, the Company will enter
into employment contracts with Xxxxxxx X. Xxxxxx and Xxxxxx X.
Xxxxxx satisfactory to the Representative.
11
(m) Within ninety (90) days subsequent to the Effective Date,
the Company will furnish "Key Man" Life Insurance in the amount of $1,000,000 on
the life of Xxxxxxx X. Xxxxxx with the Company as the beneficiary thereof and
the Company shall pay the annual premiums, therefore, for a period of not less
than five years from the Effective Date.
(n) The Company will for a period of five years:
(i) Furnish to the Representative and to the
Company's shareholders annual audited financial statements contained in an
annual report and unaudited financial statements contained in quarterly reports
for each of the Company's first three quarters.
(ii) [intentionally deleted]
(iii) At its expense, shall cause its regularly
engaged independent certified public accountants to review (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's Form 10-Q or 10-QSB quarterly report and the mailing of quarterly
financial information to security holders.
(o) Unless and until such time as the securities of the
Company are listed on the New York Stock Exchange, the American Stock Exchange
or NASDAQ/NMS, the Company shall cause its legal counsel to provide the
Representative with a survey, to be updated at least annually, for 5 years, of
those states in which the securities of the Company may be traded in non-issuer
transactions under the Blue Sky laws of the states and the basis for such
authority. At closing, the first such survey shall be delivered by the
Underwriter's legal counsel, Xxxxxxxxx & Xxxxxxxxx, LLP.
(p) As soon as practicable after the Closing Date, the Company
will deliver to the Representative and its counsel a total of three bound
volumes of copies of all documents relating to the public offering which is the
subject of this Agreement.
(q) The Company, for a period of at least three years
following the public offering, shall retain the services of a financial public
relations firm(s) satisfactory to the Representative, said agreement(s) to
commence no later than 30 days after the Closing of the public offering.
(r) Stock certificates and Warrant certificates shall be first
submitted to the Representative for approval prior to printing. The Company
shall, as promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Units, shares and Unit Warrants and
have each of the securities eligible for closing through Depository Trust
Company.
12
(s) The Company will not issue and sell any of its securities
not contemplated by the Registration Statement for twenty four months from the
date of this agreement.
SECTION 7. EXPENSES OF THE COMPANY.
The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (i) the preparation, printing and filing of the Offering Documents
and amendments thereto, including NASD, SEC, filing and/or application fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among Underwriters and the Selected Dealers' Agreement, a Blue Sky
Memorandum, material to be circulated to the Underwriters by us and other
incidental material; (ii) the issuance and delivery of certificates representing
the shares and Unit Warrants, including original issue and transfer taxes, if
any; (iii) the qualifications of the Company's Units covered by the "firm
commitment" offering under State Securities or Blue Sky Laws, including counsel
fees of the Representative relating thereto in the sum of $35,000.00 Dollars
(the "Blue Sky Legal Fees"), together with appropriate state filing fees plus
disbursements (estimated to be $25,000) relating to, but not limited to,
long-distance telephone calls, photocopying, messengers, excess postage,
overnight mail and courier services; and (iv) the fees and disbursements of
counsel for the Company and the accountants for the Company. The Blue Sky Legal
Fees payment shall not include fees of special counsel if same is required to be
incurred in a merit review state which may require local counsel.
After closing of the public offering, the Company shall bear the costs
of tombstone announcements not to exceed $______________.
SECTION 8. PAYMENT OF UNDERWRITERS' EXPENSES.
(a) On the Closing Date the Company will pay to VTR an expense
allowance equal to three (3%) percent of the total gross proceeds derived from
the sale of the 300,000 Units as an advance against reasonable out-of-pocket
expenses anticipated to be incurred by, or on behalf of, VTR, including the fees
and disbursements of counsel to the Underwriters and for costs of otherwise
unreimbursed advertising, traveling, postage, telephone and telegraph expenses
and other miscellaneous expenses incurred by or on behalf of the Representative
and the Underwriters in preparation for, or in connection with the offering and
sale and distribution of the Units; and VTR shall not be obligated to account to
the Company for such disbursements and expenses. In the event, however, that the
Representative terminates this Agreement pursuant to the provisions of Section
12 hereof, the Representative shall be reimbursed for its actual accountable
out-of-pocket expenses and shall be obligated to account for expenditures of any
advance payment to VTR and to refund to the Company any portion of the advance
not expended. In the event that the Representative terminates this agreement
pursuant to the provisions of Section 12(b), the Representative shall be
entitled to reimbursement of expenses on an accountable basis.
13
(b) On the Effective Date, the Company will enter into an
agreement retaining VTR, as a management and financial consultant for a
three-year period, commencing as of the Effective Date at a fee equal to
$100,000 payable in full in advance on the Closing Date.
SECTION 9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
and all losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein such fact required to be stated therein or
necessary to make such statements therein not misleading. Such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Units to any person by such Underwriter if such untrue
statement or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. In no event shall the indemnification agreement
contained in this Section 9(a) inure to the benefit of any Underwriter on
account of any losses, claims, damages, liabilities or actions arising from the
sale of the Units upon the public offering to any person by such Underwriter if
such losses, claims, damages, liabilities or actions arise out of, or are based
upon, a statement or omission or alleged omission in a preliminary prospectus
and if, in respect to such statement, omission or alleged omission, the
Prospectus differs in a material respect from such preliminary prospectus and a
copy of the Prospectus has not been sent or given to such person at or prior to
the confirmation of such sale to such person. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each director of the Company, and each officer of the Company who
signs the Registration Statement, to the same extent as the foregoing indemnity
from the
14
Company to each Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which was made in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, which were made in
reliance upon and in conformity with information furnished in writing to the
Company by the Representatives on behalf of any Underwriter for specific use
therein; provided, however, that the obligation of each Underwriter to indemnify
the Company (including any controlling person, director or officer thereof)
shall be limited to the net proceeds received by the Company from such
Underwriter. For all purposes of this Agreement, the amounts of the selling
concession and reallowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for inclusion in any Preliminary Prospectus, any Rule 430A Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 9(a) or 9(b) shall be available to any party who shall
fail to give notice as provided in this Section 9(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or proceeding
shall not relieve it from any liability that it may have to any indemnified
party for contribution or otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the
15
conduct of the defense of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party, or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the reasonable fees
and expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 9(a) and (b)
is due in accordance with its terms but for any reason is held to be unavailable
from the Company, or the Underwriters, the Company, and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, persons who control the
company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may also be liable for
contribution) to which the Company and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Units or, if such allocation is not permitted by applicable
law or indemnification is not available as a result of the indemnifying party
not having received notice as provided herein in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or from the sale of the Units, as set forth in
the table on the cover page of the Prospectus (but not taking into account the
use of the proceeds of such sale of Units by the Company), bear to (y) the
underwriting discount received by the Underwriters, as set forth in the table on
the cover page of the Prospectus. The relative fault of the Company, and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to information
supplied by the Company, or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, and the
16
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable consideration
referred to above. Notwithstanding the provisions of this Section 9, in no case
shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Units purchased by such Underwriter
hereunder. For purposes of this Section 9, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject to the
immediately preceding sentence of this Section 9. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
SECTION 10. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Units,
or the time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
17
SECTION 11. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the several Underwriters to purchase and pay for the Units which
the Underwriters have agreed to purchase hereunder are subject to: the accuracy,
as of the date hereof and as of the Closing Date, of all of the representations
and warranties of the Company and contained in this Agreement; the Company's
compliance with, or performance of, all of its covenants, undertakings and
agreements contained in this Agreement that are required to be complied with or
performed on or prior to each of the Closing Dates and to the following
additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to
the Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, 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 materially misleading.
(c) Between the date hereof and the Closing Date, the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or other cause, of such character as materially adversely
affects its business or property, whether or not such loss is covered by
insurance.
(d) Between the date hereof and the Closing Date, there shall
be no litigation instituted or threatened against the Company, and there shall
be no proceeding instituted or threatened against the Company before or by any
federal or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) except in the ordinary course of its business, the Company shall not have
incurred any
18
material liabilities or obligations (direct or contingent), or disposed of any
of its assets, or entered into any material transaction, and (C) the Company
shall not have suffered or experienced any material adverse change in its
business, affairs or in its condition, financial or otherwise. On the Closing
Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report without considering the
proceeds from the sale of the Units except to the extent that any decrease is
disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, addressed to you, of Hornsby, Sacher, Zelman,
Stanton, Xxxx & Xxxxxx, P.A., counsel for the Company, that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
it has authorized and outstanding capital as set forth in the Registration
Statement and Prospectus; and the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which the ownership or leasing of
its properties requires such qualification or license, except where failure to
be so qualified or licensed would have no material adverse effect on the
business of the Company.
(ii) The Company has an authorized, issued and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus.
All of the outstanding shares of Common Stock and Preferred Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of the Warrants and any other
outstanding options, warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriters' Warrant
conform to descriptions thereof under "Description of Securities" contained in
the Prospectus.
(iv) The Underwriters will receive good and marketable title
to the Units purchased by them from the Company in accordance with the terms and
provisions of this Agreement, to the best of such counsel's knowledge, free and
clear of all liens,
19
encumbrances, claims, security interests, restrictions, stockholders' agreements
and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there
are no outstanding options, warrants, or other rights, providing for the
issuance of, and, to the best of the knowledge of such counsel, no commitments,
plans or arrangements to issue, any shares of any class of capital stock of the
Company, or any security convertible into, or exchangeable for, any shares of
any class of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no
consents, approvals, authorizations or orders of agencies, officers or other
regulatory authorities are necessary for the valid authorization, issue or sale
of the Units hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for that purpose have been instituted or are pending before or
threatened by, the Commission;
(viii) To the best of such counsel's knowledge and
based upon the investigation described below, the Registration Statement and
Prospectus, and each amendment thereof and supplement thereto, comply as to form
in all material respects with the applicable requirements of the Act and the
Rules and Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the Registration
Statement or Prospectus). Such counsel has participated in conferences with
officers and representatives of the Company and with its certified public
accountants in the preparation of the Registration Statement and the Prospectus.
At such conferences counsel has made inquiries of such officers, representatives
and accountants, and discussed the contents of the Registration Statement and
the Prospectus. Such counsel has not independently verified, and, accordingly,
does not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement or the Prospectus,
other than as set forth the Prospectus insofar as such statements relate to the
contents of particular documents therein described, except for documents
prepared by counsel for Underwriter. On the basis of the foregoing, nothing has
come to the attention of such counsel to cause such counsel to believe that the
Registration Statement, the Prospectus or any amendment or supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial and statistical data and schedules contained therein, as to which such
counsel need express no opinion); and such counsel is familiar with all
contracts referred
20
to in the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, except for contracts prepared on
behalf of the Underwriter, or filed as exhibits thereto, as required, and such
counsel does not know of any other contracts required to be summarized or
disclosed or filed; and such counsel does not know of any legal or governmental
proceedings to which the Company is a party, or in which property of the Company
is the subject, of a character required to be disclosed in the Registration
Statement or the Prospectus which are not so disclosed therein.
(ix) The statements in the Registration Statement
under the caption "Business" have been reviewed by such counsel and insofar as
they refer to descriptions of agreements, statutes, licenses, certifications,
rules or regulations or legal conclusions, are correct in all material respects.
(x) This Agreement has been duly authorized and
executed by the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors rights generally
and except that no opinion need be given with regard to the enforceability of
Section 9 hereof or the availability of equitable relief.
(xi) To the best knowledge of such counsel: (a) no
default exists, and no event has occurred which, with notice or lapse of time,
or both, would constitute a default in the due performance and observance of any
material term, covenant or condition by the Company of any indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company is
a party or by which it or its business or its properties may be bound or
affected, except where such default would not have a material adverse effect on
the business of the Company and except as disclosed in the Prospectus; (b) the
Company has full power and lawful authority to authorize, issue and sell the
Units on the terms and conditions set forth herein and in the Registration
Statement and in the Prospectus; (c) no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or State securities laws,
clearance with the NASD and such other consent, approval, authorization or order
as has been obtained and is in full force and effect; and (d) the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, and compliance with the terms hereof will not conflict with, or
constitute a default under, any material indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the Company is now a party or
by which it or its business or its properties may be bound or affected, the
Certificate of Incorporation and any amendments thereto, the by-laws of the
Company or any order, rule or regulation, writ, injunction or decree of any
government, governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or its business or properties, except
21
for the SEC's position on indemnification of officers and
directors.
(xi) Except as disclosed in the Registration
Statement and Prospectus, to the best knowledge of such counsel, there are no
material actions, suits or proceedings at law or in equity of a material nature
pending, or to such counsel's knowledge, threatened against the Company which
are not adequately covered by insurance and there are no proceedings pending or,
to the knowledge of such counsel, threatened against the Company before or by
any Federal or State Commission, regulatory body, or administrative agency or
other governmental body, wherein an unfavorable ruling, decision or finding
would materially and adversely affect the business, operation or condition
(financial or otherwise) of the Company, which are not disclosed in the
Prospectus.
(xii) The Underwriters' Purchase Option to be issued to the
Representative hereunder will be, when issued, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors rights generally and the
Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Underwriters' Purchase Option and
such stock, when issued and paid for upon exercise of the Underwriters' Purchase
Option in accordance with the provisions thereof, will be duly and validly
issued, fully-paid and non-assessable.
Such opinion shall also cover such other matters incident to
the transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the Chief Executive Officer and an Executive Vice-President of
the Company, dated as of the Closing Date, to the effect that:
(i) Each of the representations and warranties
of the Company contained in Section 2 hereof is true and correct in all material
respects at and as of such Closing Date, and the Company has performed or
complied with all of its agreements, covenants and undertakings contained in
this Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become
effective and no order suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the knowledge of the
22
respective signers, no proceeding for that purpose has been
initiated or is threatened by the Commission;
(iii) The respective signers have each carefully
examined the Registration Statement and the Prospectus and any amendments and
supplements thereto, and to the best of their knowledge the Registration
Statement and the Prospectus and any amendments and supplements thereto and all
statements contained therein are true and correct in all material respects, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any 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 not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth except
changes which the Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the
Registration Statement and Prospectus, since the respective dates as of which,
or periods for which, information is given in the Registration Statement and
Prospectus and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise), of
the Company (in each case whether or not arising in the ordinary course of
business), and (B) the Company has not incurred any material liabilities, direct
or contingent, or entered into any material transactions, otherwise than in the
ordinary course of business other than as referred to in the Registration
Statement or Prospectus and except changes which the Registration Statement and
Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on
the Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each
Closing Date you shall have received a letter from Xxxxxxx & Xxxxxx, addressed
to the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the Representative, to the effect
that:
23
(i) They are independent public accountants
within the meaning of the Act and the applicable published Rules and
Regulations of the Commission;
(ii) In their opinion, the financial statements and
related schedules of the Company included in the Registration Statement and
Prospectus and covered by their reports comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder;
(iii) On the basis of LIMITED PROCEDURES in
accordance with standards established by the American Institute of Certified
Public Accountants, including (1) a reading of the latest available financial
statements of the Company (a copy of which shall be attached to such letter),
(2) a reading of the latest available minutes of the meetings of the
stockholders and the Board of Directors of the Company as set forth in the
minute books of the Company, officials of the Company having advised you and
them that the minutes of all such meetings through that date were set forth
therein, (3) consultations with officials of the Company responsible for
financial and accounting matters of the Company, which procedures do not
constitute an examination in accordance with generally accepted accounting
standards, and would not necessarily reveal material adverse changes in the
financial position or results of operations or inconsistencies in the
application of generally accepted accounting principles, nothing has come to
their attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Rules and Regulations of the Commission issued thereunder, or were not
prepared in accordance with generally accepted accounting principles and
practices consistent in all material respects with those followed in the
preparation of the comparable financial statements and schedules covered by
their reports included in the Registration Statement and Prospectus, or would
require any material adjustments for a fair presentation of the information
purported to be shown thereby or (b) during the period from the date of the
Capitalization table included in the Prospectus to a specified date not more
than four business days prior to the date of such letter, there has been any
material change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial position
included in the Prospectus and covered by their reports contained therein to the
date of the letter, there has been any material adverse change in the financial
condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in
their reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not
24
constituting an audit, with respect to certain amounts, percentages and
financial information which are derived from the general accounting records of
the Company which appear in the Prospectus under the captions "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Executive Compensation", "Certain Transactions", "Selected
Financial Data," "Dilution," and "Risk Factors," as well as such other financial
information as may be specified by the Representative, and that they have
compared such amounts, percentages and financial information with the accounting
records of the Company and have found them to be in agreement.
(k) All the opinions, letters, certificates and evidence mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel to the Underwriters, whose approval shall not be
reasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not
have been fulfilled when and as required by this Agreement and all obligations
of the Underwriters hereunder may be terminated and canceled by the
Representative by notifying the Company of such termination and cancellation in
writing or by telegram at any time prior to, or on, the Closing Date and any
such termination and cancellation shall be without liability of any party hereto
any other party, except with respect to the provisions of Sections 7 and 8
hereof. The Representative may, of course, waive, in writing, any conditions
which have not been fulfilled or extend the time for their fulfillment.
SECTION 12. TERMINATION.
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Representative
and an opportunity to cure, shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either inabilities
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any
25
action, suit or proceeding, threatened or pending, at law or equity against the
Company, or by any Federal, State or other commission, board or agency wherein
any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such exchange shall have
been suspended or a general banking moratorium shall have been established by
Federal or New York State authorities or (ii) a war or other national calamity
shall have occurred involving the United States or (iii) the condition of the
market for securities in general shall have materially and adversely changed, or
(iv) the condition of any matter materially affecting the Company or its
business or business prospects, is such that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section
12 shall be without liability of any character (including, but not limited to,
loss of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In addition, the Underwriter shall account to the
Company for any advance and shall reimburse the Company for any portion of the
advance not expended for actual out-of-pocket expenses. In the event that the
Representative terminates this agreement pursuant to the provisions of Section
12(b), the Representative shall be entitled to reimbursement of expenses on an
accountable basis.
SECTION 13. FINDER. The Company, and the Underwriters mutually
represent that they know of no person who rendered any service in connection
with the introduction of the Company to the Underwriters and that they know of
no outstanding claim by anyone for a "finder's fee" or similar type of fee, in
connection with the public offering which is the subject of this Agreement. Each
party hereby indemnifies the other against any such claims by any person known
to it, and not known to the other party hereto, who shall claim to have rendered
services in connection with the introduction of the Company to the Underwriters
and/or to have such a claim.
SECTION 14. SUBSTITUTION OF UNDERWRITERS.
26
(a) If one or more Underwriters default in its or their
obligations to purchase and pay for Units hereunder and if the aggregate amount
of such Units which all Underwriters so defaulting have agreed to purchase does
not exceed 10% of the aggregate number of Units constituting the Units, the
non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Units set forth opposite
their names in Schedule I) the full amount of the Units agreed to be purchased
by all such defaulting Underwriters and not so purchased, in proportion to their
respective commitments hereunder. In such event the Representative, for the
accounts of the several non-defaulting Underwriters, may take up and pay for all
or any part of such additional Units to be purchased by each such Underwriter
under this subsection (a), and may postpone the Closing Date for seven business
days; or
(b) If one or more Underwriters (other than the
Representative) default in its or their obligations to purchase and pay for the
Units hereunder and if the aggregate amount of such Units which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Units, or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Units
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Units in such proportion as may be agreed among them, at the
Closing Date. If the Remaining Underwriters do not purchase and pay for such
Units at such Closing Date, the Closing Date shall be postponed for one business
day and the remaining Underwriters shall have the right to purchase such Units,
or to substitute another person or persons to purchase the same or both, at such
postponed Closing Date. If purchasers shall not have been found for such Units
by such postponed Closing Date, the Closing Date shall be postponed for a
further two business days and the Company shall have the right to substitute
another person or persons, satisfactory to you to purchase such Units at such
second postponed Closing Date. If the Company shall not have found such
purchasers for such Units by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters or the Company
for damages occasioned by its default hereunder (and such damages shall be
deemed to include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
27
SECTION 15. REGISTRATION OF THE COMMON STOCK UNDERLYING THE
UNDERWRITERS' PURCHASE OPTION. The Company agrees that it will, upon request by
the Representative or the holders of a majority of the Underwriters' Purchase
Option and Underlying Securities within the period commencing one year after the
Effective Date, and for a period of five years from the Effective Date, on one
occasion only at the Company's sole expense, cause the Underwriters' Purchase
Option and/or the Underlying Securities issuable upon exercise of the
Underwriters' Purchase Option, to be the subject of a post-effective amendment,
a new Registration Statement, if appropriate (hereinafter referred to as the
"demand Registration Statement"), so as to enable the Representative and/or its
assigns to offer publicly the Underwriters' Purchase Option and/or the
underlying securities. The Company agrees to register such securities
expeditiously and, where possible, within forty-five (45) business days after
receipt of such requests. The Company agrees to use its "best efforts" to cause
the post-effective amendment, new Registration Statement to become effective and
for a period of nine (9) months thereafter to reflect in the post-effective
amendment, new Registration Statement, financial statements which are prepared
in accordance with Section 10(a)(3) of the Act and any facts or events arising
which, individually or in the aggregate, represent a fundamental and/or material
change in the information set forth in such post-effective amendment or new
Registration Statement. The holders of the Underwriters' Purchase Option may
demand registration without exercising such option and, in fact, are never
required to exercise same.
The Company understands and will agree that if, at
any time within the period commencing one year after the Effective Date and
ending seven years after the Effective Date of the Company's Registration
Statement, it should file a Registration Statement with the Securities and
Exchange Commission pursuant to the Securities Act, regardless of whether some
of the holders of the Underwriters' Purchase Option and Underlying Securities
shall have theretofore availed themselves of the right provided above, the
Company, at its own expense, will offer to said holders the opportunity to
register the Underwriters' Purchase Option and Underlying Securities. This
paragraph is not applicable to a Registration Statement filed by the Company
with the SEC on Form S-8 or any other inappropriate form.
In addition to the rights above provided, the Company
will cooperate with the then majority holders of the Underwriters' Purchase
Option and Underlying Securities in preparing and signing a Registration
Statement, on one occasion only in addition to the Registration Statements
discussed above, required in order to sell or transfer the aforesaid
Underwriters' Purchase Option and underlying securities and will supply all
information required therefor, but such additional Registration Statement shall
be at the then holders' cost and expense unless the Company elects to register
additional shares of the Company's Common Stock in which case the cost and
expense of such Registration Statement will be prorated between the Company and
the
28
holders of the Underwriters' Purchase Option and underlying securities
according to the aggregate sales price of the securities being issued. The
holders of the Underwriters' Purchase Option may include such Warrants in
any such filing without exercising the Underwriters' Purchase Option, and
in fact, are never required to exercise same. The Company can, at any time for
any reason, withdraw any such registration except in connection with a
Registration Statement filed pursuant to the Company's demand Registration
Statement.
SECTION 16. WARRANT EXERCISE FEE AGREEMENT. Commencing twelve months
after the Effective Date, the Company will pay VTR an amount equal to four (4%)
percent of the aggregate exercise price of each Warrant exercised (except for
those Warrants exercised by an Underwriter)of which a portion may be allowed to
the dealer who solicited the exercise (which may also be VTR); provided: (1) the
market price of the Common Stock on the date the Warrant was exercised was
greater than the Warrant exercise price on that date; (2) exercise of the
Warrant was solicited by a member of the NASD which was designated in writing as
the soliciting broker; (3) the Warrant was not held in a discretionary account;
(4) disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; (5) the solicitation of the
exercise of the Warrant was not in violation of Regulation M promulgated under
the Securities Exchange Act of 1934; and (6) solicitation of the exercise is in
compliance with NASD Notice to Members 81-38. The Warrant Exercise Fee shall be
paid in accordance with the provisions of this paragraph and the Warrant
Exercise Fee Agreement filed as an exhibit to the Registration Statement (the
"Warrant Exercise Fee Agreement"). The Company also agrees to execute and
deliver the Warrant Exercise Fee Agreement to VTR on the Closing Date.
SECTION 17. DESIGNATION OF A DIRECTOR OR NON-VOTING ADVISOR TO THE
BOARD: Unless waived by its, the Representative shall have the right to
designate a director or a non-voting advisor to the Board, such person being
reasonably acceptable to the Company, for a period of five years after the
Effective Date. Said designee, shall attend meetings of the Board and receive no
more or less compensation than is paid to other non-management directors of the
Company and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including but not limited to, food, lodging
and transportation. Moreover, to the extent permitted by law, the Company will
agree to indemnify the Representative and its designee for the actions of such
designee as director or as an advisor of the Company. In the event the
Representative designates a director, then the Company will utilize its best
efforts to obtain officer and director liability insurance of at least
$1,000,000 dollars prior to such person serving as a director and if obtained,
to maintain such policy in effect until five years from the Effective Date. To
the extent permitted under the policy, it will also include each of the
Representative and its designee as an insured under such policy.
SECTION 18. FINDER'S FEE: If the Company shall within five (5) years
from the Effective Date, enter into any agreement or understanding with any
person or entity introduced by the
29
Representative involving (i) the sale of all or substantially all of the assets
and properties of the Company, (ii) the merger or consolidation of the Company
(other than a merger or consolidation effected for the purpose of changing the
Company's domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is thereafter
consummated, whether or not during such five (5) year period, the Company, upon
such consummation, shall pay to the Representative an amount equal to the
following percentages of the consideration paid by the Company in connection
with such transaction:
5% of the first $4,000,000 or portion thereof, of such
consideration;
4% of the next $1,000,000 or portion thereof, of such
consideration;
3% of the next $1,000,000 or portion thereof of such
consideration; and
2% of such consideration in excess of the first
$6,000,000 of such consideration.
The fee payable to the Representative will be in the same form of
consideration and payable at the same time as that paid by or to the Company, as
the case may be, in any such transactions.
SECTION 19. RESTRICTION ON SECURITIES All officers and directors of
the Company, Xxxxxx Xxxx Co., Ltd., and Xxxxxx X. Xxxxxxxxx, as of the Effective
Date, have agreed not to sell, transfer, hypothecate or convey any capital stock
or derivative securities (except for those securities acquired pursuant to the
Company's Regulation D, Rule 504 offering, which shall remain free of any
restrictions, subject to compliance with applicable securities laws)by
registration or otherwise for a "Lock-Up" period of two years from the Effective
Date without the prior written consent of the Representative (except that,
subject to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock to a member of his family
or in the event of death, by will or operation of law, provided that any such
transferee shall agree, as a condition to such transfer, to be bound by the
restrictions set forth herein). An appropriate legend shall be marked on the
face of stock certificates representing all of such securities.
SECTION 20. [INTENTIONALLY OMMITTED]
SECTION 21. NOTICE. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at 0000 Xxxxxx Xxxxxxx Xxxxxx, X.X.,
Xxxxxx, XX, 00000, and copy to Xxxxxxx X. Xxxxx, Esq., Xxxxxxx,
30
Sacher, Zelman, Xxxxxxx, Xxxx & Xxxxxx, P.A., 0000 Xxxxxxxx Xxx., Xxxxx 000,
Xxxxx, XX 00000, and (B) whenever notice is required by the provisions hereof to
be given to the Underwriters, such notice shall be in writing addressed to the
Representative at 00 Xxxx Xxxxxx, Xxx Xxxx, XX 00000, copy to Xxxxx Xxxxxxxxx,
Esq., Xxxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000. Any
party may change the address for notices to be sent by giving written notice to
the other persons.
SECTION 22. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except
as the context otherwise requires, all representations, warranties, covenants,
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof and
as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Firm Units to the several Underwriters.
SECTION 23. MISCELLANEOUS. This Agreement is made solely for the
benefit of the Underwriters and the Company and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchaser, as such, of any of the
Units.
This Agreement shall not be assignable by any party
without the other party's prior written consent. This Agreement shall be binding
upon, and shall inure to the benefit of, our respective successors and permitted
assigns. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall be deemed to
be one and the same instrument.
If a party signs this Agreement and transmits an electronic facsimile
of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of this
Agreement.
31
If the foregoing is in accordance with your
understanding of our agreement, kindly sign and return to us a counterpart
hereof, whereupon this instrument along with all counterparts will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
KIDS STUFF, INC.
By:
--------------------------------------
Xxxxxxx X. Xxxxxx, Chief Executive Officer
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
By:
-----------------------------------------------
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
32
SCHEDULE I
NUMBER OF UNITS TO BE
UNDERWRITERS PURCHASED
------------ ---------------------
VTR Capital Inc.
-------
Total 300,000
=======
33
