75,000 Units - Minimum
300,000 Units - Maximum
(Each Unit consisting of one share of Common Stock, par value $.0001
per share, and two Redeemable Common Stock Purchase Warrants, each
exercisable to purchase one share of Common Stock)
▇▇▇▇.▇▇▇, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 2001
Security Capital Trading, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇.▇▇▇, Inc., a Delaware corporation (the "Company"), proposes to
sell an aggregate of 300,000 Units (each Unit consisting of one share of Common
Stock, par value $.0001 per share ("Common Stock"), and two Redeemable Common
Stock Purchase Warrants ("Warrants") each to purchase one share of Common Stock
at $7.00 per share for a period of five (5) years ending on ________________,
2006, subject to redemption, in certain instances), at $6.20 per Unit, of which
the first 75,000 Units shall be offered on a "best efforts, all-or-none basis"
and the remaining 225,000 Units shall be offered on a "best efforts basis", to
the public through you (the "Underwriter") as exclusive agent of the Company.
Unless the context otherwise requires, the aggregate of 300,000 Units
to be sold by the Company, and the shares of Common Stock and the Warrants
comprising such Units, are herein called the "Units." The Common Stock to be
outstanding after giving effect to the sale of the Units are herein called the
"Shares." The Shares and Warrants included in the Units are herein collectively
called the "Securities."
You have advised the Company that you desire to sell the Units. The
Company confirms the agreements made by it with respect to the sale of the Units
by the Underwriter as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_____________ ) on
Form SB-2 relating to the public offering of the Units, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement, the terms
"Registration Statement" and "Prospectus" shall include such Registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
2
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
Closing Date (as hereinafter defined) (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and the
Rules and Regulations; and (ii) neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus on page ____ with
respect to stabilization, the paragraph under the heading "Underwriting"
relating to concessions to certain dealers, and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) Each of the Company and its subsidiaries have been duly
incorporated and is validly existing as a corporation in good standing under the
laws of their respective jurisdictions of incorporation with full corporate
power and authority to own their properties and conduct their business as
described in the Prospectus and is duly qualified or licensed to do business as
a foreign corporation and is in good standing in each other jurisdiction in
which the nature of their business or the character or location of their
properties requires such qualification, except where the failure to so qualify
will not materially adversely affect their business, properties or financial
condition.
(d) The authorized, issued and outstanding capital stock of
the Company, including the predecessors of the Company, as of the date stated in
the Prospectus is as set forth in the Prospectus under "Capitalization"; the
shares of issued and outstanding capital stock of the Company set forth
thereunder and of its subsidiaries have been duly authorized, validly issued and
are fully paid and nonassessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company and its subsidiaries have been granted or
entered into by the Company or its subsidiaries; and the capital stock conforms
to all statements relating thereto contained in the Registration Statement and
Prospectus.
3
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable, and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase
Option (as defined in the Registration Statement) have been duly authorized and,
when duly issued and delivered, such Warrants will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms
and entitled to the benefits provided by the Unit Purchase Option, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally or by general equitable principles and the
indemnification contained in paragraph 7 of the Unit Purchase Option may be
unenforceable. The shares of Common Stock included in the Unit Purchase Option
4
(and the shares of Common Stock issuable upon exercise of the Warrants included
therein) when issued and sold, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof.
(f) This Agreement and the Unit Purchase Option have been duly
and validly authorized, executed, and delivered by the Company. The Company has
full power and authority to authorize, issue, and sell the Units to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance, and sale of the Units or the Unit Purchase
Option, except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and its subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its subsidiaries
are not in violation, breach, or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge, or encumbrance upon any of the
property or assets of the Company or its subsidiaries pursuant to the terms of
any material indenture, mortgage, deed of trust, loan agreement, or other
agreement or instrument to which the Company or its subsidiaries is a party or
by which the Company or its subsidiaries may be bound or to which any of the
property or assets of the Company or its subsidiaries is subject, nor will such
action result in any violation of the provisions of the articles of
incorporation or the by-laws of the Company or its subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or its
subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or its subsidiaries.
(h) Subject to the qualifications stated in the Prospectus,
the Company and its subsidiaries have good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its business (other than
those described in the Prospectus); all of the material leases and subleases
under which the Company or its subsidiaries is the lessor or sublessor of
5
properties or assets or under which the Company or its subsidiaries holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and, except as described in the Prospectus, the
Company or its subsidiaries are not in default in any material respect with
respect to any of the terms or provisions of any of such leases or subleases,
and, to the best knowledge of the Company, no claim has been asserted by anyone
adverse to rights of the Company or its subsidiaries as lessor, sublessor,
lessee, or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company or its subsidiaries to
continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company and its subsidiaries owns or leases all such properties described in
the Prospectus as are necessary to their operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates P.A. who have given their
reports on certain financial statements filed with the Commission as a part of
the Registration Statement, are with respect to the Company and its
subsidiaries, independent public accountants as required by the Act and the
Rules and Regulations.
(j) The financial statements, and schedules together with
related notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in cash flow
position of the Company and its subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement. The information set forth under the
caption "Selected Financial Data" in the Prospectus fairly present, on the basis
stated in the Prospectus, the information included therein.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a material adverse effect, and there has
not been any change in the capital stock of, or any incurrence of long-term debt
by, the Company or its subsidiaries or any issuance of options, warrants or
other rights to purchase the capital stock of the Company or its subsidiaries or
6
any material adverse change or any development involving, so far as the Company
or its subsidiaries can now reasonably foresee a prospective adverse change in
the condition (financial or other), net worth, results of operations, business,
key personnel or properties of them which would be material to the business or
financial condition of the Company or its subsidiaries.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or its subsidiaries, nor are there any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its subsidiaries exist or to the knowledge of the
Company or its subsidiaries, are threatened which might be expected to adversely
affect the conduct of the business, property or operations or the financial
condition or results of operations of the Company or its subsidiaries.
(m) Except as disclosed in the Prospectus, the Company and its
subsidiaries have filed all necessary federal, state, and foreign income and
franchise tax returns required to be filed as of the date hereof (taking into
account all extensions of time to file) and have paid all taxes shown as due
thereon; and there is no tax deficiency which has been asserted against the
Company or its subsidiaries.
(n) Except as disclosed in the Registration Statement, the
Company and its subsidiaries have sufficient licenses, permits, and other
governmental authorizations currently necessary for the conduct of their
business or the ownership of their properties as described in the Prospectus and
is in all material respects complying therewith and owns or possesses adequate
rights to use all material patents, patent applications, trademarks, service
marks, trade-names, trademark registrations, service mark registrations,
copyrights, and licenses necessary for the conduct of such business and had not
received any notice of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the activities or
business of the Company or its subsidiaries are in violation of, or cause the
Company or its subsidiaries to violate, any law, rule, regulation, or order of
the United States, any state, county, or locality, or of any agency or body of
the United States or of any state, county or locality, the violation of which
would have a Material Adverse Effect.
7
(o) The Company and its subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and its subsidiaries' internal accounting controls and
procedures are sufficient to cause the Company and its subsidiaries to comply in
all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(p) On the Closing Date (as hereinafter defined) all transfer
or other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be paid
in connection with the sale and transfer of the Units hereunder will have been
fully paid or provided for by the Company and all laws imposing such taxes will
have been complied with in all material respects.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has no subsidiaries.
(s) The Company and its subsidiaries have not entered into any
agreement pursuant to which any person is entitled either directly or indirectly
to compensation from the Company or its subsidiaries for services as a finder in
connection with the proposed public offering.
(t) No officer, director, or stockholder of the Company or its
subsidiaries has any National Association of Securities Dealers, Inc. (the
"NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
(v) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-K involving the
Company or any of its subsidiaries and any person described in such Item that
are required to be disclosed in the Prospectus and that have not been so
disclosed therein.
2. EMPLOYMENT OF THE UNDERWRITER; PAYMENT AND DELIVERY
On the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth:
8
(a) The Company hereby employs the Underwriter as its exclusive agent
to sell for its account 300,000 Units, the first 75,000 Units on a "best
efforts, all-or-none" basis, and the remaining 225,000 Units on a "best efforts"
basis, at a price of $6.20 per Unit. The Underwriter agrees to use its best
efforts as agent, promptly after receipt of written notice of the Effective Date
to sell the 300,000 Units subject to the terms, provisions and conditions
hereinafter mentioned, for a period of not less than ninety (90) calendar days,
which may be extended up to an additional ninety (90) calendar days with the
consent of the Company and the Underwriter. The period during which the Units
are offered shall hereinafter be referred to as the "Offering Period". In the
event that less than 75,000 Units are sold during the Offering Period, this
offering will not be completed, will be withdrawn, none of the Units will be
sold during the Offering Period (as such may be extended) and all proceeds will
be promptly returned in full by the Escrow Agent (as defined below), without
interest or deduction to subscribers, not more than ten (10) business days
following the expiration of said Offering Period.
(b) All proceeds from subscriptions shall be deposited promptly into a
non-interest bearing escrow account to be maintained with Continental Stock
Transfer & Trust Company ("Escrow Agent"). All subscriber's checks shall be made
payable to "Continental Stock Transfer & Trust Company as Escrow Agent for
▇▇▇▇.▇▇▇, INC." All subscription proceeds will be transmitted to the Escrow
Agent no later than noon of the next business day following receipt for deposit
into the escrow account.
(c) If a minimum of 75,000 Units are sold, the Company agrees to issue
or have the Units issued in such names and denominations as may be specified by
the Underwriter and to deliver the Units on the Closing Date against payment to
the Company at $5.58 per Unit for each Unit sold, less the non-accountable
expense allowance as set forth below.
(d) If a minimum of 75,000 Units are sold, the Underwriter shall be
entitled to receive as compensation (i) a commission of $.62 per Unit for each
Unit sold, which compensation the Underwriter shall be entitled to receive and
retain from the proceeds of the sale of the Units prior to transmittal of
payment to the Company by the Escrow Agent; and (ii) $.186 per Unit with respect
to all Units sold as a non-accountable expense allowance ($15,000 of which has
already been paid), which compensation the Underwriter shall be entitled to
receive and have retained from the proceeds of the sale of the Units prior to
the transmittal of payment to the Company by the Escrow Agent.
9
(e) Payments to broker/dealers for Units sold shall be made payable to
"Continental Stock Transfer & Trust Company as Escrow Agent for ▇▇▇▇.▇▇▇, INC."
and will thereafter be delivered to said bank, as escrow agent, by twelve
o'clock noon of the next business day following receipt at the full public
offering price of $6.20 per Unit, together with the name, social security or
employer identification number of, and number of Units purchased by, each
subscriber.
(f) Upon closing of the minimum offering, the release of funds in the
Escrow Account shall be made by wire transfers or certified or official bank
checks against delivery of the Units and the Underwriter's Unit Purchase Option
to the Underwriter. Such payment and delivery shall be made at the offices of
Berlack, Israels & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (or at
such other place as may be designated by agreement between the Underwriter and
the Company) at the earlier of (a) a mutually agreed upon date and time
following collection by the Escrow Agent of a minimum of $465,000 in offering
proceeds or (b) ten (10) business days after the expiration of the Offering
Period, such date and time as fixed hereunder for such payment and delivery
being herein called the "Closing Date". Certificates for the Units, Common
Stock, Warrants and Underwriter's Unit Purchase Option so to be delivered will
be in such denominations and registered in such names as you request not less
than two (2) full business days prior to the Closing Date, and will be made
available to you for inspection, checking and packaging at your offices, not
less than one (1) full business day prior to the Closing Date.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise the Underwriter and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its counsel shall have reasonably objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by the Underwriter of the distribution of the
Units contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have become or been declared
effective) and (B) _____ days after the date on which the Registration Statement
10
shall have become or been declared effective, the Company will prepare and file
with the Commission, promptly upon the Underwriter's request, any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion of
counsel to the Company and the Underwriter, may be reasonably necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise the Underwriter, and provide the Underwriter copies of any written
advice, of the receipt of any comments of the Commission, of the effectiveness
of any post-effective amendment to the Registration Statement, of the filing of
any supplement to the Prospectus or any amended Prospectus, of any request made
by the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriter
copies of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Units for such period as in the opinion of
counsel to the Underwriter and the Company the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
dealer of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company and counsel for the Underwriter should be set forth in
an amendment of the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Units or in case it shall be necessary to amend or supplement
the Prospectus to comply with law or with the Rules and Regulations, the Company
will notify the Underwriter promptly and forthwith prepare and furnish to the
Underwriter copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as the Underwriter may reasonably
11
request, in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any material
facts necessary in order to make the statements in the Prospectus, in the light
of the circumstances under which they are made, not misleading. The preparation
and furnishing of any such amendment or supplement to the Registration Statement
or amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter is
required, in connection with the sale of the Units to deliver a Prospectus nine
months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder in connection with the offering and issuance of
the Units.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify to
register the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to the
Company and the Underwriter deem reasonably necessary, but not for a period of
less than three (3) years.
(c) If the sale of the Units provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter which shall not exceed
$25,000 (including the reasonable fees and expenses of counsel to the
Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Securities Exchange Act of 1934 to be declared
effective concurrently with the completion of the minimum offering and will
12
notify you in writing immediately upon the effectiveness of such registration
statement, and (ii) to obtain and keep current a listing in the Standard & Poors
or ▇▇▇▇▇'▇ OTC Industrial Manual concurrently with the completion of the minimum
offering.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to the Underwriter during the
period ending five (5) years from the date hereof, (i) as soon as practicable
after the end of each fiscal year, but no earlier than the filing of such
information with the Commission a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with statements of
income, surplus and cash flow of the Company and any subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission or any securities exchange
or automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request. In addition, the Company shall deliver to the Underwriter for a three
(3) year period following the effective date, copies of all daily transfer
sheets relating to the Company's securities. Any information required to be
delivered hereunder shall be deemed delivered if filed on ▇▇▇▇▇.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to the Underwriter at or before
the Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
13
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to the
Underwriter as soon as it is practicable to do so but in no event later than 90
days after the end of twelve months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Units substantially for the purposes set forth under "How We Intend to Use
the Proceeds from the Offering" in the Prospectus, and will file such reports
with the Commission with respect to the sale of the Units and the application of
the proceeds therefrom as may be required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Units, and will use its best efforts to cause the same to become effective as
promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Warrants and Unit Purchase Option outstanding from time to time.
(l) For a period of twelve (12) months from the first Closing
Date, no officers or directors, nor any shareholder of the Company's securities
prior to the offering, as well as all holders of restricted securities of the
Company, will, directly or indirectly, offer, sell (including any short sale),
grant any option for the sale of, acquire any option to dispose of, or otherwise
14
dispose of any shares of Common Stock without the prior written consent of the
Underwriter. Commencing twelve (12) months form the first Closing Date, such
officers, directors and shareholders may sell, transfer, etc. up to 50% of their
holdings without the consent of the Underwriter. Commencing eighteen (18) months
after the first Closing Date, such persons may sell their remaining securities
without the consent of the Underwriter. In order to enforce this covenant, the
Company shall impose stop-transfer instructions with respect to the shares owned
by every shareholder prior to the offering until the end of such periods. If
necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed, as required by such Blue-sky Laws. In addition,
the Company shall not issue any shares of its capital stock (or securities
convertible into capital stock) for consideration less than $6.00 per share,
without the prior written consent of the Underwriter, during the 24 month period
following the first Closing Date. The Company may not grant any registration
rights or register any securities of the Company for a period of 24 months
following the first Closing Date, without the prior written consent of the
Underwriter. The Company may, without the consent of the Underwriter, grant up
to 100,000 options under its stock option plan, during the 24 month period
following the first Closing Date, which options shall be at Market Price at the
date of grant. For purposes of this Agreement, Market Price shall mean (i) the
average closing bid price for any ten (10) consecutive trading days within a
period of thirty (30) consecutive trading days ending within five (5) days prior
to the date of issuance of the Common Stock as reported by the NASD OTC Bulletin
Board or Nasdaq, (ii) the last reported sale price, for ten (10) consecutive
business days ending within five (5) days of the date of issuance on the primary
exchange on which the Common Stock is traded, if the Common Stock is traded on a
national securities exchange.
(m) Upon completion of the minimum offering, the Company will
make all filings required, including registration under the Securities Exchange
Act of 1934, to obtain the listing of the Common Stock, and Warrants in the NASD
OTC Bulletin system, and will use its best efforts to effect and maintain such
listing for at least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this
Agreement, the Company represents that it has not taken and agrees that it will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Units, Shares, or the Warrants
or to facilitate the sale or resale of the Securities.
15
(o) On the Closing Date and simultaneously with the delivery
of the Units, the Company shall execute and deliver to you the Unit Purchase
Option. The Unit Purchase Option will be substantially in the form filed as an
Exhibit to the Registration Statement.
(p) Intentionally Omitted.
(q) Upon the Closing Dates, the Company will have in force key
person life insurance on the life of ▇▇▇▇▇ ▇▇▇▇▇▇, in the amount of not less
than $1,000,000.00 and will use its best efforts to maintain such insurance
during the five year period commencing with the First Closing Date.
(r) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement or post-effective amendment covering
the securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
(s) For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission and shall not be
required to mail quarterly reports to its shareholders.
(t) The Underwriter shall have the right to request the
Company to use its best efforts to have at least one (1) outside director
nominated by or reasonably acceptable to the Underwriter nominated for election
to the Board of Directors for three (3) years following the Effective Date, and
the Underwriter shall have the right to request the Company to nominate one (1)
nominee of the Underwriter for election to the Board of Directors for three (3)
years following the Effective Date, and in each case the Company will use its
16
best efforts to cause such nominees to be elected to the Board of Directors.
Until such time as the Underwriter exercises either its right to request an
outside director on the Board of Directors or requires the Company to cause a
nominee of the Underwriter to be elected to the Board of Directors and until
such time as such outside directors or such nominee begins to serve on the Board
of Directors, the Company agrees to allow a representative designated by the
Underwriter from time to time to receive timely, written notice of all Board of
Directors meetings and notice of all telephonic Board meetings and the right to
attend all Board meetings and participate in all telephonic Board meetings. The
Underwriter shall also have the right to obtain copies of the minutes form all
Board of Directors meetings for five (5) years following the Effective Date of
the Registration Statement, whether or not a representative of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis for other Board members. In addition, the Company shall compensate
such representative as it does all other outside directors of the Company.
(u) Intentionally omitted.
(v) The Company agrees to pay the Underwriter a Warrant
Solicitation fee of 5.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date if (a) the Market Price of the
Company's Common Stock on the date the Warrant is exercised in greater than the
exercise price of the Warrant, (b) the exercise of the Warrant is solicited by
the Underwriter and the Underwriter is designated in writing as the soliciting
broker, (c) the Warrant is not held in a discretionary account, (d) disclosure
of the compensation arrangement is made upon the sale and exercise of the
Warrants, (e) soliciting the exercise is not in violation of Regulation M under
the Securities Exchange Act of 1934, and (f) solicitation of the exercise is in
compliance with the NASD Notice to Members 81-38 (September 22, 1981).
(w) Intentionally omitted.
(x) For a period of three (3) years, at the request of the
Underwriter, the Company shall retain a public relations firm reasonably
acceptable to the Underwriter.
(y) On or prior to the date hereof, the Company shall have
entered into employment agreements with ▇▇▇▇▇ ▇▇▇▇▇▇ and such other members of
management on terms and conditions satisfactory to the Underwriter.
17
4. CONDITIONS OF UNDERWRITERS' OBLIGATION. The obligations of the
Underwriter are subject to the accuracy (as of the date hereof, and as of the
Closing Date) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 a.m., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which the Underwriter may agree in writing; on or prior to
the Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission; and no stop
order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened. If required, the Prospectus shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act.
(b) At the Closing Date, you shall have received the opinion,
dated as of the Closing Date, of the Law Offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) (a) The Company has no subsidiaries, other than as
set forth on the Registration Statement. The Company owns 100% of the issued and
outstanding capital stock of each subsidiary free and clear of any lien,
encumbrance or claim.
(b) Each of the Company and its subsidiaries has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of their respective jurisdictions of incorporation, with all
requisite corporate power and authority to own their properties and conduct
their business as described in the Registration Statement and Prospectus and is
duly qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or leasing of
their properties or conduct of their business requires such qualification except
where the failure to qualify or be licensed will not have a material adverse
effect;
18
(ii) the authorized capitalization of the Company as of
the date set forth in the Prospectus as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding Common Stock requiring
authorization for issuance by directors have been duly authorized and upon
payment of consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description thereof
contained in the Prospectus; to such counsel's knowledge the outstanding shares
of Common Stock of the Company have not been issued in violation of the
preemptive rights of any shareholder and the shareholders of the Company do not
have any preemptive rights or other rights to subscribe for or to purchase, nor
are there any restrictions upon the voting or transfer of any of the Stock
except as provided in the Prospectus; the Common Stock, the Warrants, the Unit
Purchase Option, and the Warrant Agreement conform in all material respects to
the respective descriptions thereof contained in the Prospectus; the Shares have
been, and the shares of Common Stock to be issued upon exercise of the Warrants
and the Unit Purchase Option, upon issuance in accordance with the terms of such
Warrants, the Warrant Agreement and Unit Purchase Option will have been duly
authorized and, when issued and delivered in accordance with their respective
terms, will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights and no personal liability will attach to the ownership
thereof; all prior sales by the Company of the Company's securities have been
made in compliance with or under an exemption from registration under the Act
and applicable state securities laws; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Warrants and Unit
Purchase Option and to the best of such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights;
(iii) this Agreement, the Unit Purchase Option, and the
Warrant Agreement have been duly and validly authorized, executed, and delivered
by the Company;
(iv) the certificates evidencing the shares of Common
Stock comply with the Delaware General Corporation Law; the Warrants will be
exercisable for shares of Common Stock in accordance with the terms of the
Warrants and at the prices therein provided for;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which would materially adversely
affect the business, property, financial condition, or operations of the Company
or any of its subsidiaries; or which question the validity of the Securities,
19
this Agreement, the Warrant Agreement, or the Unit Purchase Option, or of any
action taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement, or the Unit Purchase Option; to such counsel's knowledge
there are no governmental proceedings or regulations required to be described or
referred to in the Registration Statement which are not so described or referred
to;
(vi) the execution and delivery of this Agreement, the
Unit Purchase Option, or the Warrant Agreement and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate or articles of
incorporation or by-laws of the Company or its subsidiaries, or to the best
knowledge of counsel in the performance or observance of any material
obligations, agreement, covenant, or condition contained in any bond, debenture,
note, or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, or other agreement or instrument
to which the Company or its subsidiaries is a party or by which they or any of
their properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality, or court,
domestic or foreign, the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective
under the Act, and to the best of such counsel's knowledge, (a) no stop order
suspending the effectiveness of the Registration Statement is in effect, and (b)
no proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data contained therein,
or omitted therefrom, as to which such counsel need express no opinion) as of
the Effective Date comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
(viii) at the time the Registration Statement was filed
and at the time it initially became effective, such Registration Statement and
the Prospectus (other than the financial statements included therein, as to
which no opinion is rendered) complied as to form in all material respects with
the requirements of the Act and the Regulations and nothing came to such
counsel's attention which would lead such counsel to believe that either the
Registration Statement or the Prospectus, at the time they initially became
effective, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
20
(ix) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts, licenses,
and other agreements to which the Company is a party are accurate and fairly
present in all material respects the information required to be shown, and such
counsel is familiar with all contracts, licenses and other agreements referred
to in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts, licenses or agreements to which the Company is a
party of a character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described or filed; and
(x) no authorization, approval, consent, or license of
any governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale, or delivery of the Units by
the Company, in connection with the execution, delivery, and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase Option or the
Securities underlying the Unit Purchase Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or Blue
Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter 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; and may rely as to all matters of law other than the law of
the United States or of the States of Delaware upon opinions of counsel
satisfactory to the Underwriter, in which case the opinion shall state that they
have no reason to believe that the Underwriter and they are not entitled to so
rely.
(c) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by ▇▇▇▇▇▇▇, Israels & ▇▇▇▇▇▇▇▇ LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of each Closing
Date from ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, P.A., independent public accountants
for the Company, substantially in the form reasonably acceptable to the
Underwriter.
21
(e) At each Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of the
Closing Date and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no material
adverse change, or to the Company's knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company and its subsidiaries from
that set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company and its
subsidiaries shall not have incurred any material liabilities or entered into
any material agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; (iv) except as set
forth in the Prospectus, no action, suit, or proceeding at law or in equity
shall be pending or threatened against the Company or its subsidiaries which
would be required to be set forth in the Registration Statement, and no
proceedings shall be pending or threatened against the Company or its
subsidiaries before or by any commission, board, or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling, or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs of the
Company or its subsidiaries, and (v) the Underwriter shall have received, at the
Closing Date, a certificate signed by each of the President and the principal
operating officer of the Company, dated as of each Closing Date, evidencing
compliance with the provisions of this subsection (e).
(f) Intentionally Omitted.
(g) Intentionally Omitted.
22
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to each
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD.
(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, a Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to such Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to sell and deliver the Units is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree in
writing.
(b) At each Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
6. INDEMNIFICATION.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
23
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
will not be required to indemnify the Underwriter and any controlling person or
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities, or litigation
arising from the sale of Units to any person if a copy of the Prospectus was not
delivered to such person at or prior to the written confirmation of the sale to
such person. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages, or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer, or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
24
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Units of any applicable state or federal law or
any rule, regulation or instruction thereunder relating to violations based on
unauthorized statements by Underwriter or its representative, provided that such
violation is not based upon any violation of such law, rule, or regulation or
instruction by the party claiming indemnification or inaccurate or misleading
information furnished by the Company or its representatives, including
information furnished to the Underwriter as contemplated herein. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, 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, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
25
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party. If it
is ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which the indemnification provided in
Section 6 hereof is requested but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Underwriter is responsible in the aggregate
for that portion of such losses, claims, damages, or liabilities represented by
the percentage that the underwriting discount per Unit plus non-accountable
expense allowance appearing on the cover page of the Prospectus bears to the
public offering price appearing thereon and the Company shall be responsible for
the remaining portion, provided, however, that if such allocation is not
permitted by applicable law, then allocated in such proportion as is appropriate
to reflect relative benefits but also the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
26
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or the
Underwriter and the parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriter agree that it would not be just and equitable if the
respective obligations of the Company and the Underwriter to contribute pursuant
to this Section 7 were to be determined by pro rata or per capita allocation of
the aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 7. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company, its officers, directors, and controlling persons, and the Company,
its officers, directors, and controlling persons shall be entitled to
contribution from the Underwriter to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriter. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the
sale of the Units by the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing, and distribution (postage and mailing expenses)
under the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus, and
the Prospectus, as amended or supplemented, the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Units
contemplated hereby; all expenses, including reasonable fees and disbursements
of counsel to the Underwriter, in connection with the qualification of the Units
under the state securities or blue sky laws which the Underwriter shall
designate (which shall be $10,000 (plus expenses and filing fees) for not more
27
than six states or $20,000 (plus expenses and filing fees) for not more than 12
states, not including merit review states which shall be in addition to the
above amounts; the cost of printing and furnishing to the Underwriter copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, and the Blue Sky Memorandum, any fees relating to the listing of the
Units, Common Stock, and Warrants on the NASD OTC Bulletin Board or any other
securities exchange; the cost of printing the certificates representing the
securities comprising the Units; the fees of the transfer agent and warrant
agent, reasonable and traditional advertising costs, meetings and presentation
costs; and costs of bound volumes (2 sets to the Underwriter) and prospectus
memorabilia (10 cubes to the Underwriter). The Company shall pay any and all
taxes (including any transfer, franchise, capital stock, or other tax imposed by
any jurisdiction) on sales to the Underwriter hereunder. The Company will also
pay all costs and expenses incident to the furnishing of any amended Prospectus
or of any supplement to be attached to the Prospectus as called for in Section
3(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at
each Closing Date pay to the Underwriter a non-accountable expense allowance
equal to 3.0% of the gross proceeds received from the sale of all Units sold
(less $15,000 of which has already been paid). In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation, or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder required to be fulfilled by
the Company is not fulfilled) the Company shall not be liable for any expenses
of the Underwriter, including the Underwriter's legal fees. In the event the
transactions contemplated hereby are not consummated by reason of the Company
being unable to perform its obligations hereunder in all material respects, the
Company shall be liable for the actual accountable out-of-pocket expenses of the
Underwriter, including reasonable legal fees which shall not exceed $25,000. In
the event the transactions contemplated hereby are not consummated due to a
material adverse change in the business or financial results, prospects or
condition of the Company or to adverse market conditions, the Company shall be
liable for the actual out-of-pocket expenses of the Underwriter, including
reasonable legal fees, not to exceed in the aggregate $25,000.
(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a finder
in connection with the proposed offering, and the Company agrees to indemnify
and hold harmless the Underwriter, against any losses, claims, damages, or
28
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason of
such person's or entity's influence or prior contact with the indemnifying
party.
9. INTENTIONALLY OMITTED.
10. TERMINATION.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated
at any time prior to the Closing Date, by the Underwriter if in the
Underwriter's judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Units agreed to be
purchased hereunder by reason of (i) the Company or any of its subsidiaries
having sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident, or other calamity, or from any labor dispute or
court or government action, order, or decree, (ii) trading in securities on the
New York Stock Exchange, the American Stock Exchange or Nasdaq having been
suspended or limited, (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof), (iv) a banking moratorium having been declared by federal or New York
state authorities, (v) an outbreak of major international hostilities involving
the United States or other substantial national or international calamity having
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's or any of its subsidiaries' business,
or a notification having been received by the Company or any of its subsidiaries
of the threat of any such proceeding or action, which would materially adversely
affect the Company or any of its subsidiaries; (vii) except as contemplated by
the Prospectus, the Company or any of its subsidiaries is merged with or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Underwriter to have a
material adverse impact on the business, financial condition, or financial
29
statements of the Company or any of its subsidiaries, (ix) any material adverse
change in the financial or securities markets beyond normal market fluctuations
having occurred since the date of this Agreement, or (x) any material adverse
change having occurred, since the respective dates of which information is given
in the Registration Statement and Prospectus, in the earnings, business
prospects, or general condition of the Company or any of its subsidiaries,
financial or otherwise, whether or not arising in the ordinary course of
business.
(b) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be promptly notified by the Underwriter, by telephone or
telegram, confirmed by letter.
11. UNIT PURCHASE OPTION. At or before each Closing Date, the
Company will sell the Underwriter or its designees for a consideration of $.001
per option and upon the terms and conditions set forth in the form of Unit
Purchase Option annexed as an exhibit to the Registration Statement, a Unit
Purchase Option to purchase a number of Units equal to 10% of the Units sold
hereunder up to an aggregate of 30,000 Units. In the event of conflict in the
terms of this Agreement and the Unit Purchase Option with respect to language
relating to the Unit Purchase Option, the language of the Unit Purchase Option
shall control.
12. COVENANTS OF THE UNDERWRITER. You covenant and agree with the
Company as follows;
(a) COMPLIANCE WITH LAWS. In connection with the offer and
sale of Units, you shall comply with any applicable requirements of the Act, the
Exchange Act and the applicable state securities or "blue sky" laws, and the
rules and regulations thereunder.
(b) ACCURACY OF INFORMATION. No information supplied by you
for use in the Registration Statement will contain any untrue statements of a
material fact or omit to state any material fact necessary to make such
information not misleading.
(c) NO ADDITIONAL INFORMATION. You will not give any
information or make any representation in connection with the offering of the
Units other than that contained in the Prospectus.
(d) SALE OF UNITS. You shall act as Sales Agent and solicit,
directly or through Selected Dealers, purchasers of the Units only in the
jurisdictions in which you have been advised by the Company that such
solicitation can be made, and in which you or the soliciting Selected Dealer, as
the case may be, are qualified to so act. In making sales under the Registration
Statement, you will only sell Units and not the separate components of the
Units.
30
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
and other statements of the Company and the Underwriter and the undertakings set
forth in or made pursuant to this Agreement will remain in full force and effect
until three years from the date of this Agreement, regardless of any
investigation made by or on behalf of the Underwriter, the Company, or any of
its officers or directors or any controlling person and will survive delivery of
and payment of the Units and the termination of this Agreement.
14. NOTICE. Any communications specifically required hereunder to
be in writing, if sent to the Underwriter, will be mailed, delivered, or
telecopied and confirmed to them at Security Capital Trading, Inc., ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, with a copy sent to Berlack, Israels &
▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, Esq., or if sent to the Company, will be mailed, delivered, or
telecopied and confirmed to it at c/o Port Motors, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇, Attention: President with a copy sent to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. Notice shall be deemed to have been
duly given if mailed or transmitted by any standard form of telecommunication.
15. PARTIES IN INTEREST. The Agreement herein set forth is made
solely for the benefit of the Underwriter, the Company, any person controlling
the Company or the Underwriter, and directors of the Company, nominees for
directors (if any) named in the Prospectus, its officers who have signed the
Registration Statement, and their respective executors, administrators,
successors, assigns and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successors and assigns" shall not include
any purchaser, as such purchaser, from the Underwriter of the Units.
16. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, of the laws of the State of New York applicable to
agreements made and to be entirely performed within New York.
17. COUNTERPARTS. This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
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18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
▇▇▇▇.▇▇▇, INC.
By: /s/
-------------------------------------
Its
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
SECURITY CAPITAL TRADING, INC.
By: /s/
-------------------------------------
Its
