________ Shares of Common Stock
RONNYBROOK FARM DAIRY, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 1998
NATIONAL SECURITIES CORPORATION
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Ladies and Gentlemen:
Ronnybrook Farm Dairy, Inc., a corporation organized under the laws of the
State of New York (the "Company"), proposes to issue and confirms its agreement
with National Securities Corporation (hereinafter referred to as "you" or the
"Underwriter") with respect to the sale by the Company and the purchase by the
Underwriter of an aggregate of _______________________ (_____________) shares
("Shares") of Common Stock, par value $.001 per share, of the Company ("Common
Stock"). Such Shares are hereinafter referred to as the "Firm Securities." Upon
your request, as provided in Section 2(b) of this Agreement, the Company shall
also sell to the Underwriter up to an additional _______________ (______) shares
of Common Stock, for the purpose of covering over-allotments, if any. Such
shares of Common Stock are hereinafter referred to as the "Option Securities."
The Company also proposes to issue and sell to you warrants (the "Underwriter's
Warrants") pursuant to the Underwriter's Warrant Agreement, dated as of
____________, 1998, between the Company and the Underwriter (the "Underwriter's
Warrant Agreement") for the purchase of an additional _________________ (______)
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Securities." The Firm Securities, the Option Securities, the Underwriter's
Warrants and the Underwriter's Securities (hereinafter collectively referred to
as the "Securities") are more fully described in the Registration Statement and
the Prospectus referred to below. The Company confirms the agreements made by it
with the Underwriter with respect to the Securities and related matters as
follows:
1. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Underwriter as of the date hereof, and
as of the Closing Date (as hereinafter defined) and the Option Closing
Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_____),
including each related preliminary prospectus included therein prior
to the time such registration statement becomes effective
("Preliminary Prospectus"), for the registration of the Firm
Securities and the Option Securities under the Securities Act of
1933, as
amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the
requirements of the Act, and the rules and regulations of the
Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment
thereto to which the Underwriter shall have objected in writing
after having been furnished with a copy thereof. Except as the
context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration
statement becomes effective, including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to
those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the Regulations, is
hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act
or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor, to the best of the Company's knowledge,
any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been
instituted or are pending or threatened. Each of the Preliminary
Prospectus, the Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the
Rules and Regulations, and none of the Preliminary Prospectus, the
Registration Statement or Prospectus at the time of filing thereof
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, except that this
representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriter by or on behalf of
the Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and
the Option Closing Date (as defined herein), if any, and during such
longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance
with the Act and the Rules and
2
Regulations, and will conform to the requirements of the Act and the
Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that this
representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of
the Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New
York. Except as set forth in the Prospectus, the Company does not
own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or
the character of its operations require such qualification or
licensing. The Company has all requisite power and authority
(corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, State and/or
other food and drug regulatory authorities and those having
jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local
and foreign laws, rules and regulations; and neither the Company nor
any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or any
Subsidiary. The disclosures in the Registration Statement concerning
the effects of federal, state, local, and foreign laws, rules and
regulations on each of the Company's and any Subsidiary's businesses
as currently conducted and as contemplated are correct in all
respects and do not omit to state a material fact necessary to make
the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Common Shares" and will have
the adjusted capitalization set forth therein on the Closing Date
and on the Option Closing Date, if any, based upon the assumptions
set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants,
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options or other securities, except for this Agreement, the
Underwriter's Warrant Agreement and as described in the Prospectus.
The Securities and all other securities issued or issuable by the
Company conform or, when issued and paid for, will conform, in all
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and the holders
thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders;
and none of such securities was issued in violation of the
preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities will
be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof of the Securities to be sold by the Company
hereunder, the Underwriter will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restrictions
or equities of any kind whatsoever (collectively, "Liens").
(f) The financial statements of the Company together with the related
notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus comply in all
material respects with the requirements of the Act and fairly
present the financial position, income, changes in cash flow,
changes in stockholders' equity and the results of operations 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 the Rules and Regulations and with generally
accepted accounting principles consistently applied throughout the
periods involved ("GAAP"), and such financial statements have been
examined by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, who are independent certified
public accountants within the meaning of the Act and the Rules and
Regulations. The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Registration Statement and the Prospectus, if any, (i) present
fairly, in all material respects, the information shown therein,
(ii) have been prepared, in all material respects, in accordance
with the applicable requirements of Rule 11.02 of Regulation S-X
promulgated under the Exchange Act, (iii) have been prepared in
accordance with the Commission's rules and guidelines with respect
to pro forma financial statements, and (iv) have been properly
compiled on the bases described therein, and the assumptions used in
the preparation of the pro forma financial statements and other pro
forma financial information and included in the Registration
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Statement and the Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein. There has been no adverse change
or development involving a prospective change in the condition,
financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operation of
the Company whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt,
the property, both tangible and intangible, and the businesses of
the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
Financial information (including, without limitation, any pro forma
financial information) set forth in the Prospectus under the
headings "Summary Financial Data," "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," fairly present, on
the basis stated in the Prospectus, the information set forth
therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in
the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
The amounts shown as accrued for current and deferred income and
other taxes in such financial statements are sufficient for the
payment of all accrued and unpaid federal, state, local and foreign
income taxes, interest, penalties, assessments or deficiencies
applicable to the Company, whether disputed or not, for the
applicable period then ended and periods prior thereto; adequate
allowance for doubtful accounts has been provided for unindemnified
losses due to the operations of the Company; and the statements of
income do not contain any items of special or nonrecurring income
not earned in the ordinary course of business, except as specified
in the notes thereto.
(g) The Company (i) has filed with the appropriate federal, state and
local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax
returns, which are required to be filed and all such tax returns are
correct and complete in all material respects, (ii) has paid all
federal, state, local, and foreign taxes for which it is liable,
including, but not limited to, withholding taxes and amounts payable
under Chapters 21 through 24 of the Internal Revenue Code of 1986
(the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (iii) has established
adequate reserves for such taxes which are not due and payable, (iv)
does not have any tax deficiency or claims outstanding, proposed or
assessed against it, and (v) has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any taxes and is not a party
to any proceeding or action by any foreign or domestic governmental
agency for assessment or collection of taxes.
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(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriter in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriter of
the Firm Securities and the Option Securities, if any, and the
purchase by the Underwriter of the Underwriter's Warrants from the
Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, or (iv) resales of the Securities
in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not limited
to, general and product liability, environmental and property
insurance, which insures the Company and its employees, against such
losses and risks generally insured against by comparable businesses.
The Company (i) has not failed to give notice or present any
insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (ii)
does not have any disputes or claims against any underwriter of such
insurance policies or surety bonds and has not failed to pay any
premiums due and payable thereunder, (iii) has not failed to comply
with all conditions contained in its insurance policies and surety
bonds or (iv) does not have any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against
(or circumstances that may give rise to the same), or involving the
properties or business of the Company which (i) questions the
validity of the capital stock of the Company, this Agreement, the
Underwriter's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with this
Agreement or the Underwriter's Warrant Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects),
or (iii) might materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or
results of operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, to enter into this Agreement
and the Underwriter's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and
the Underwriter's Warrant Agreement have each been duly and properly
authorized, executed and delivered by the Company. Each of this
Agreement and the Underwriter's Warrant Agreement constitutes a
legal,
6
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, and none of the Company's
issue and sale of the Securities, or the execution or delivery of
this Agreement or the Underwriter's Warrant Agreement by the
Company, the performance hereunder and thereunder by the Company,
the consummation of the transactions contemplated herein and therein
by the Company or the conduct of the Company's business as described
in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results
or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any Liens of any kind
whatsoever upon, any property or assets (tangible or intangible) of
the Company pursuant to the terms of (i) the articles of
incorporation or by-laws of the Company, (ii) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which
it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness,
or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities or
properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance and sale of the
Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement and the Underwriter's
Warrant Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Securities, except such as have
been or may be obtained under the Act or may be required under state
securities or blue sky laws (collectively, "Blue Sky") in connection
with the Underwriter's purchase and distribution of the Firm
Securities and the Option Securities, if any, and the Underwriter's
Warrants to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by
which it may be bound or to which any of its assets, properties or
businesses may be subject, have been duly and validly authorized,
executed and delivered by the Company and constitute the legal,
valid and binding agreements of the Company enforceable against the
Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required
to be shown with respect thereto by
7
Form SB-2, and there are no contracts or other documents which are
required by the Act or the Rules and Regulations to be described in
the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of
the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as
may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money, (ii)
entered into any transaction other than in the ordinary course of
business, or (iii) declared or paid any dividend or made any other
stock of any class, and there has not been any change in the capital
stock or any change in the debt (long or short term) or liabilities
or material adverse change in or affecting the general affairs,
management, financial operations, stockholders' equity or results of
operations of the Company.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders' agreement, partnership agreement, note,
loan or credit agreement, purchase order, or any other material
agreement or instrument evidencing an obligation for borrowed money,
or any other material agreement or instrument to which the Company
is a party or by which the Company may be bound or to which the
property or assets (tangible or intangible) of the Company is
subject or affected.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations
involving the Company by the U.S. Department of Labor, or any other
foreign or domestic governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and
regulations. There is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or
any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists, or, to its knowledge, is
imminent.
(q) The Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an
"employee welfare
8
benefit plan," or a "multiemployer plan" as such terms are defined
in Sections (2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (the
foregoing are collectively, "ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan
(or any trust created thereunder), if any, has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA
or Section 4975 of the Code, which could subject the Company to any
tax penalty on prohibited transactions and which has not adequately
been corrected. Each ERISA Plan, if any, is in compliance with all
material reporting, disclosure and other requirements of the Code
and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(r) None of the Company nor any of its employees, directors,
stockholders, partners, or affiliates of any of the foregoing
(within the meaning of the Rules and Regulations) has taken or will
take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under
the Exchange Act, or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, trademarks, service marks, trade names and copyrights, and
applications with respect thereto, and licenses and rights to the
foregoing presently owned or held by the Company are in dispute so
far as known by the Company or, are in any conflict with the right
of any other person or entity. The Company (i) owns or has the right
to use, free and clear of all Liens of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights,
technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any person, corporation or other
entity under or with respect to any of the foregoing and (ii) except
as set disclosed in the Prospectus, is not obligated nor under any
liability whatsoever to make any payment by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any
patent, trademark, service ▇▇▇▇, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise.
(t) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information
9
(collectively herein "Intellectual Property") that are material to
the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company, free and clear
of and without violating any right, Lien, or claim of others,
including without limitation, former employers of its employees.
(u) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all its Intellectual Property.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it free
and clear of all Liens, of any kind whatsoever, other than those
referred to in the Prospectus and Liens for taxes not yet due and
payable.
(w) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(x) On or before the effective date of the Registration Statement, the
Company shall provide to the Underwriter, legally binding and
enforceable agreements, in form and substance satisfactory to the
Underwriter ("Lock-up Agreements") pursuant to which each of the
Company's officers and directors, all holders of five percent (5%)
or more of the shares of Common Stock, and all holders of securities
exchangeable or exercisable for or convertible into shares of Common
Stock, agrees (i) not to, directly or indirectly, issue, offer,
offer to sell, sell, grant any option for the sale or purchase of,
assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period of not less
than thirteen (13) months following the effective date of the
Registration Statement without the prior written consent of the
Representative and the Company and (ii) to waive all rights to
request or demand the registration pursuant to the Act of any
securities of the Company which are registered in the name of or
beneficially owned by any such holder. During the 13-month period
commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock. The Company
will cause the Transfer Agent (as hereinafter defined) to ▇▇▇▇ an
appropriate legend on the face of stock certificates representing
all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
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(y) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature
of a finder's, consulting or origination fee with respect to the
sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the
Company or any of its respective officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriter's
compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(z) The Firm Securities and the Option Securities have been approved for
inclusion and quotation on the Nasdaq Stock Market's OTC Bulletin
Board ("Bulletin Board").
(aa) Neither the Company nor any of their respective officers, employees,
agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in
the ordinary course of business) to any customer, supplier, employee
or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may
be in a position to help or hinder the business of the Company (or
assist the Company in connection with any actual or proposed
transaction) which (i) might subject the Company or any other such
person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material adverse effect on
the assets, business or operations of the Company, or (iii) if not
continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's
internal accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated
under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly (i) an
interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to
be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the
Company is a party or by which it may be bound or affected. Except
as set forth in the Prospectus under "Certain Transactions," there
are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings
or transactions, between or among the Company and any officer,
director, all holders of five percent (5%) or more of the Common
Stock of the Company, or any partner, affiliate or associate of any
of the foregoing persons or entities.
11
(cc) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to Underwriter's Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
(dd) The minute books of the Company have been made available to the
Underwriter and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company, since the
time of its incorporation, and reflects all transactions referred to
in such minutes accurately and fairly in all respects.
(ee) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right
to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with
respect to any securities of the Company.
(ff) As of the effective date of the Registration Statement, the Company
maintains term key-man insurance on the life of _________ in the
amount of $_____________, which policy names the Company as the sole
beneficiary thereof.
(gg) The Company is not now, and upon the issuance and sale of the Firm
Securities, the Option Securities, if any, and the Underwriter's
Warrants hereunder and the application of the net proceeds from such
sale as described under the caption "Use of Proceeds" in the
Prospectus will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of such
terms under the Investment Company Act of 1940, as amended, and the
rules and regulations of the Commission thereunder.
(hh) The Company (i) makes and keeps accurate books and records and (ii)
maintains a system of internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (C)
access to its assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(ii) The Company is in compliance with all federal, state, local or
foreign laws, common law, rules, codes, administrative orders or
regulations relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface
12
strata) or wildlife, including without limitation all laws, common
law, rules, codes, administrative orders and regulations relating to
the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively "Environmental Laws") and (B) there are no
events or circumstances that could form the basis of an order for
clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting
the Company relating to any Hazardous Materials or the violation of
any Environmental Laws. The company has no reason to believe that it
will not receive all necessary and required approvals,
authorizations, validations and certifications from applicable
regulatory authorities to enable the Company to commence full
operations as contemplated in the Registration Statement and the
Prospectus.
(jj) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties owned or managed by the Company in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such
review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the Company.
(kk) As of the date hereof, the Company does not have more than _______
shares of Common Stock issued and outstanding (including securities
with equivalent rights as the Common Stock and shares of Common
Stock, or such equivalent securities, issuable upon exercise of any
all options, warrants and other contract rights and securities
convertible directly or indirectly into shares of Common Stock or
such equivalent securities, but excluding up to ________ shares of
Common Stock issuable upon the exercise of options granted under the
Company's Stock Option Plan at prices not less than the initial
public offering price per share).
2. Purchase, Sale and Delivery of the Securities and Underwriter's Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase the Firm
Securities from the Company at a price of $_____ per share of Common
Stock [90% of the public offering price].
13
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option
to the Underwriter to purchase from the Company all or any part of
the Option Securities at a price of $______ per share of Common
Stock [90% of the public offering price]. The option granted hereby
will expire forty-five (45) days after (i) the date the Registration
Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in
part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering
and distribution of the Firm Securities upon notice by the
Underwriter to the Company setting forth the number of Option
Securities as to which the Underwriter is then exercising the option
and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be
later than three (3) full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter
defined, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to
make any over-allotments. No Option Securities shall be delivered
unless the Firm Securities shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Underwriter
at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ or at
such other place as shall be agreed upon by the Underwriter and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New
York City time) on ____________, 1998 or at such other time and date
as shall be agreed upon by the Underwriter and the Company, but not
less than three (3) nor more than five (5) full business days after
the effective date of the Registration Statement (such time and date
of payment and delivery being herein called "Closing Date");
provided, however, that the failure of the Underwriters to make
payment of the purchase price for such Firm Securities on such
Closing Date shall not constitute a default under this Agreement if
the Underwriter provides the Company with a promissory note for the
balance of the purchase price for the Firm Securities not paid at
the Closing Date, which promissory note shall be due and payable
only as the Underwriter receives payment of the purchase price for
the Firm Securities but in no event later than ten (10) days after
the date of this Agreement. In addition, in the event that any or
all of the Option Securities are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for,
such Option Securities shall be made at the above-mentioned office
of the Underwriter or at such other place as shall be agreed upon by
the Underwriter and the Company on each Option Closing Date as
specified in the notice from the Underwriter to the Company.
Delivery of the certificates for the Firm Securities and the Option
14
Securities, if any, shall be made to the Underwriter against payment
by the Underwriter of the purchase price for the Firm Securities and
the Option Securities, if any, to the order of the Company by New
York Clearing House funds, subject in each case to such adjustments
as the Underwriter in its discretion shall make to eliminate any
sales or purchases of fractional shares; provided, however, that the
failure of the Underwriters to make payment of the purchase price
for the Firm Securities on the closing Date shall not constitute a
default under this Agreement if the Underwriter provides the Company
with a promissory note for the balance of the purchase price for the
Firm Securities not paid at the Closing Date, which promissory note
shall be due and payable only as the Underwriter receives payment of
the purchase price for the Firm Securities but in no event later
than ten (10) days after the date of this Agreement. Certificates
for the Firm Securities and the Option Securities, if any, shall be
in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such
names as the Underwriter may request in writing at least two (2)
business days prior to the Closing Date or the relevant Option
Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made
available to the Underwriter at such office or such other place as
the Underwriter may designate for inspection, checking and packaging
no later than 9:30 a.m. on the last business day prior to the
Closing Date or the relevant Option Closing Date, as the case may
be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's Warrants at a purchase price of
$.001 per warrant, which warrants shall entitle the holder(s)
thereof to purchase an aggregate of _____ shares of Common Stock.
The Underwriter's Warrants shall be exercisable for a period of four
(4) years commencing one (1) year from the effective date of the
Registration Statement at an exercise price of $____ per share of
Common Stock [one hundred twenty percent (120%) of the public
offering price of the Firm Securities]. The Underwriter's Warrant
Agreement and form of Warrant Certificate shall be substantially in
the form filed as Exhibit 4.2 to the Registration Statement. Payment
for the Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the Shares.
As soon after the Registration Statement becomes effective as the
Underwriter deems advisable, the Underwriter shall make a public offering
of the Firm Securities (other than to residents of or in any jurisdiction
in which qualification of the Firm Securities is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price and increase or decrease concessions and discounts
to dealers after distribution of the Firm Securities has been completed to
such extent as the Underwriter, in its sole discretion deems advisable.
The Underwriter may enter into one of more
15
agreements as the Underwriter, in its sole discretion deems advisable,
with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly
as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to
the Registration Statement or supplement to the Prospectus or file
any document under the Act or Exchange Act before termination of the
offering of the Firm Securities by the Underwriter of which the
Underwriter shall not previously have been advised and furnished
with a copy, or to which the Underwriter shall have objected or
which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriter and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act
will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any post-effective amendment
to the Registration Statement becomes effective, (ii) of the
issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending
the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings
for that purpose, (iii) of the issuance by the Commission, or by any
state securities commission of any proceedings for the suspension of
the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments
from the Commission, and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the
Commission or any state securities commission authority shall enter
a stop order or suspend such qualification at any time, the Company
will use its best efforts to obtain promptly the lifting of such
order or suspension.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission
pursuant to Rule 424(b)(1) (or, if applicable and if consented to by
the Underwriter, pursuant to Rule 424(b)(4)) not later than the
Commission's close of business on the earlier of (i) the second
business day following the execution and delivery of this Agreement,
and (ii) the fifth business day after the effective date of the
Registration Statement.
16
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which
the Company proposes for use by the Underwriter in connection with
the offering of the Securities which differs from the corresponding
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Underwriter with copies of any
such amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file
any such prospectus to which the Underwriter or ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇ ("Underwriter's Counsel") shall
object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Underwriter
may designate to permit the continuance of sales and dealings
therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service
of process in any such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the
Underwriter agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such
qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with
all requirements imposed upon it by the Act and the Exchange Act, as
now and hereafter amended and by the Rules and Regulations, as from
time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to
the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the reasonable opinion
of counsel for the Company or Underwriter's Counsel, the Prospectus,
as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of
the Act, each such amendment or supplement to be reasonably
satisfactory to Underwriter's Counsel and the Company will furnish
to the Underwriter copies of such amendment or
17
supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (ninety (90)
days in the event that the end of such fiscal quarter is the end of
the Company's fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an
earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11 (a) of the Act
and Rule 158(a) of the Rules and Regulations, which statement need
not be audited unless required by the Act, covering a period of at
least twelve (12) consecutive months after the effective date of the
Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of
earnings, and will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders
and certified by the Company's principal financial or
accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of
operations, stockholders equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the certificate
thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company,
or its affairs which was released or prepared by or on behalf
of the Company (or any future subsidiaries); and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which
the Underwriter may request.
18
During such seven-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company
and any of its subsidiaries are consolidated and will be accompanied
by similar financial statements for any significant subsidiary which
is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent (the
"Transfer Agent") and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock, each of which
shall be satisfactory to the Underwriter.
(j) The Company will furnish or cause to be furnished to the
Underwriter, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto
(two of which copies will be manually signed and will include all
financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the
Underwriter may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Underwriter with true original copies of
the duly executed, legally binding and enforceable Lock-up
Agreements pursuant to which for a period of thirteen (13) months
from the effective date of the Registration Statement, each of the
Company's officers and directors and all holders of five percent
(5%) or more of the shares of Common Stock and all holders of
securities exchangeable or exercisable for or convertible into
Common Stock has agreed that it or he or she will not, directly or
indirectly, issue, offer to sell, sell, make a short sale (including
without limitation short against the box), grant an option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber
or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise),
dispose of any beneficial interest therein without the prior consent
of the Underwriter, enter into any swap or other agreement that
transfers in whole or in part any of the economic consequences or
ownership of the Common Stock, whether any such transactions were to
be settled by delivery of Common Stock, other securities, cash or
otherwise, without the prior written consent of the Underwriter
(collectively, the "Lock-up Agreements"). In addition, during the
thirteen (13) month period commencing with the effective date of the
Registration Statement, the Company shall not, without the prior
written consent of the Underwriter, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for shares of Common
Stock. On or before the Closing Date, the Company shall deliver
19
instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's stock ledgers.
(l) Neither the Company nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action
designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the Firm
Securities and the Option Securities, if any, in the manner, and
subject to the conditions, set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used, directly or
indirectly, to acquire any securities issued by the Company or any
of its Affiliates (as defined herein).
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a
report as may be required pursuant to Rule 463 of the Regulations)
from time to time, under the Act, the Exchange Act, and the Rules
and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Underwriter as early as practicable
prior to each of the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior thereto, a
copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the date of the Registration Statement)
which have been read by the Company's independent public accountants
as stated in their letters to be furnished pursuant to Section 6(l)
and 6(m) hereof.
(p) The Company shall cause the Securities to be quoted on the Bulletin
Board or listed on a comparable national securities exchange and for
a period of seven (7) years from the date hereof, use its best
efforts to maintain the Bulletin Board quotation or other such
exchange listing of the Securities to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Underwriter at the Company's sole expense (i)
daily consolidated transfer sheets relating to the Common Stock,
(ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company.
(r) As soon as practicable (i) but in no event more than five (5)
business days before the effective date of the Registration
Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the
20
Securities, and (ii) but in no event more than thirty (30) days from
the effective date of the Registration Statement, take all necessary
and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and ▇▇▇▇▇'▇ OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(s) The Company hereby agrees that it will not, without the prior
written consent of the Underwriter, for a period of thirteen (13)
months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or arrangement permitting
(i) the grant, issue, sale or entry into any agreement to grant,
issue or sell any option, warrant or other contract right (x) at an
exercise price that is less than the greater of the public offering
price of the Firm Securities set forth herein and the fair market
value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of five percent (5%) or more
of the shares of Common Stock, except as provided in subsection (ii)
of this subparagraph; and (ii) the maximum number of shares of
Common Stock or other securities of the Company purchasable at any
time pursuant to options or warrants issued by the Company to exceed
________ shares reserved for issuance under the Company's Stock
Option Plan; (iii) the payment for such securities with any form of
consideration other than cash, or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the
Underwriter and Underwriter's Counsel, issue, directly or indirectly
any press release or other communication or hold any press
conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in
the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which
may prevent or disqualify the Company's use of Form SB-2 (or other
appropriate form) for the registration under the Act of the
Underwriter's Securities. The Company further agrees to use its best
efforts to file such post-effective amendments to the Registration
Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective
while any of the Representative's Warrants remain outstanding.
21
(v) The Company will not, and will not permit any of its future
subsidiaries to, directly or indirectly, enter into any transaction
or series of related transactions (including, but not limited to,)
the sale, purchase, exchange, lese, transfer or other disposition of
any properties, assets or services to, or the purchase of any
property, assets or services from, or the entry into any contract,
agreement, undertaking, loan, advance or guarantee) with, or for the
benefit of, an Affiliate (an "Affiliate Transaction"), or extend,
renew, waive or otherwise modify the terms of any Affiliate
Transaction entered into prior to the date of issuance of the
Securities unless (i) such Affiliate Transaction is between or among
the Company and its wholly-owned subsidiaries, or (ii) the terms of
such Affiliate Transaction are fair and reasonable and at least as
favorable to the Company or such subsidiary, as the case may be, as
those that could have been obtained in a comparable arm's length
transaction by the Company or such subsidiary with an unrelated
person, and such Affiliate Transaction is entered into in the
ordinary course of business of the parties thereto; provided,
however, notwithstanding anything to the contrary contained herein,
the Company may issue securities pursuant to the exercise of
outstanding options and warrants on the terms in effect and
described in the Prospectus relating to the Securities. All
Affiliate Transactions must be approved in good faith by the Board
of Directors of the Company and a minimum of three disinterested and
independent outside directors thereof, and such approval evidenced
by a Board Resolution that such transaction meets the criterion set
forth in (i) or (ii) above.
5. Payment of Expenses
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriter's Counsel, except
as provided in (iv) below) incident to the performance of the
obligations of the Company under this Agreement and the
Underwriter's Warrant Agreement, including, without limitation, (i)
the fees and expenses of accountants and counsel for the Company,
(ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling
charges) filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement, and the
Prospectus and any amendments and supplements thereto and the
printing, mailing (including the payment of postage with respect
thereto) and delivery of this Agreement, the Underwriter's Warrant
Agreement,
22
selected dealer agreements (if any) and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in quantities as herein above stated, (iii)
the printing, engraving, issuance and delivery of the Securities
including, but not limited to (x) the purchase by the Underwriter of
the Securities from the Company and the purchase by the Underwriter
of the Underwriter's Warrants from the Company, (y) the consummation
by the Company of any of its obligations under this Agreement and
the Underwriter's Warrant Agreement, and (z) resale of the Firm
Securities and Option Securities, if any, by the Underwriter in
connection with the distribution contemplated hereby, (iv) the
qualification of the Securities under state or foreign securities or
"Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum", the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and
reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show,"
information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and
expenses in connection with due diligence investigations, including
but not limited to the fees of any independent counsel, expert or
consultant retained, (vii) fees and expenses of the Transfer Agent,
registrar and custodian and all issue and transfer taxes, if any,
(viii) the fees payable to the Commission and the NASD, (ix)
applications for assignment of a rating of the Securities by
qualified rating agencies, and (x) the fees and expenses incurred in
connection with the listing of the Securities on the Bulletin Board
and any other exchange.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 10 or Section 11, the Company shall
reimburse and indemnify the Underwriter for all of its out-of-pocket
expenses' including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the
Underwriter on the Closing Date by certified or bank cashier's check
or, at the election of the Underwriter, by deduction from the
proceeds of the offering contemplated herein a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Firm Securities, none
of which has been paid to date. In the event the Underwriter elects
to exercise the over-allotment option described in Section 2(b)
hereof, the Company agrees to pay to the Underwriter on the Option
Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the
offering) a non-accountable expense allowance equal to three percent
(3%)
23
of the gross proceeds received by the Company from the sale of the
Option Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof
and as of the Closing Date and each Option Closing Date, if any, as if
they had been or have made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing
Date or Option Closing Date, if any, of the statements of officers of the
Company (where applicable) made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 noon, New York time, on the date of this Agreement or
such later date and time as shall be consented to in writing by the
Underwriter, and, at the Closing Date and each Option Closing Date,
if any, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with
to the satisfaction of Underwriter's Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Shares and any price related information previously
omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Underwriter of such
timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material,
or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to
make the statements therein not misleading, or that the Prospectus,
or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state
a fact which, in the Underwriter's opinion, is material and is
required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(c) At the Closing Date, the Underwriter shall have received the
favorable opinion of Morse, Zelnick, Rose & Lander, LLP, New York,
New York, counsel to the
24
Company dated the Closing Date, addressed to the Underwriter and in
form and substance satisfactory to Underwriter and Underwriter's
Counsel to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
license and (C) has all requisite power and authority
(corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or
regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct
its respective business as described in the Prospectus; the
Company is and has been doing business in compliance with all
such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state
and local laws, rules and regulations; and, the Company has
not received any notice of proceedings relating to the
revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would adversely
affect the business, operations, condition, financial or
otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results
of operations of the Company. The disclosures in the
Registration Statement concerning the effects of foreign,
federal, state and local laws, rules and regulations on the
Company's business as currently conducted and as contemplated
are correct in all respects and do not omit to state a fact
necessary to make the statements contained therein not
misleading in light of the circumstances in which they were
made;
(ii) the Company does not own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "Capitalization," and
the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities,
except for this Agreement and the Underwriter's Warrant
Agreement and as described in the Prospectus. The Securities
and all other securities issued or issuable by the Company
conform in all material respects to all statements with
respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding
25
securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof
have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and
none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any similar
rights granted by the Company. The Securities to be sold by the
Company hereunder and under the Underwriter's Warrant Agreement are
not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities and the
Underwriter's Securities are in due and proper form. The
Underwriter's Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called
for thereby. Upon the issuance and delivery pursuant to this
Agreement of the Securities to be sold by the Company, the
Underwriter will acquire good and marketable title to the Securities
free and clear of any Lien of any kind whatsoever. No transfer tax
or duty is payable by or on behalf of the Underwriter in connection
with (A) the issuance by the Company of the Securities, (B) the
purchase by the Underwriter of the Securities from the Company, (C)
the consummation by the Company of any of its obligations under this
Agreement or the Underwriter's Warrant Agreement, or (D) resales of
the Securities in connection with the distribution contemplated
hereby;
(iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop
order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any
thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the best of such
counsel's knowledge after due inquiry, threatened or
contemplated under the Act, by the Commission;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and
other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in
26
all material respects with the requirements of the Act and the
Rules and Regulations;
(vi) (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) and the Prospectus
and documents filed as exhibits thereto, and the exhibits
which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which
the Company is a party or by which it is bound, including any
document to which the Company is a party or by which it is
bound, are accurate and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving
the properties or business of the Company which (x) is
required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all
respects) or (y) questions the validity of the capital stock
of the Company or this Agreement or the Underwriter's Warrant
Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no
action, suit or proceeding pending or threatened against or
affecting the Company before any court or arbitrator or
governmental body, agency or official (or any basis thereof
known to such counsel) in which there is a reasonable
possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or
the earnings, position, prospects, stockholders equity, value,
operation, properties, business or results of operations of
the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations
under this Agreement or the Underwriter's Warrant Agreement or
which in any manner draws into question the validity or
enforceability of this Agreement or the Underwriter's Warrant
Agreement;
(vii) the Company has full legal right, power and authority to enter
into each of this Agreement and the Underwriter's Warrant
Agreement, and to
27
consummate the transactions provided for therein; and each of
this Agreement and the Underwriter's Warrant Agreement has
been duly authorized, executed and delivered by the Company.
Each of this Agreement and the Underwriter's Warrant
Agreement, assuming due authorization, execution and delivery
by each other party thereto, constitutes a legal, valid and
binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this
Agreement or the Underwriter's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of
its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result
in any breach or violation of any of the terms or provisions
of, or constitutes or will constitute a default under, or
result in the creation or imposition of any Lien, of any kind
whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
certificate of Incorporation or By-laws, as applicable, of the
Company, (B) any license, contract, indenture, mortgage, deed
of trust, voting trust agreement, stockholder's agreement,
note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which any of
them is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment,
decree, order, rule or regulation applicable to the Company of
any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including,
without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective
activities or properties;
(viii) no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws,
as to which no opinion need be rendered) is required in
connection with the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the issuance of the
Warrants, the performance of this Agreement, the Underwriter's
Warrant Agreement, and the transactions contemplated hereby
and thereby;
28
(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has
good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each
case free and clear of all Liens of any kind whatsoever, other
than those referred to in the Prospectus and Liens for taxes
not yet due and payable;
(x) the Company is not in breach of, or in default under, any term
or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party
or by which either of the Company may be bound or to which the
property or assets (tangible or intangible) of any of the
Company is subject or affected; and the Company is not in
violation of any term or provision of its certificate of
incorporation or by laws or in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation;
(xi) the statements in the Prospectus under "The Company,"
"Business," "Management," "Executive Compensation," "Principal
Shareholders," "Certain Transactions," "Description of Common
Shares," "Shares Eligible For Future Sale" and "Risk Factors"
have been reviewed by such counsel and insofar as they refer
to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all
material respects;
(xii) the Firm Securities and the Option Securities have been
accepted for inclusion and quotation by the Bulletin Board;
(xiii) the Company owns or possesses, free and clear of all Liens
and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent
applications and licenses necessary to conduct its business
(including, without limitation any such licenses or rights
described in the Prospectus as being owned or possessed by the
Company), and there is no claim or action by any person
pertaining to, or proceeding, pending, or threatened, which
challenges the exclusive rights of the Company with respect to
any trademarks, service marks, copyrights, service names,
trade names, patents, patent applications and licenses used in
the conduct of the Company's business (including, without
limitation, any such licenses or rights described in the
29
Prospectus as being owned or possessed by the Company); the
Company's current products, services and processes do not and
will not infringe on the patents currently held by third
parties; and no product, service or process of any third party
infringes on any patent currently held by the Company;
(xiv) the persons listed under the caption "Principal Shareholders"
in the Prospectus are the respective "beneficial owners" (as
such phrase is defined in Rule 13d-3 under the Rules and
Regulations) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
(xv) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any
securities of the Company in the Registration Statement,
require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
(xvi) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD;
(xvii) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the
parties and any subsequent holder(s) of the securities subject
thereto in accordance with their terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law);
(xviii) except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA,
and (C) has never completely or partially withdrawn from a
"multiemployer plan";
(xix) the choice of law provision set forth in Section 14 of this
Agreement is legal, valid and binding and such counsel knows
of no reason why the courts of any jurisdiction would not give
effect to the choice of New
30
York law as the proper law of this Agreement or the
Underwriter's Warrant Agreement;
(xx) except as described in the Prospectus, no holders of
securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the
right to have such securities registered under the
Registration Statement and no person or entity holds any
anti-dilution rights with respect to any securities of the
Company;
(xxi) there is no New York City, New York State, or other stamp,
duty, value-added tax or any other tax, fee or duty, payable
by or on behalf of the Underwriters or the Company in
connection with the authorization, issuance, sale and delivery
of the Firm Securities, the Option Securities, the
Underwriter's Warrants and the Underwriter's Securities
contemplated hereby;
(xxii) the Company is not now, and upon the issuance and sale of the
Securities as herein contemplated and the application of the
proceeds from such sale as described under the caption "Use of
Proceeds" in the Prospectus will not be an "investment
company" or a company "controlled by" an "investment company"
as such terms are defined in the Investment Company Act of
1940, as amended;
(xxiii) neither the Company, nor any of its respective employees,
directors, stockholders, partners, or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or
indirectly, any action designed to or which has constituted or
which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of
the price of any security of the Company to facilitate the
sale or resale of the Securities or otherwise;
(xxiv) neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give
any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent, governmental
agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who
was, is, or may be in a position to help or hinder the
business of the Company (or assist the Company in connection
with any actual or proposed transaction) which (i) might
subject the Company or any other such person to any damage or
penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the
past, might have had an
31
adverse effect on the assets, business or operations of the
Company, or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects
of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended;
(xxv) except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly
or indirectly (i) an interest in any person or entity which
(A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to
the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there
are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company,
and any officer, director, all holders of five percent (5%) or
more of the shares of Common Stock) of the Company, or any
partner, "affiliate" or "associate" of any of the foregoing
persons or entities;
(xxvi) the minute books of the Company have been made available to
the Underwriter and contain a complete summary of all meetings
and actions of the directors and stockholders of the Company
since the time of its incorporation, and reflects all
transactions referred to in such minutes accurately and fairly
in all respects;
(xxvii) the Company is not a Passive Foreign Investment Company
("PFIC") within the meaning of Section 1296 of the United
States Internal Revenue Code of 1986, as amended;
(xxviii) the Company is in compliance with all Environmental Laws.
There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous
substances by the Company (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or
from any of the property now or previously owned or leased by
the Company in violation of any Environmental Laws, judgment,
decree or permit which would require remedial action or
clean-up or which could form the basis for an action, suit or
proceeding by any private party or governmental body or
agency, against or affecting the Company; there has been no
material spill, discharge, leak, emission,
32
injection, escape, dumping or release of any kind in violation
of Environmental Laws onto such property or into the
environment surrounding such property of any toxic wastes,
medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or with respect to
which the Company has knowledge; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical
wastes" shall have the meaning specified in any applicable
local, state, federal and foreign laws or regulations with
respect to environmental protection;
(xxix) the Company (including any of its predecessors) (i) has filed
with the appropriate federal, state and local governmental
agencies, and all foreign countries and political subdivisions
thereof, all tax returns, including franchise tax returns,
which are required to be filed and all such tax returns are
correct and complete in all material respects, (ii) has paid
all federal, state, local, and foreign taxes for which it is
liable, including, but not limited to, withholding taxes and
amounts payable under Chapters 21 through 24 of the Internal
Revenue Code of 1986 (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the
Code, (iii) has established adequate reserves for such taxes
which are not due and payable, (iv) does not have any tax
deficiency or claims outstanding, proposed or assessed against
it, and (v) has not executed or filed with any taxing
authority, foreign or domestic, any agreement extending the
period for assessment or collection of any taxes and is not a
party to any proceeding or action by any foreign or domestic
governmental agency for assessment or collection of taxes.
(xxx) the Company has obtained all necessary and required approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications from regulatory authorities to
permit the commencement of its commercial operations as
contemplated in the Prospectus, and none of such approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications have been revoked, restricted
or limited in any manner and all of such approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications are in full force and effect;
and
(xxxi) there is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding, domestic or foreign,
pending or threatened (or circumstances that may give rise to
the same) involving the Company's production, use, testing,
manufacturing or marketing of any products or services, which
(i) questions the authority of the Company to produce, use,
test, manufacture or market any products or services as
described in the Prospectus, (ii) questions the completeness
or accuracy of data generated by any trials, tests or studies
being conducted by or on behalf
33
of the Company, (iii) is required to be disclosed in the
Prospectus which is not so disclosed, or (iv) might materially
and adversely affect the condition, financial or otherwise, or
the earnings, prospects, value, operations or business of the
Company.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
and representatives of the independent public accountants for the
Company, at which conferences such counsel made inquiries of such
officers, representatives and accountants and discussed the contents
of the Preliminary Prospectus, the Registration Statement, the
Prospectus, and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Preliminary Prospectus, the Registration Statement and
Prospectus, on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of directors, officers and other
representatives of the Company), no facts have come to the attention
of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement
thereto as of the date of such opinion 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 not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the
Prospectus). Such counsel shall further state that its opinions may
be relied upon by Underwriter's Counsel in rendering its opinion to
the Underwriter.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriter's Counsel) of other counsel
acceptable to Underwriter's Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company,
provided that copies of any such statements certificates shall be
delivered to Underwriter's Counsel, if requested. The opinion of
such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and that
the Underwriter and they are justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document
34
relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991) or any
comparable state accord.
(d) At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Morse, Zelnick, Rose & Lander,
LLP, dated each Option Closing Date, addressed to the Underwriter
and in form and substance satisfactory to Underwriter and
Underwriter's Counsel confirming as of each Option Closing Date the
statements made by Morse, Zelnick, Rose & Lander, LLP in its opinion
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing Date,
if any, Underwriter's Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require
for the purpose of enabling them to review or pass upon the matters
referred to in subsection (c) of this Section 7, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company, or herein
contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any (i) there shall have been no adverse change or development
involving a prospective change in the condition, financial or
otherwise, prospects, stockholders equity or the business activities
of the Company, whether or not in the ordinary course of business
consistent with past practice, from the latest dates as of which
such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, consistent with past practice, entered
into by the Company, from the latest date as of which the financial
condition of the Company as set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any
instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the
Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there
has not been any change in the capital stock or any change in the
debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the
assets of the Company shall have been pledged or mortgaged, except
as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been
pending or threatened (or circumstances giving rise to same) against
the Company, or affecting any of its respective properties or
businesses before or by any Court or federal, state or foreign
commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income of
the Company's ability to continue to function in connection with the
business operations of the Company, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall
have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
35
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the Company
signed by the principal executive officer and by the chief financial
or chief accounting officer of the Company, dated the Closing Date
or Option Closing Date, as the case may be, to the effect that each
of such persons has carefully examined the Registration Statement,
the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the
Closing Date or the Option Closing Date, as the case may be,
and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to the
Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of each of such persons knowledge
after due inquiry, are contemplated or threatened under the
Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all
statements and information required to be included therein,
and none of the Registration Statement, 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 neither the Preliminary
Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a)
the Company has not incurred up to and including the Closing
Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business consistent with
past practice, any material liabilities or obligations, direct
or contingent; (b) the Company has not paid or declared any
dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the
ordinary course of business consistent with past practice; (d)
there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the
ordinary course of business consistent with past practice) of
the Company; (e) the Company has not sustained any loss or
damage to its
36
property or assets, whether or not insured; (f) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliated
party of the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not
been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at
the date of such certificate.
(h) The Underwriter shall have received a signed letter, dated the date
of this Agreement, from each of the stockholders listed in Schedule
A to the effect that such persons shall not sell, contract to sell,
grant any option to sell, transfer or otherwise dispose of, directly
or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock (a "Distribution") for a period of thirteen
(13) months from the date of the Prospectus without the prior
written consent of the Underwriter; provided, that in the event any
such shareholder requests the Underwriter to consent to a
Distribution to any partner, shareholder, family member or trust for
the benefit of a family member, or affiliate of such shareholder (a
"Distributee"), the Underwriter agrees to grant such consent if (i)
each Distributee receiving a Distribution prior to the Distribution
executes a lockup agreement, substantially in the form of the
lock-up agreement executed by such stockholder, for a period of
thirteen (13) months after the date of the Prospectus and (ii) no
consideration is received by such stockholder for the Distribution.
(i) The Company shall have performed such of its obligations under this
Agreement as are to be performed by the terms hereof at or before
the time of purchase and at or before the additional time of
purchase, as the case may be.
(j) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable
to the Underwriter, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated the date hereof, addressed to the
Underwriter in form and substance satisfactory (including the
non-material nature of the changes or decreases, if any, referred to
in clause (iii) below) in all respects to the Underwriter and
Underwriter's Counsel:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of
the Act and the applicable Rules and Regulations;
37
(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the
Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the
Underwriter may rely upon the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of
the latest available unaudited interim financial statements),
a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the
boards of directors of the Company, consultations with
officers and other employees of the Company responsible for
financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the pro forma
financial information contained in the Registration Statement
and Prospectus, if any, does not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or is not fairly
presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
audited financial statements of the Company or the unaudited
pro forma financial information included in the Registration
Statement, if any, (B) the unaudited financial statements and
supporting schedules of the Company included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited consolidated financial statements of the
Company included in the Registration Statement, or (C) at a
specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been
any change in the capital stock or long-term debt of the
Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with
amounts shown in the balance sheet included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such
change or decrease, and (D) during the period from September
30, 1997 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was
any decrease in net revenues, net revenues, net earnings or
increase in net earnings per common share of the Company and
the Subsidiaries, in each case as compared with the
corresponding period beginning September 30, 1997 other than
as set forth in or
38
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
(iv) setting forth at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of
liabilities of the Company (including a break-down of
commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and
information may be derived from the general accounting
records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards in the United States),
set forth in the letter and found them to be in agreement;
(vi) stating that they have not during the immediately preceding
five (5) year period brought to the attention of any of the
Company's management any "weakness", as defined in Statement
of Auditing Standard No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the
Company's internal controls;
(vii) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect
to certain pro forma financial information which is included
in the Registration Statement and the Prospectus, if any, and
that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro
forma financial information, if any, does not comply in form
in all respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X or that the pro forma
adjustments, if any, have not been properly applied to the
historical amounts in the compilation of that information; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may
request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, a letter,
dated as of the Closing Date or the Option Closing Date, as the case
may be, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (k) of this Section, except
that the specified date referred to shall be a date not more than
five (5) days
39
prior to Closing Date or the Option Closing Date, as the case may
be, and, if the Company has elected to rely on Rule 430A of the
Rules and Regulations, to the further effect that they have carried
out procedures as specified in clause (v) of subsection (k) of this
Section with respect to certain amounts, percentages and financial
information as specified by the Underwriter and deemed to be a part
of the Registration Statement pursuant to Rule 430A(b) and have
found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (v).
(m) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Underwriter for the
Underwriter's account, the appropriate number of Securities.
(n) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section
4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed and
delivered to the Underwriter (i) the Underwriter's Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration
Statement in final form and substance satisfactory to the
Underwriter, and (ii) the Underwriter's Warrants in such
denominations and to such designees as shall have been provided to
the Company.
(p) On or before the Closing Date, the shares shall have been duly
approved for inclusion and quotation on the Bulletin Board, subject
to official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered to
the Underwriter all of the duly executed Lock-up Agreements, in form
and substance satisfactory to Underwriter's Counsel.
If any representation or accounting of the Company herein shall not be
true and correct, or if any other condition to the Underwriter's
obligations hereunder to be fulfilled prior to or at the Closing Date or
the relevant Option Closing Date, as the case may be, is not so fulfilled,
the Underwriter may terminate this Agreement or, if the Underwriter so
elects, it may waive any such conditions which have not been fulfilled or
extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter
(for purposes of this Section 7, "Underwriter" shall include the
officers, directors, stockholders, partners, employees, agents and
counsel of the Underwriter), and each person, if any, who controls
the Underwriter (a "controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from
40
and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof),
whatsoever (including but not limited to any and all expenses
whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever),
as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of
foreign countries, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post
effective amendment or amendments or any new registration statement
and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company
or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities
laws thereof or filed with the Commission, any state securities
commission or agency, the Bulletin Board or any other securities
exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in
the light of the circumstances under which made), unless such
statement or omission was made exclusively in reliance upon and in
conformity with written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or
otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls
the Company within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriter but only
with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any application
made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter
by the Underwriter expressly for use in such Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such
written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus
directly relating to the transactions effected by the Underwriter in
connection with this Offering. The Company acknowledges that the
statements with respect to the public offering of
41
the Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the
Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter
for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section,
notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been
prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate
therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such
case but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by
the indemnifying party in connection with the defense of such action
at the expense of such indemnifying party, (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action
within a reasonable period of time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to
one or all of the indemnifying parties (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 parties), in
any of which events such fees and expenses of additional counsel
shall be borne by the indemnifying parties. Anything in this Section
7 to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without
its written consent; provided, however, that such consent was not
unreasonably withheld or delayed.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, 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 this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be
42
required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result
of such losses, claims, damages, expenses or liabilities (or actions
in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing
parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also
the relative fault of each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, in
connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any
other relevant equitable considerations. In any case where the
Company is a contributing party and the Underwriter is the
indemnified party, the relative benefits received by the Company on
the one hand, and the Underwriter on the other, shall be deemed to
be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bears to the
total underwriting discounts received by the Underwriter hereunder,
in each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, or by
the Underwriter, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in
this subdivision (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified any such action or
claim. Notwithstanding the provisions of this subdivision (d), the
Underwriter shall not be required to contribute any amount in excess
of the underwriting discount applicable to the Firm Securities and
Options Securities purchased by the Underwriter hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7, each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company,
subject in each case to this subdivision (d). Any party entitled to
contribution will, promptly after receipt of notice of claim of any
action, suit or proceeding against such party in respect to which a
claim for contribution may be made against another party or parties
under this subdivision (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party
or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subdivision (d), or to the
extent that such party or parties were not adversely affected by
such omission. The contribution agreement set forth above
43
shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall
be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company, and the
indemnity agreements of the Company contained in Section 7 hereof, shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter, the Company, or any
controlling person of the Underwriter or the Company, and shall survive
termination of this Agreement or the issuance and delivery of the
Securities to the Underwriter, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof,
or at such earlier time after the Registration Statement becomes effective
as the Underwriter, in its discretion, shall release the Firm Securities
and Option Securities for the sale to the public; provided, however, that
the provisions of Sections 5, 7 and 10 of this Agreement shall at all
times be effective. For purposes of this Section 9, the Firm Securities
and the Option Securities to be purchased hereunder shall be deemed to
have been so released upon the earlier of dispatch by the Underwriter of
telegrams to securities dealers releasing such shares for offering or the
release by the Underwriter for publication of the first newspaper
advertisement which is subsequently published relating to the Firm
Securities and the Options Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Underwriter shall
have the right to terminate this Agreement if (i) any domestic or
international event or act or occurrence has disrupted, or in the
Underwriter's opinion will in the immediate future disrupt the
financial markets; or (ii) any material adverse change in the
financial markets shall have occurred; or (iii) trading on the New
York Stock Exchange, the American Stock Exchange, Nasdaq Stock
Market or in the over-the-counter market shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on
the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or
(iv) the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have
been declared in the United States; or (v) a banking moratorium has
been declared by any state or by federal authority; or (vi) the
Company shall have sustained a loss material or substantial to the
Company by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act which, whether or not
such loss shall have been insured, will, in the Underwriter's
opinion, make it inadvisable to proceed with the delivery of the
Firm Securities and the
44
Option Securities, if any; or (vii) there shall have been such a
material adverse change in the conditions or prospects of the
Company, or such material adverse change in the general market,
political or economic conditions, in the United States or elsewhere
as in the Underwriter's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Firm
Securities and Option Securities; if any.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriter (less amounts previously paid pursuant
to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried
out within the time specified herein, or any extension thereof
granted to the Underwriter, by reason of any failure on the part of
the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to Section 6 or Section 11) then, the
Company shall promptly reimburse and indemnify the Underwriter for
all of its actual out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriter (less amounts
previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, and 11 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 and
Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement
hereof.
11. Default by the Company. If the Company shall fail at the Closing Date or
any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it or he is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing
Date, the Underwriter may, at the Underwriter's option by notice from the
Underwriter to the Company, terminate the Underwriter's obligation to
purchase Option Securities without any liability on the part of any
non-defaulting party). No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter at National Securities
Corporation, Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Managing Director, with a
copy to ▇▇▇▇▇▇▇▇▇ Traurig ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Notice to the Company shall be directed to the Company in care of the
Company, at ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and Chief Executive Officer, with a copy to
Morse, Zelnick, Rose & Lander, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, Company, and the controlling persons,
directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or
any provisions herein contained. No purchaser of Securities from the
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
giving effect to its choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the Underwriter's
Warrant Agreement constitute the entire agreement of the parties hereto
and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
not be amended except in a writing, signed by the Underwriter and the
Company.
If the foregoing correctly sets forth the understanding among the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Underwriter and the Company.
Very truly yours,
RONNYBROOK FARM DAIRY, INC.
By:_________________________________
Name:
Title:
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:____________________________________
Name:
Title:
46
SCHEDULE A
STOCKHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
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