COMPU-▇▇▇▇, INC.
1,200,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Mineola, New York
_______, 1997
E.C. Capital, Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned, COMPU-▇▇▇▇, INC., a Delaware corporation (the "Company"),
hereby confirms its agreement with E. C. Capital, Ltd. (being referred to herein
variously as "you" or the "Underwriter"), as follows:
1. Purchase and Sale of Securities.
1.1 Firm Securities.
1.1.1 Purchase of Firm Securities. On the basis of the
representations and warranties 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 from
the Company, 1,200,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), at a purchase price of $5.00 per
share (or $4.50 per share net of discounts and commissions). (such
shares of Common Stock being also referred to herein as the "Firm
Securities").
1.1.2 Payment and Delivery. Delivery of, and payment for the Firm
Securities shall be made at 10:00 A.M., New York time, on the fifth
business day following the Effective Date (as that term is hereinafter
defined) of the Registration Statement (as that term is hereinafter
defined) or at such earlier time as the Underwriter shall determine,
or at such other time as shall be agreed upon by the Underwriter and
the Company, at the offices of the Underwriter or at such other place
as shall be agreed upon by the Underwriter and the Company. The hour
and date of delivery and payment for the Firm Securities are called
the "Closing Date." Payment for the Firm Securities shall be made on
the Closing Date at the Underwriter's election by certified or
1
bank cashier's check(s) in immediately available New York
Clearing House funds, payable to the order of the Company upon
delivery to you of certificates (in form and substance complying with
applicable law and satisfactory to the Underwriter) representing the
Firm Securities for the account of the Underwriter. The Firm
Securities shall be registered in such name or names and in such
authorized denominations as the Underwriter may request in writing at
least three full business days prior to the Closing Date. The Company
will permit the Underwriter to examine and package the Firm Securities
for delivery, at the Company's transfer agent or correspondent at
least one full business day prior to the Closing Date. The Company
shall not be obligated to sell or deliver the Firm Securities except
upon tender of payment by the Underwriter for all the Firm Securities.
1.2 Over-Allotment Option.
1.2.1 Option Securities. For the purposes only of covering any
over-allotments in connection with the distribution and sale of the
Firm Securities, the Underwriter is hereby granted a non-transferable
option to purchase up to an additional 180,000 shares of Common Stock
from the Company ("Over-allotment Option"). Such additional shares of
Common Stock are hereinafter referred to as the "Option Securities."
The Firm Securities and the Option Securities are, hereinafter
referred to collectively as the "Public Securities." The purchase
price to be paid for the Option Securities will be the same price per
Option Security as the price per Firm Security set forth in Section
1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Underwriter
as to all or any part of the Option Securities at any time, from time
to time, within forty-five days after the effective date of the
Registration Statement ("Effective Date"). The Underwriter will not be
under any obligation to purchase any Option Securities prior to the
exercise of the Over-allotment Option. The Over-allotment Option
granted hereby may be exercised by the giving of oral or written
notice to the Company from the Underwriter (any such oral notice which
must be confirmed by a letter or telecopier notice within twenty-four
hours or such oral notice) setting forth the number of Option
Securities to be purchased, the date and time for delivery of, and
payment for, the Option Securities, and stating that the Option
Securities referred to therein are to be used only for the purpose of
covering over-allotments in connection with the distribution and sale
of the Firm Securities. If such notice is given at least two full
business days prior to the Closing Date, the date set forth therein
for such delivery and payment will be the Closing Date. If such notice
is given thereafter, the date set forth therein for such delivery and
payment will not be earlier than five full business days after the
date of the notice. If such delivery and payment for the Option
Securities does not occur on the Closing Date, the date and time of
the closing for such Option Securities will be as set forth
2
in the notice (hereinafter the "Option Closing Date"). Upon
exercise of the Over-allotment Option, the Company will become
obligated to convey to the Underwriter, and, subject to the terms and
conditions set forth herein, the Underwriter will become obligated to
purchase, the number of Option Securities specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option Securities
shall be made on the Option Closing Date at the Underwriter's election
by certified or bank cashier's check(s) in immediately available New
York Clearing House funds, payable to the order of the Company, at the
offices of the Underwriter or at such other place as shall be agreed
upon by the Underwriter and the Company upon delivery to you of
certificates representing such securities for the account of the
Underwriter. The certificates representing the Option Securities to be
delivered will be in such authorized denominations and registered in
such names as the Underwriter requests in writing not less than three
full business days prior to the Closing Date or the Option Closing
Date, as the case may be. The Company will permit the Underwriter to
examine and package the Option Securities for delivery at the
aforesaid office of the Company's transfer agent or correspondent at
least one full business day prior to such Option Closing Date.
1.3 Underwriter's Warrants.
1.3.1 Warrants. The Company hereby agrees to issue and sell to
the Underwriter (and/or its designees) on the Closing Date, in
exchange for a check in the amount of $100, an aggregate of 120,000
Warrants ("Underwriter's Warrants"), each Underwriter's Warrant to
purchase one share of Common Stock of the Company at an initial
exercise price of $8.25 per share. The Underwriter's Warrants are
exercisable for a four-year period commencing on the one-year
anniversary of the Effective Date and shall be substantially in the
form attached thereto as Exhibit A. The Underwriter's Warrants and the
shares of Common Stock issuable upon exercise of the Underwriter's
Warrants are hereinafter referred to collectively as the
"Underwriter's Securities." The Public Securities and the
Underwriter's Securities are hereinafter referred to collectively as
the "Securities."
1.3.2 Payment and Delivery. Delivery and Payment for the
Underwriter's Warrants in the authorized names and authorized
denominations designated by the Underwriter shall be made on the
Closing Date.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Underwriter as follows:
2.1 Filing of Registration Statement.
2.1.1 Pursuant to the Act.The Company has filed with the
Securities and Exchange Commission ("Commission") a registration
3
statement and an amendment or amendments thereto, on Form SB-2
(Reg. No. 333-18667), including any related prospectus subject to
completion ("Preliminary Prospectus"), for the registration of the
Public Securities under the Securities Act of 1933, as amended
("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 ("Regulations") of the
Commission under the Act. 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 and
all information deemed to be a part thereof as of such time pursuant
to paragraph (b) of Rule 430A of the Regulations), is hereinafter
called the "Registration Statement," and the form of the final
prospectus dated the Effective Date (or, if applicable, the form of
final prospectus filed with the Commission pursuant to Rule 424 of the
Regulations), is hereinafter called the "Prospectus." The Registration
Statement will be declared effective by the Commission on the date
hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with
the Commission a registration statement on Form 8-A (File No.
)providing for the registration under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), of the Public
Securities.Such registration of the Public Securities will be declared
effective by the Commission on or prior to the thirtieth day following
the Closing date.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the Company's
knowledge, any state regulatory authority has issued any order preventing
or suspending the use of any Preliminary Prospectus or has instituted or,
to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
2.3 Disclosures in Registration Statement. At the time the
Registration Statement became effective and at all times subsequent thereto
up to the Closing Date:
2.3.1 Securities Act Representation and 10b-5 Representation: The
Registration Statement and the Prospectus will contain, with respect
to the Company and the persons listed on Schedule 2.3.1 attached
hereto, all material statements which are required to be stated
therein in accordance with the Act and the Regulations, and will in
all material respects conform to the requirements of the Act and the
Regulations. Neither the Registration Statement nor any amendment or
supplement thereto, on the Effective Date, contained 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 not misleading and that on the Closing Date, the Prospectus
and any amendment or supplement thereto will not contain any untrue
statement of a material
4
fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. When any Preliminary Prospectus was
first filed with the Commission (whether filed as part of the
Registration Statement for the registration of the Securities or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and
when any amendment thereof or supplement thereto was first filed with
the Commission, such Preliminary Prospectus and any amendments thereof
and supplements thereto, at the time such filing was made, complied in
all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section
2.3.1 does not apply to statements made or statements omitted in
reliance upon and in conformity with written information furnished to
the Company by the Underwriter expressly for use in the Registration
Statement, Preliminary Prospectus, or Prospectus or any amendment
thereof or supplement thereto ("Underwriter's Information").
2.3.2 Disclosure of Contracts. The description in the Registration
Statement and the Prospectus of contracts and other documents is accurate
and presents fairly the information required to be disclosed and there are
no contracts or other documents required to be described in the
Registration Statement or the Prospectus or to be filed with the Commission
as exhibits to the Registration Statement which have not been so described
or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or
business is or may be bound or affected and (i) which is referred to in the
Prospectus, or (ii) is material to the business of the Company has been
duly and validly executed, is in full force and effect in all material
respects and is enforceable in accordance with its terms, and none of such
contracts or instruments has been assigned by the Company and the Company,
to the best of its knowledge, is not in default thereunder and, to the
Company's knowledge, no event has occurred which, with the lapse of time or
the giving of notice, or both, would constitute a default thereunder except
as otherwise disclosed in the Prospectus). None of the material provisions
of such contracts or instruments violates or will result in a violation of
any existing applicable law, rule, regulation, judgment, order or decree of
any governmental agency or court having jurisdiction over the Company, or
any of its respective assets, including, without limitation, those relating
to environmental laws and regulations.
2.3.3 Prior Securities Transactions. No securities of the Company
have been sold by the Company or by or on behalf of, or for the
benefit of, any person or persons controlling, controlled by, or under
common control with the Company within the three years prior to the
date hereof, except as disclosed in the Registration Statement.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. Since the
5
respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise
specifically stated therein, (i) there has been no material adverse
change in the condition, financial or otherwise, or in the results of
operation, business or business prospects of the Company ("Material
Adverse Change"), including, but not limited to, a material loss of,
or interference with, its business from fire, storm, explosion, flood
or other casualty, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
whether or not arising in the ordinary course of business, and (ii)
there have been no transactions entered into by the Company, other
than those in the ordinary course of business, which are material with
respect to the condition, financial or otherwise, or the results of
its operations, business or business prospects.
2.4.2 Recent Securities Transactions. Etc. Subsequent to the
respective dates as of which information is given in the Registration
Statement and the 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; or (ii) declared or paid any dividend
or made any other distribution on or in respect to its capital stock.
2.5 Independent Accountants. ▇▇▇▇▇, ▇▇▇▇▇▇ & Company, LLP, whose
reports are filed with the Commission as part of the Registration
Statement, are independent accountants as required by the Act and the
Regulations.
2.6 Financial Statements. The financial statements, including the
notes thereto and supporting schedules included in the Registration
Statement and Prospectus, fairly present the financial condition and the
results of operations of the Company at the dates and for the periods to
which they apply; such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently
applied; and the supporting schedules, if any, included in the Registration
Statement present fairly the information required to be stated therein.
2.7 Authorized Capital; Options: Etc. The Company had at the date or
dates indicated in the Prospectus, the duly authorized, issued and
outstanding capitalization as set forth in the Registration Statement and
the Prospectus. Based on the assumptions stated in the Registration
Statement and the Prospectus, the Company will have on the Closing Date the
adjusted stock capitalization set forth therein. Except as set forth in the
Registration Statement and the Prospectus, on the Effective Date there are,
and on the Closing Date there will be, no options, warrants, or other
rights to purchase or otherwise acquire any authorized but unissued shares
of Common Stock of the Company or any security convertible into shares of
Common Stock of the Company, or any contracts or commitments to issue or
sell shares of Common Stock or any such
6
options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and outstanding
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 none of such securities
were 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 outstanding options and warrants to purchase shares
of Common Stock constitute the valid and binding obligations of the
Company, enforceable in accordance with their terms, except (i) such
enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, marshaling and/or similar laws,
now or hereafter in effect affecting creditors' rights and remedies
(including such as may deny giving effect to waivers of debtor's
rights), (ii) as enforceability of any indemnification provision may
be limited under Federal and State laws, and (iii) that the remedy of
specific performance and injunction and other forms of equitable
relief may be subject to the equitable defenses and to the discretion
of the courts before which any proceeding therefor may be brought
(regardless of whether such enforceability is considered a proceeding
in equity or in law). The authorized Common Stock and outstanding
options and warrants to purchase shares of Common Stock conform to all
statements relating thereto contained in the Registration Statement
and the Prospectus. The offers and sales of the outstanding Common
Stock, options and warrants to purchase shares of Common Stock were at
all relevant times either registered under the Act and registered or
qualified under the applicable state securities or Blue Sky Laws or
exempt from such registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities
have been duly authorized and, when issued and paid for, will be
validly issued, fully paid and non-assessable; the Securities are not
and will not be subject to the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the
Company; and all corporate actions required to be taken for the
authorization, issuance and sale of the Securities have been duly and
validly taken. When issued, the Underwriter's Warrants will constitute
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number of shares of Common
Stock of the Company called for thereby and the Underwriter's Purchase
Options, the Underwriter's Warrants and the Warrants are enforceable
against the Company in accordance with their respective terms, except
(i) such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, marshaling and/or similar laws,
now or hereafter in effect affecting creditors' rights and remedies
(including such as may deny giving effect to waivers of debtor's
rights), (ii) as enforceability of any indemnification provision may
be limited under Federal and State laws, and (iii) that the remedy of
specific
7
performance and injunction and other forms of equitable relief
may be subject to the equitable defenses and to the discretion of the
courts before which any proceeding therefor may be brought (regardless
of whether such enforceability is considered a proceeding in equity or
in law).
2.9 Registration Rights of Third Parties. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options
or warrants of the Company exercisable for or convertible or exchangeable
into securities of the Company have the right to require the Company to
register any such securities of the Company under the Act or to include any
such securities in a registration statement to be filed by the Company
except as set forth in the letter of intent dated September 16, 1996
between the Company and the Underwriter.
2.10 Validity and Binding Effect of Agreements. This Agreement, the
employment agreements with each of ▇▇▇▇ ▇. ▇▇▇ ("Lew") and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
("Honigsfeld") ("Employment Agreements"), and the Underwriter's Warrant
have been duly and validly authorized by the Company and constitute, or
when executed and delivered will constitute, the valid and binding
agreements of each of the Company, Lew and Honigsfeld, as the case may be,
enforceable against each of them in accordance with their respective terms,
except (i) such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, marshaling and/or similar laws, now
or hereafter in effect affecting creditors' rights and remedies (including
such as may deny giving effect to waivers of debtor's rights), (ii) as
enforceability of any indemnification provision may be limited under
Federal and State laws, and (iii) that the remedy of specific performance
and injunction and other forms of equitable relief may be subject to the
equitable defenses and to the discretion of the courts before which any
proceeding therefor may be brought (regardless of whether such
enforceability is considered a proceeding in equity or in law).
2.11 No Conflicts, Etc. The execution, delivery, and performance by
the Company of this Agreement, the consummation by the Company of the
transactions herein contemplated and the compliance by the Company with the
terms hereof do not and will not, with or without the giving of notice or
the lapse of time or both, (i) result in a breach of, or conflict with any
of the terms and provisions of, or constitute a default under, or result in
the creation, modification, termination or imposition of any lien, charge
or encumbrance upon any of its property or assets pursuant to the terms of
any indenture, mortgage, deed of trust, note, loan or credit agreement or
any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which it is a party or by
which it may be bound or to which any of its property or assets is subject;
(ii) result in any violation of the provisions of its Certificate of
Incorporation or By-Laws; and (iii) violate any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or
8
court, domestic or foreign, having jurisdiction over it or its
operations or any of its properties or business; or (iv) have a material
adverse effect on any permit, license, certificate, registration, approval,
consent, license or franchise concerning it or its operations; except in
the case of (i) or (iii), where such default, breach, violation or effect,
either singly or in the aggregate, would not have a material adverse effect
on its financial condition or results of operations.
2.12 No Defaults: Violations. Except as described in the Prospectus,
no default exists in the due performance and observance of any term,
covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other material agreement or instrument to which the Company, or any of its
subsidiaries, if any, is a party or by which the Company may be bound or to
which any of the properties or assets of the Company is subject, except in
each case where such default would not have a material adverse effect on
the Company's financial condition or results of operations. Neither the
Company nor any of its subsidiaries, if any, is in violation of any term or
provision of its Certificate Incorporation or By-Laws or in violation of
any franchise, license, permit, applicable law, rule, regulation, judgment
or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or its operations, properties or business, except as
described in the Prospectus and except where such violation would not have
a material adverse effect on its financial condition, results of
operations, business, prospect or properties.
2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all requisite
corporate power and authority, and has all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Prospectus,
and is and has been doing business in compliance with all such
material authorizations, approvals, orders licenses, certificates and
permits and all federal, state and local laws, rules and regulations,
except where failure to so comply would not have a material adverse
effect on the condition (financial or otherwise), business prospect or
properties of the Company.
2.13.2 Transactions Contemplated Herein. The Company has all
corporate power and authority to enter into this Agreement and to
carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith
have been obtained. No consent, authorization or order of, and no
filing with, any court, government agency or other body is required
for the valid issuance, sale and delivery of the Securities pursuant
to this Agreement, the warrant Agreement and the Underwriter's
Purchase Options,
9
and as contemplated by the Prospectus, except with respect to
applicable federal and state securities laws.
2.14 Title to property: Insurance. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
and personal property (tangible and intangible) owned or leased by it,
respectively free and clear of all liens, encumbrances, Claims security
interests, defects and restrictions of any material nature whatsoever,
other than those referred to in the Prospectus, liens for taxes not yet due
and payable and liens of an immaterial nature arising by operation of law.
The Company has insured its properties against loss or damage by fire,
other casualty and other insurance in amounts and on terms as is usually
maintained by similarly situated companies engaged in the same or similar
business.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or
business of the Company which might materially and adversely affect the
financial position, prospects, value or the operation of the properties or
the business of the Company or which question the validity of the capital
stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement.
There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company, to take, any action, or to
which the Company, or its respective properties or business, is bound or
subject.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of its
state of incorporation. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, except where the failure to
qualify would not have a material adverse effect on its financial condition
or results of operations.
2.17 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or
has duly obtained extensions of time for the filing thereof. The Company
has paid all taxes (as hereinafter defined) shown as due on such returns
that were filed and has paid all taxes imposed on or assessed against it,
other than any which the Company is contesting in good faith. The
provisions for taxes payable, if any, shown on the financial statements
filed with, or as part of the Registration Statement are sufficient for all
accrued and unpaid taxes, whether or not disputed, and for all periods to
and including the dates of such consolidated financial statements.
10
Except as disclosed in writing to the Underwriter, (i) no issues have
been raised (and are currently pending) by any taxing authority in
connection with any of the returns or taxes asserted as due from the
Company, and (ii) no waivers of statutes of limitation with respect to the
returns or collection of taxes have been given by or requested from the
Company. The term "taxes" mean all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments, or charges of any kind whatever, together with any interest
and any penalties, additions to tax, or additional amounts with respect
thereto. The term "returns" means all returns, declarations, reports,
statements, and other documents required to be filed in respect of taxes.
2.18 Employee Options. No shares of Common Stock are eligible for sale
pursuant to Rule 701 promulgated under the Act in the 12-month period
following the Effective Date.
2.19 Transactions Affecting Disclosure to NASD.
2.19.1 Finder's Fees. 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 any other arrangements, agreements, understandings,
payments or issuance with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association
of Securities Dealers, Inc. ("NASD"), other than payments or future
payments to the Underwriter, as a placement agent fee with respect to
the Company's private placement of promissory notes in the aggregate
principal amount of $770,000.00 and 431,200.00 Common Stock Purchase
Warrants (the "Bridge Warrants") which closed on October 28, 1996.
2.19.2 Payments Within Twelve Months. Except as set forth in the
Registration Statement, the Company has not made any direct or
indirect payments (in cash, securities or otherwise) to (i) any
person, as a finder's fee, investing fee or otherwise, in
consideration of such person raising capital for the Company or
introducing to the Company persons who provided capital to the
Company, (ii) to any NASD member, or (iii) to any person or entity
that has any direct or indirect affiliation or association with any
NASD member, within the twelve month period prior to the date on which
the Registration Statement was filed with the Commission ("Filing
Date") or thereafter, other than payments to the Underwriter.
2.19.3 Use of Proceeds. None of the net proceeds of the offering
will be paid by the Company to any NASD member or any affiliate or
associate of any NASD member, except as specifically authorized
herein.
11
2.19.4 Insiders' NASD Affiliation. No officer or director of the
Company or holder of five percent (5%) or more of any class of the
Company's securities has any direct or indirect affiliation or
association with any NASD member. The Company will advise the
Underwriter and the NASD if any 5% or greater stockholder of the
Company is or becomes an affiliate or associated person of an NASD
member participating in the distribution.
2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
subsidiaries, officers, directors, 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 or instrumentality of any
government (domestic or foreign) or any political party or candidate for
office (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 it in connection
with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have a
materially adverse effect on the assets, business or operations of the
Company as reflected in any of the financial statements contained in the
Prospectus 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 and procedures are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
2.21 Nasdaq Eligibility. As of the Effective Date, the Public
Securities have been approved for quotation on The Nasdaq SmallCap Market.
2.22 Intangibles. The Company owns or possesses the requisite licenses
or rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights (collectively,
"Intangibles") described as being licensed to, or owned by, it in the
Registration Statement. The Intangibles which have been registered by the
Company, if any, in the United States Patent and Trademark Office have been
fully maintained and are in full force and effect. There is no claim or
action by any person pertaining to, or proceeding pending or threatened and
the Company has not received any notice
12
of conflict with the asserted rights of others which challenges its exclusive
right with respect to any Intangibles used in the conduct of its business except
as described in the Prospectus. To the Company's knowledge, the Intangibles and
the Company's current products, services and processes do not infringe on any
intangibles held by any third party. To the Company's knowledge, no others have
infringed upon the Intangibles of the Company.
2.23 Relations with Employees.
2.23.1 Employee Matters. The Company is in compliance in all
material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment
practices, terms and conditions of employment and wages and hours
relating thereto. There are no pending investigations involving the
Company by the U.S. Department of Labor or any other governmental
agency responsible for the enforcement of such federal, state or local
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, showdown
or stoppage pending or threatened against or involving the Company or
any predecessor entity, and none has ever occurred. No question
concerning representation 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, if any, of the Company.
2.23.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement, the Company does not maintain, sponsor or
contribute to, or is it required to contribute to, any program or
arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan," or a, "multi-employer plan" as such terms are
defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company has not, at any time, maintained or
contributed to a defined benefit plan, as defined in Section 3(35) of
ERISA. If the Company does maintain or contribute to a defined benefit
plan, any termination of the plan on the date hereof would not give
rise to liability under Title IV of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in any prohibited transactions within
the meaning of Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended ("Code"), which could subject the
Company to
13
any tax penalty for prohibited transactions and which has not
adequately been corrected. Any ERISA Plan 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 Revenue Service with respect to
each ERISA 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 "multi-employer plan."
2.24 Officers' Certificate. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to your counsel
shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
2.25 [Reserved]
2.26 Agreements With Insiders and Others. The Company has caused to be
duly executed lock-up agreements, in substantially the form provided by the
Underwriter, pursuant to which (i) all of the officers and directors of the
Company agree not to sell any shares of Common Stock for twelve (12) months
following the Effective Date of the Registration Statement, except with
respect to shares of Common Stock underlying Bridge Warrants,(ii) certain
persons who beneficially own or hold five percent (5%) or more of the
outstanding Common Stock of the Company agree not to sell any shares of
Common Stock owned by them or their family members and affiliates (either
pursuant to Rule 144 of the Regulations or otherwise) for a period of
twelve (12) months following the Effective Date, except with respect to
shares of Common Stock underlying Bridge Warrants, and (iii) all persons
(including persons who own Bridge Warrants who are covered by subsections
(i) and (ii) of this Section 2.26) who beneficially own or hold Bridge
Warrants to purchase shares of Common Stock agree not to sell any shares of
Common Stock underlying the Bridge Warrants owned by them or their family
members and affiliates (either pursuant to Rule 144 of the Regulations or
otherwise) for a period of twenty-four (24) months following the Effective
Date.
2.27 Employment Agreements. The Company has entered into an Employment
Agreement with each of Messrs. Lew and Honigsfeld in substantially the same
form as set forth in an exhibit to the Registration Statement, for a term
of three (3) years commencing on the Effective Date.
14
2.28 [Reserved]
2.29 Sale, Disposal or Conversion of Securities. For the twelve (12)
month period commencing on the Effective Date, the Company will not sell or
otherwise dispose of any equity securities or securities convertible into,
or exchangeable or exercisable for, equity securities of the Company,
except for (i) the issuance of stock options, or shares of Common Stock
issuable upon the exercise thereof, which have been or may be granted up to
an aggregate of 1,100,000 shares of Common Stock, (ii) the issuance of
Public Securities, (iii) shares of Common Stock issuable directly, or
indirectly, upon the exercise of the Underwriter's Warrants, (iv) the
issuance of common or preferred securities in connection with a merger or
acquisition by the Company, (v) issuance of shares upon exercise of the
Bridge Warrants, (vi) the issuance of common or preferred securities in
connection with the establishment of any joint venture relationship with a
third party to manufacture products or develop products or technology, and
(vii) the issuance of common or preferred securities to raise capital
specifically for the manufacture of products or the development of products
or technology of Common Stock upon the exercise of the Bridge Warrants,
issuances for purposes described in subsections (vi) and (vii) shall be
withheld.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver to
the Underwriter, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the
Effective Date and not file any such amendment or supplement to which the
Underwriter shall reasonably object.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus is required
to be delivered under the Act, the Company will use all reasonable
efforts to comply with all requirements imposed upon it by the Act,
the Regulations and the Exchange Act and by the regulations under the
Exchange Act, as from time to time in force, in accordance with the
provisions hereof and the Prospectus which requires the Company to
keep the Registration Statement effective until the Termination Date.
If at any time when a Prospectus or a Warrant Exercise Prospectus
relating to the Public Securities or the Underwriter's Securities is
required to be
15
delivered under the Act and, in any event, until the Termination
Date, any event shall have occurred as a result of which, in the
feasible opinion of counsel for the Company or counsel for the
Underwriter, such Prospectus, as then amended or supplemented,
includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or 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, subject
to Section 3.1 hereof, an appropriate amendment or supplement in
accordance with Section 10 of the Act.
3.2.2 [Reserved]
3.2.3 Exchange Act Registration. For a period of five (5) years
from the Effective Date, the Company will use its best efforts to
maintain the registration of the Common Stock and the Warrants under
the provisions of the Exchange Act.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
cooperation with the Underwriter, at or prior to the time the Registration
Statement becomes effective, to qualify the Public Securities and the
Underwriter's Securities for offering and sale under the securities laws of
such jurisdictions as the Underwriter may reasonably designate, provided
that no such qualification shall be required in any jurisdiction where, as
a result thereof, the Company would be subject to service of general
process or to taxation as a foreign corporation doing business in 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 report at such times as are or may be
required by the laws of such jurisdiction.
3.4 Delivery to Underwriter of Prospectuses. The Company will deliver
such number of Prospectuses to the Underwriter as reasonably needed,
without charge, from time to time, during the period when such prospectuses
are required to be delivered under the Act. Additionally, the Company will
deliver, as soon as the Registration Statement or any amendment or
supplement thereto becomes effective, two original executed Registration
Statements, including exhibits, and all post-effective amendments thereto
and copies of all exhibits file therewith or incorporated therein by
16
reference and all original executed consents of certified experts.
3.5 Events Requiring Notice to Underwriter. The Company will notify
the Underwriter immediately and confirm the notice in writing (i) filing of
any post-effective amendment or supplement to the Registration Statement or
Prospectus, (ii) of the issuance by the Commission of any stop order or of
the initiation, or the threatening, of any proceeding for that purpose,
(iii) of the issuance by any state securities commission of any proceedings
for the suspension of the qualification of the Public Securities for
offering of sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments or request for any additional information from the Commission and
the Company's response thereto, if any, and (v) of the happening of any
event during the period described in Section 3.4 hereof which, in the
judgment of the Company, makes any statement of a material fact made in the
Registration Statement or the Prospectus untrue or which requires the
making of any changes in the Prospectus in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or which requires the making of any changes in the Registration
Statement in order to make the statements therein not misleading. If the
Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every
reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from
the Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to review (but not audit)
the Company's financial statements for each of the first three fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's Form 10-Q quarterly report and the mailing of
quarterly financial information to stockholders.
3.7 Unaudited Financials. The Company will furnish to the Underwriter
as early as practicable subsequent to the date hereof and at least two full
business days prior to the Closing Date, a copy of the latest available
unaudited interim financial statements ("Unaudited Financials") of the
Company (which in no event shall be as of a date more than thirty days
prior to the Effective Date) which have been read by the Company's
independent accountants, as stated in their letter to be furnished pursuant
to Section 4.3 hereof.
17
3.8 Secondary Market Trading, ▇▇▇▇▇'▇ OTC Industrial Manual and
Standard & Poor's. The Company will use its best efforts and take all
necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions or ▇▇▇▇▇'▇
OTC Industrial Manual within ten (10) days after the Effective Date, and to
maintain such publication with updated quarterly information for a period
of five years from the Effective Date, including the payment of any
necessary fees and expenses. This obligation shall exist only so long as
the Company qualifies for such listing and shall be at the reasonable
discretion of the Underwriter. The Company shall take such action as may be
reasonably requested by the Underwriter to obtain a secondary market
trading exemption in such States as may be requested by the Underwriter,
including the payment of any necessary fees and expenses.
3.9 [Reserved]
3.10 [Reserved]
3.11 [Reserved]
3.12 Reports to the Underwriter.
3.12.1 Periodic Reports, Etc. For a period of five years from the
Effective Date, the Company will furnish to the Underwriter copies of
such financial statements and other periodic and special reports as
the Company from time to time furnishes generally to holders of any
class of its securities, and promptly furnish to the Underwriter (i) a
copy of each periodic report to the Company shall be required to file
with the Commission, (ii) a copy of every press release released by
the Company, (iii) copies of each Form SR, (iv) a copy of each Form
8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the
Company, and (v) such additional documents and information with
respect to the Company and the affairs of any future subsidiaries of
the Company, which may be properly disclosed to the Underwriter, as
the Underwriter may from time to time, reasonably request.
3.12.2 [Reserved]
3.13 [Reserved]
3.14 Application of Net Proceeds. The Company will apply
18
the net proceeds from the offering received by it in a manner
consistent with the application described under the caption "USE OF
PROCEEDS" in the Prospectus.
3.15 Payment of Expenses.
3.15.1 General Expenses. The Company hereby agrees to pay on each
of the Closing Date and the Option Closing Date, if any, to the extent
not paid at Closing Date, all expenses incident to the performance of
the obligations of the Company under this Agreement, including but not
limited to (i) the preparation, printing, filing, delivery and mailing
(including the payment of postage with respect to such mailing) of the
Registration Statement, the Prospectus and the Preliminary
Prospectuses and the printing and mailing of this Agreement and
related documents, including the cost of all copies thereof and any
amendments thereof or supplements thereto supplied to the Underwriter
in quantities as may be required by the Underwriter, (ii) the
printing, engraving, issuance and delivery of the shares of Common
Stock and the Underwriter's Warrants, including any transfer or other
taxes payable thereon, (iii) the qualification of the Public
Securities and Bridge Securities under state or foreign securities or
Blue Sky laws, including the filing fees under such Blue Sky laws the
costs of printing and mailing the "Preliminary Blue Sky Memorandum,"
and all amendments and supplements thereto, fees of Underwriter's Blue
Sky counsel, which fees shall not exceed an aggregate of $25,000.00
($10,000.00 of which has already been paid) and disbursements of such
counsel, and fees and disbursements of local counsel, if any, retained
for such purpose and approved by the Company, (iv) costs associated
with applications for assignments of a rating of the Public Securities
by qualified rating agencies, (v) filing fees, costs and expenses
(including fees and disbursements for the Underwriter's counsel)
incurred in registering the offering with the NASD, (vi) costs not to
exceed, in the aggregate, $10,000 for placing "tombstone"
advertisements in The Wall Street Journal, the Northeast editions of
The New York Times, or the Investment Dealer Digest, (vii) fees and
disbursements of the transfer and warrant agent, (viii) the Company's
expenses associated with "due diligence" meetings arranged by the
Underwriter, (ix) the preparation, binding and delivery of four sets
of transactions "bibles," in form and style satisfactory to the
Underwriter, (x) any listing of the Public Securities on the Nasdaq
SmallCap Market, or any listing in Standard & Poor's Corporation
Records or ▇▇▇▇▇'▇ OTC Industrial Manual, and (xi) all other costs and
expenses incident to the performance of its obligations hereunder
which are
19
not otherwise specifically provided for in this Section 3.15.1.
Since an important part of the public offering process is for the
Company to appropriately and accurately describe both the background
of the principals of the Company and the Company's competitive
position in its industry, the Company will engage as reasonably
requested by the Underwriter, and will pay for, an investigative
search firm of the Underwriter's choice to conduct an investigation of
principals of the Company mutually selected by the Underwriter and the
Company (this amount will be credited against the Underwriter's
non-accountable expense allowance if the offering is consummated as
provided herein). The Underwriter may deduct from the net proceeds of
the Public Offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein to be paid
by the Company to the Underwriter and/or to third parties, only to the
extent such deduction does not conflict with the description or "Use
of Proceeds" in the Registration Statement and Prospectus.
3.15.2 Non-Accountable Expenses. The Company further agrees
that, in addition to the expenses payable pursuant to Section
3.15.1, it will pay to the Underwriter a non-accountable expense
allowance equal to three (3%) percent of the gross proceeds
received by the Company from the sale of the Public Securities,
of which $50,000.00 has been paid to date, and the Company will
pay the balance on the Closing Date and any additional monies
owed attributable to the Option Securities or otherwise on the
Option Closing Date by certified or bank cashier's check or, at
the election of the Underwriters by deduction from the proceeds
of the offering contemplated herein. If the offering contemplated
by this Agreement is not consummated for any reason whatsoever
then the Company's liability for payment to the Underwriter of
the non-accountable expense allowance shall be equal to the sum
of the Underwriter's actual out-of-pocket expenses (including,
but not limited to, counsel fees, "roadshow" and due diligence
expenses). The Underwriter shall retain such part of the
non-accountable expense allowance previously paid as shall equal
its actual out-of-pocket expenses. If the amount previously paid
is insufficient to cover such actual out-of-pocket expenses, the
Company shall remain liable for and promptly pay any other actual
out-of-pocket expenses. If the amount previously paid exceeds the
amount of the actual out-of-pocket expenses, the Underwriter
shall promptly remit to the Company any such excess.
3.16 Financial Consulting Agreement. At the closing of the Public
Offering, the Company shall engage the Underwriter as
20
its non-exclusive financial consultant pursuant to a Financial
Consulting Agreement for a period of three (3) years following the date of
Closing, providing for a monthly consulting fee of $3,000 with the payment
of the aggregate of said monthly fees in the amount of $108,000 to be paid
at the closing of the Public Offering.
3.17 Non-exclusive Merger and Acquisition Agreement. At the Close of
the Public Offering, the Company shall enter into a non-exclusive merger
and acquisition agreement with the Underwriter, compensating the
Underwriter at the rate of 5% for the first $1,000,000, 4% of the next
$1,000,000, 3% of the next $1,000,000, and 2% thereafter, of the value of
any transaction that was introduced by the Underwriter to the Company, and
consummated by the Company and such introduced party, in connection with
any merger, acquisition, business combination or like transaction. Such fee
shall be payable in cash at the Closing of said transaction.
3.18 Stabilization. Neither the Company, nor, to its knowledge, any of
its employees, directors or stockholders has taken or will take, directly
or indirectly, any action designed to or which has constituted or which
might reasonably 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 Public Securities.
3.19 Internal Controls. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance
with management's general or specific authorization, (ii) transactions are
recorded as necessary in order to permit preparation of financial
statements in accordance with generally accepted accounting principles and
to maintain accountability for assets, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
3.20 Printer. The Company agrees to use a printer for the printing of
the Preliminary Prospectus and Prospectus with an office located in New
York which is reasonably acceptable to the Underwriter.
21
3.21 Transfer Agent. The Company shall retain American Stock Transfer
Company as its transfer agent for the Common Stock. For a period of five
years following the Effective Date, the Company will not switch transfer
agents without the Underwriter's consent, which shall not be unreasonably
withheld.
3.22 Sale of Securities. To the extent that the Company is legally
permitted to do so, it shall not permit or cause a private or public sale
or private or public offering of any of its securities (in any manner,
including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the officers, directors and shareholders owning
beneficially more than one (1%) percent of the outstanding shares of Common
Stock of the company (the Insiders) if such offering or sale would be in
violation of the Insider's "lockup" agreement with the Underwriter.
3.23 DTC Securities Position Reports. For a period of five (5) years,
the Company, at its expense, shall provide the Underwriter with copies of
the Company's DTC Securities Position Reports on a monthly basis, if
requested by the Underwriter to do so.
3.24 Public Relations Firm. The Company agrees if requested that they
will engage a public relations firm reasonably acceptable to the
Underwriter and the Company for a minimum of 12 months from the Effective
Date.
3.25 CUSIP Numbers. The Company shall obtain CUSIP numbers for the
Public Securities as promptly as practicable after the initial filing of
the Registration Statement with the Commission.
4. Conditions of Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Securities, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date and the Option
Closing Date, if any, to the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof, and to the performance by the
Company of its obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement.
22
The Registration Statement shall have become effective not later
than 5:00 P.M., New York time, on the next day following the date of
this Agreement, or such other time and date, not later than 5:00 p.m.
New York City time, on the seventh (7th) day thereafter, as may be
approved by you, and such Registration Statement shall be effective at
each of the Closing Date and the Option Closing Date, and 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 at
the Closing Date and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Blodnick, Blodnick & ▇▇▇▇▇, P.C., counsel to the
Underwriter.
4.1.2 NASD Clearance. By the Closing Date, the Underwriter shall
have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriter as described in the
Registration Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of
the Securities in any jurisdiction designated by you pursuant to
Section 3.3 hereof shall have been issued either on the Closing Date
or the Option Closing Date, and no proceedings for that purpose shall
have been instituted or shall be contemplated.
4.1.4 NASDAQ SmallCap Market; Other Markets. The Company will
apply to include the Public Securities for quotation on the Nasdaq
SmallCap Market and other such markets as the Underwriter shall
reasonably request, including, without limitation, the Boston Stock
Exchange, the Chicago Stock Exchange, and the Pacific Stock Exchange,
as soon as reasonably practicable following the filing of the
registration statement relating to the Public Offering with the
Commission.
4.2 Company Counsel Matters.
4.2.1 Opinion of Counsel. On the Closing Date, the Underwriter
shall have received the favorable opinion of Certilman Balin ▇▇▇▇▇ &
▇▇▇▇▇, LLP, counsel to the Company, dated the Closing Date, addressed
to the Underwriter, and in form and substance satisfactory to
Blodnick, Blodnick & ▇▇▇▇▇, P.C., counsel to the Underwriter, to the
effect that:
(i) The Company has been duly organized and
23
is validly existing as a corporation and is in good
standing under the laws of its state of incorporation and to
such counsel's knowledge, is duly qualified and licensed and
in good standing as a foreign corporation in New York, which
to the knowledge of such counsel is the only jurisdiction in
which it owns or leases any real property or the character
of its operations requires such qualification or licensing,
except where the failure to qualify would not have a
material adverse effect on its financial condition or
results of operations.
(ii) The Company has all requisite corporate power and
authority, to own or lease its properties and conduct its
business as described in the Prospectus. The Company has all
corporate power and authority to enter into this Agreement
and to carry out the provisions and conditions hereof, and
to such counsel's knowledge, all consents, authorizations,
approvals and orders hereof required in connection with the
execution and delivery of, and entry into, this Agreement
have been obtained. To such counsel's knowledge, no
consents, approvals, authorizations or orders of, and no
filing with any court or governmental agency or body (other
than such as may be required under the Act and applicable
Blue Sky laws), is required for the valid authorization,
issuance, sale and delivery of the Securities and the
consummation of the transactions and agreements contemplated
by this Agreement, the Underwriter's Warrant, and as
contemplated by the Prospectus, other than all such
authorizations, approvals, consents, orders, registrations,
licenses and permits which have been duly obtained and are
in full force and effect and have been disclosed to the
Underwriter, other than the continuing effectiveness of the
Registration Statement [and the delivery of the Warrant
Exercise Prospectus].
(iii) All issued and outstanding securities of the
Company have been duly authorized and validly issued and are
fully paid and non-assessable; and to such counsel's
knowledge none of such securities were 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 outstanding options and warrants to purchase
shares of Common Stock constitute the valid and binding
obligations of the Company, enforceable in accordance with
their terms, except (i) such enforceability may be limited
by bankruptcy, insolvency, reorganization, fraudulent
conveyance, marshaling and/or similar laws, now or hereafter
in effect affecting creditors' rights and remedies
(including such as may deny giving effect to waivers of
debtor's rights), (ii) as
24
enforceability of any indemnification provision may be
limited under Federal and State laws, and (iii) that the
remedy of specific performance and injunction and other
forms of equitable relief may be subject to the equitable
defenses and to the discretion of the courts before which
any proceeding therefor may be brought (regardless of
whether such enforceability is considered a proceeding in
equity or in law). The authorized and outstanding capital
stock of the Company is as set forth under the caption
"Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when
issued and paid for, will be validly issued, fully paid and
non-assessable. The Securities are not, and will not, be
subject to the preemptive rights of any holders of any
security of the Company or, to such counsel's knowledge,
similar contractual rights granted by the Company. All
corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and
validly taken. When issued, the Underwriter's Warrants will
constitute valid and binding obligations of the Company to
issue and sell, upon exercise thereof and payment therefor,
the number of shares of Common Stock of the Company called
for thereby and such and the Underwriter's Warrants, when
issued, in each case, will be enforceable against the
Company in accordance with their respective terms, except
(i) such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance,
marshaling and/or similar laws, now or hereafter in effect
affecting creditors' rights and remedies and (including such
as may deny giving effect to waivers of debtor's rights),
(ii) as enforceability of any indemnification provision may
be limited under Federal and State laws, and (iii) that the
remedy of specific performance and injunction and other
forms of equitable relief may be subject to the equitable
defenses and to the discretion of the courts before which
any proceeding therefor may be brought (regardless of
whether such enforceability is considered a proceeding in
equity or in law). The certificates representing the
Securities are in due and proper form.
(v) To such counsel's knowledge, except as set forth in
the Prospectus, no holders of any securities of the Company
or of any options, warrants or securities of the Company
exercisable for or convertible or exchangeable into
securities of the Company have the right to require the
Company to register any such securities of the Company under
the Act or to include any such securities in a registration
statement to be filed by the Company.
25
(vi) To such counsel's knowledge, there is no claim or
action by any person pertaining to, or proceeding, pending
or to such counsel's knowledge threatened, which challenges
the exclusive rights of the Company with respect to any
Intangibles used in the conduct of its business (including,
without limitation, any such licenses or rights described in
the Prospectus as being owned or possessed by the Company);
and to such counsel's knowledge, the Company's current
products, services and processes do not infringe on any
intangibles held by third parties.
(vii) This Agreement and the Underwriter's Warrant have
each been duly and validly authorized and, when executed and
delivered by the Company, will constitute valid and binding
obligations of the Company, enforceable against the Company
in accordance with their respective terms, except (i) such
enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, marshaling and/or
similar laws, now or hereafter in effect affecting
creditors' rights and remedies and (including such as may
deny giving effect to waivers of debtor's rights), (ii) as
enforceability of any indemnification provision may be
limited under Federal and State laws, and (iii) that the
remedy of specific performance and injunction and other
forms of equitable relief may be subject to the equitable
defenses and to the discretion of the courts before which
any proceeding therefor may be brought (regardless of
whether such enforceability is considered a proceeding in
equity or in law).
(viii) The execution, delivery and performance by the
Company of this Agreement, and the Underwriter's Warrant
Agreement, the issuance and sale of the Securities, the
consummation of the transactions contemplated hereby and
thereby and the compliance by the Company with the terms and
provisions hereof and thereof, do not and will not, with or
without the giving of notice or the lapse of time, or both,
(a) to such counsel's knowledge, conflict with, or result in
a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or
modification of any lien, security interest, charge or
encumbrance upon any of the properties or assets of any of
the Company pursuant to the terms of, any material mortgage,
deed of trust, note, indenture, loan, contract, commitment
or other material agreement or instrument, to which it is a
party or by which it or any of its properties or assets may
be bound, (b) result in any violation of the provisions of
the Company's Certificate of Incorporation or By-Laws, (c)
to such counsel's
26
knowledge, violate any statute or any material
judgment, order or decree, rule or regulation applicable to
the Company of any court, domestic or foreign, or of any
federal, state or other regulatory authority or other
governmental body having jurisdiction over any of the
Company's or its properties or assets, which might result in
any material and adverse change in the condition (financial
or otherwise), business prospects or properties of the
Company, or might materially affect the properties or assets
thereof, or (d) to such counsel's knowledge, have a material
adverse effect on any material permit, certification,
registration, approval, consent, license or franchise of the
Company.
(ix) The Registration Statement and the Prospectus and
any post-effective amendments or supplements thereto (other
than the financial statements, schedules and data included
therein, as to which no opinion need be rendered) comply as
to form in all material respects with the requirements of
the Act and Regulations. The Securities and all other
securities issued or issuable by the Company conform in all
material respects to the description thereof contained in
the Registration Statement and the Prospectus. The
descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government
classifications, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in
all material respects and present fairly the information
required to be disclosed with respect thereto. To such
counsel's knowledge, each statute or regulation or legal or
governmental proceeding required to be described in the
Prospectus is not described as required, and all contracts
or documents known to counsel, of a character required to be
described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement are so
described or filed as required.
(x) Counsel has participated in one or more personal or
telephonic conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company and
representatives of the Underwriter at which the contents of
the Registration Statement, the Prospectus and related
matters were discussed 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 Registration Statement and Prospectus
(except as otherwise set forth in this opinion), to such
counsel's knowledge, no facts have come to the attention of
such counsel which lead them to believe that either the
Registration Statement or any amendment
27
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
Registration Statement or Prospectus), and that on the
Closing Date, the Prospectus and any amendment or supplement
thereto contained any untrue statement or a material fact or
omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading.
(xi) The Registration Statement has become effective
under the Act, and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened
under the Act or applicable state securities laws.
(xii) DELETED
(xiii) Except as described in the Prospectus, to such
counsel's knowledge, no default exists in the due
performance and observance of any material term, covenant or
condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement
known to such counsel, or any other material agreement or
instrument evidencing an obligation for borrowed money known
to such counsel, 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 any of the properties or
assets of the Company is subject. To such counsel's
knowledge, the Company is not in violation of any term or
provision of its Certificate of Incorporation or By-Laws or
of any material term of any material franchise, license,
permit, applicable law, rule, regulation, judgment or decree
of any governmental agency or court, domestic or foreign,
having jurisdiction over it or any of its properties or
business, except as described in the Prospectus.
(xiv) To such counsel's knowledge, except as described
in the Prospectus, the Company does not own an interest in
any corporation, partnership, joint venture, trust or other
business entity.
(xv) To such counsel's knowledge, except as
28
set forth in the Prospectus, there is no action, suit
or proceeding before or by any court of governmental agency
or body, domestic or foreign, now pending, or threatened
against the Company, which might result in any material and
adverse change in the condition (financial or otherwise),
business or prospects of the Company, or might materially
and adversely affect the properties or assets thereof.
(xvi) To such counsel's knowledge, 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
arrangements or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD in
connection with the offer and sale of the Securities.
Unless the context clearly indicates otherwise, the term "Company" as used
in this Section 4.2.1 shall include each subsidiary, if any, of the Company. The
opinion of counsel for the Company and any opinion relied upon by such counsel
for the Company shall include a statement to the effect that it may be relied
upon by counsel for the Underwriter.
4.2.2 [Reserved]
4.2.3 Option Closing Date Opinion of Counsel. On any Option
Closing Date, the Underwriter shall have received the opinions of
Certilman, Balin, ▇▇▇▇▇ & ▇▇▇▇▇, LLP, counsel to the Company, dated
the Option Closing Date addressed to the Underwriter and in the form
and substance reasonably satisfactory to Blodnick, Blodnick & ▇▇▇▇▇,
P.C., counsel to the Underwriter, confirming as of the Option Closing
Date, the statements made by such counsel to the Company in their
opinion delivered on the Closing Date.
4.2.4 Reliance. In rendering such opinion, such counsel may rely
(i) 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 Opinions if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriter's counsel)
of other counsel reasonably acceptable to Underwriter's counsel,
familiar with the applicable laws, and (ii) as to matters of fact, to
the extent they deem proper, on
29
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 or certificates shall be
delivered to Underwriter's counsel if requested. The opinion of
counsel for the Company shall include a statement to the effect that
it may be relied upon by counsel for the Underwriter in its opinion
delivered to the Underwriter.
4.2.5 Secondary Market Trading Survey. On the Effective Date the
Underwriter shall have received the Secondary Market Trading Survey.
4.3 Cold Comfort Letter. At the time this Agreement is executed and at
each of the Closing Date and the Option Closing Date, if any, you shall
have received a letter, addressed to the Underwriter and in form and
substance satisfactory in all respects (including the non-material nature
of the changes or decreases, if any, referred to in clause (iii) below) to
you and to Blodnick, Blodnick & ▇▇▇▇▇, P.C., counsel for the Underwriter,
from ▇▇▇▇▇, ▇▇▇▇▇▇ & Company, LLP, dated as of the date of this Agreement
and as of the Closing Date and the Option Closing Date.
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Underwriter shall have received a
certificate of the Company signed by the Chairman of the Board or the
President, Principal Accounting Officer and the Secretary of the
Company, dated the Closing Date or the Option Closing Date, as the
case may be, respectively, to the effect that the Company has
performed or complied with all conditions by the Company prior to and
as of the Closing Date, or the Option Closing Date, as the case may
be, and that the conditions set forth in Section 4.5 hereof have been
satisfied as of such date and that, as of the Closing Date and the
Option Closing Date, as the case may be, the representations and
warranties of the Company set forth in Section 2 hereof are true and
correct in all material respects. In addition, the Underwriter will
have received a certificate signed by the Chairman of the Board of the
Company showing compliance in connection with information supplied to
state securities commissions.
4.4.2 Secretary's Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Underwriter
30
shall have received a certificate of the Company signed by the
Secretary of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, respectively, certifying (i) that the
By-Laws and Certificate of Incorporation of the Company are true and
complete, have not been modified and are in full force and effect,
(ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been
modified, (iii) all correspondence between the Company or its counsel
and the Commission, (iv) all correspondence between the Company or its
counsel and the NASD concerning inclusion on Nasdaq and (v) as to the
incumbency of the officers of the Company. The documents referred to
in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and
the Option Closing Date, if any, (i) there shall have been no Material
Adverse Change since the Effective Date, (ii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a material adverse effect on the
Company, (iii) 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, (iv) no action suit or proceeding, at law or in
equity, shall have been pending or threatened against the Company, or
affecting any of its property or business before or by any court or federal
or state commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect the
business, operations, prospects or financial condition or income of the
Company, except as set forth in the Registration Statement and Prospectus,
(v) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated or threatened by the Commission, and
(vi) the Registration Statement and the Prospectus and any amendments or
supplements thereto contain all material statements which are required to
be stated therein in accordance with the Act and the Regulations and
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto contains 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, in light of the
circumstances under which they were made, not misleading.
4.6 Delivery of Agreements. The Company has delivered to the
Underwriter executed copies of the Underwriter's Purchase Option.
31
4.7 Opinion of Counsel for Underwriter. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as
herein contemplated shall be reasonably satisfactory in form and substance
to you and to Blodnick, Blodnick & ▇▇▇▇▇, P.C., counsel to the Underwriter,
and you shall have received from such counsel a favorable opinion, dated
the Closing Date and the Option Closing Date, if any, with respect to such
of these proceedings as you may reasonably require. On or prior to the
Effective Date, the Closing Date and the Option Closing Date, as the case
may be, counsel for the Underwriter 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
this Section 4.7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
5. Conditions of Obligations of the Company. The Registration Statement
shall have become effective not later than 5:00 P.M., New York time, on the next
day following the date of this Agreement, or such other time and date, not later
than 5:00 p.m. New York City time, on the seventh (7th) day thereafter, as may
be approved by the Company, and such Registration Statement shall be effective
at each of the Closing Date and the Option Closing Date, and 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 at the Closing Date and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Certilman, Balin, ▇▇▇▇▇ & ▇▇▇▇▇,
LLP, counsel to the Company.
6. Underwriter's Representations and Warranties. The Underwriter Represents
and Warrants to the Company that:
6.1 Organization; Good Standing. The Underwriter has been duly
organized and is validly existing as a corporation and is in good standing
under the laws of its state of incorporation.
6.2 Corporate Power; Licenses; Consents. The Underwriter is registered
as a broker-dealer with the Securities and Exchange Commission and in each
state where such registration is required where the Underwriter acts as a
broker-dealer.
32
6.3 Litigation. Except as set forth in the Prospectus, there is no
action, suit, or proceeding against the Underwriter which will prevent the
Underwriter from completing all that is necessary to complete the
underwriting of the securities of the Company.
6.4 Binding Obligation; Enforceability. This Agreement and the
transactions contemplated hereby have been duly authorized by, and executed
on behalf of the Underwriter and constitute the valid and binding
obligations of the Underwriter, enforceable in accordance with its terms.
7. Indemnification.
7.1 Indemnification of Underwriter.
7.1.1 General. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriter, its
directors, officers, agents and employees and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all legal or other expenses
reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) to
which they or any of them 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 in (i) any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time each may be 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
Underwriter's Warrants; or (iii) any application or other document or
written communication (in this Section 6 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, Nasdaq or
any 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 in the light of
33
the circumstances under which they were made, not misleading, and
with respect to the Registration Statement and any amendment thereto,
as of the effective date thereof, unless such statement or omission
was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter
by or on behalf of the Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment or supplement thereof, or in any application, as the
case may be; provided, however, that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter from whom the person asserting such losses,
claims, damages or liabilities purchased Public Securities, or any
person controlling such Underwriter, if a copy of the Prospectus (as
then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the
sale of the Public Securities to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability. The Company agrees
promptly to notify the Underwriter of the commencement of any
litigation or proceedings against the Company or any of its officers,
directors or controlling persons in connection with the issue and sale
of the Securities or in connection with the Registration Statement or
Prospectus.
7.1.2 Procedure. If any action is brought against the Underwriter
or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, the Underwriter shall
promptly notify the Company in writing of the institution of such
action and the Company shall assume the defense of such action,
including the employment and fees of counsel (subject to the approval
of the Underwriter) and payment of actual expenses. The Underwriter or
controlling person 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 the Underwriter or such controlling person
unless (i) the employment of such counsel shall have been authorized
in writing by the Company in connection with the defense of such
action, or (ii) the Company shall not have employed counsel to have
charge of the defense of such 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 the Company (in which case the Company shall not
have the right to
34
direct the defense of such action on behalf of the indemnified
party or parties), in any of which events the fees and expenses of not
more than one additional firm of attorneys selected by the Underwriter
and controlling person, as a single group, shall be borne by the
Company. Notwithstanding anything to the contrary contained herein, if
the Underwriter or controlling person shall assume the defense of such
action as provided above, the Company shall have the right to approve
the terms of any settlement of such action which approval shall not be
unreasonably withheld.
7.2 Indemnification of the Company. The Underwriter agrees to
indemnify and hold harmless the Company, its directors, officers, agents,
employees and controlling persons against any and all loss, liability,
claim, damage and expense described in the foregoing indemnity from the
Company to the Underwriter, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions directly
relating to the transactions effected by the Underwriter in connection with
this offering, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto, or in any
application, in reliance upon, and in strict 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, the Registration Statement or Prospectus or any amendment or
supplement thereto or in any such application. In case any action shall be
brought against the Company or any other person so indemnified based on any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or an application, and in respect of which
indemnity may be sought against the Underwriter, the Underwriter shall have
the rights and duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given to the
Underwriter by the provisions of Section 6.1.2.
7.3 Contribution.
7.3.1 Contribution Rights. In order to provide for just and
equitable contribution under the Act in any case in which (i) any
person entitled to indemnification under this Section 6 makes claim
for indemnification pursuant hereto 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
35
the fact that this Section 6 provides for indemnification in such
case, or (ii) contribution under the Act, the Exchange Act or
otherwise may be required on the part of any such person in
circumstances for which indemnification is provided under this Section
6, then, and in each such case, the Company and the Underwriter shall
contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement
incurred by the Company and the Underwriter, and their respective
directors, officers, agents, employees and controlling persons as
incurred, in such proportions that the Underwriter is responsible for
that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the
initial offering price appearing thereon and the Company is
responsible for the balance; provided, that, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 6.3, the Underwriter shall not be required
to contribute any amount in excess of the amount by which the total
price at which the Public Securities underwritten by it and
distributed to the public were offered to the public exceeds the
amount of any damages which the Underwriter has otherwise been
required to pay in respect of such losses, liabilities, claims,
damages and expenses. For purposes of this Section, each director,
officer and employee of the Underwriter, and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act
shall have the same rights to contribution as the Underwriter.
7.3.2 Contribution Procedure. Within fifteen days after receipt
by any party to this Agreement (or its representative) of notice of
the commencement of any action, suit or proceeding, such party will,
if a claim for contribution in respect thereof is to be made against
another party ("contributing party"), notify the contributing party of
the commencement thereof, but the omission to so notify the
contributing party will not relieve it from any liability which it may
have to any other party other than for contribution hereunder. In case
any such action, suit or proceeding is brought against any party, and
such party notifies a contributing party or its representative of the
commencement thereof within the aforesaid fifteen days, the
contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified.
Any such contributing party shall not be liable to any
36
party seeking contribution on account of any settlement of any
claim, action or proceeding which was effected by such party without
the written consent of such contributing party. The contribution
provisions contained in this Section are intended to supersede, to the
extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available.
8. Additional Covenants.
8.1 Board Designee. For a period of three years from the Effective
Date, the Underwriter shall have the right to send a representative (who
need not be the same individual from meeting to meeting) to observe each
meeting of the Board of Directors. The Company agrees to give the
Underwriter written notice of each such meeting at the same time and in the
same manner as Directors of the Company are informed and to provide the
Underwriter with an agenda and minutes of the meeting no later than it
gives such notice and provides such items to the other directors. Such
observer will have the right to attend all meetings of the Board of
Directors, but shall have no voting rights. Such observer shall be entitled
to receive reimbursement for all reasonable out-of-pocket expenses incurred
in attending such meetings, including but not limited to food, lodging and
transportation.
8.2 [Reserved]
8.3 [Reserved]
8.4 Press Releases. The Company will not issue a press release or
engage in any other publicity until 25 days after the Effective Date
without the Underwriter's prior written consent.
8.5 Form S-8 or any Similar Form. The Company shall not file a
Registration Statement on Form S-8 (or any similar or successor form) for
the registration of shares of Common Stock underlying stock options for a
period of ________ year(s) from the Effective Date without the Underwriters
written consent.
8.6 [Reserved]
8.7 Compensation and Other Arrangements. The Company hereby agrees
that for a period of three years from the Effective
37
Date, all the compensation and other arrangements between the Company
and its officers, directors and affiliates shall be determined by a
compensation committee of the Company's Board of Directors, a majority of
whom are not employed by the Company.
9. Covenants of the Underwriter. The Underwriter, covenants and agrees with
the Company as follows:
9.1 Compliance with NASD Rules of Fair Practice. The Underwriter
hereby agrees to comply with the National Association of Securities Dealers
Regulation, Inc.'s Rules of Fair Practice.
9.2 Waiver of "Lock-Up". The Underwriter shall not consummate any
transactions with the Company's bridge lender described in the Prospectus,
or waive the "lock-up" applicable to such bridge lender's securities until
the Company has complied with its undertaking to the Registration Statement
to file "sticker" supplements to the Prospectus pursuant to rule 424(c) of
the Act, or to file a post-effective amendment to the Registration
Statement.
10. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date or the Option Closing Date and such
representations, warranties and agreements of the Underwriter and Company,
including the indemnity agreements contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, the Company or any controlling person, and
shall survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriter until the earlier of the expiration of any
applicable statute of limitations and the seventh anniversary of the later of
the Closing Date or the Option Closing Date, if any, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
11. Effective Date of This Agreement and Termination Thereof
11.1 Effective Date. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective. The time of the initial public offering of the Public
Securities, for the purpose of this Section 10 shall mean the time, after
the Registration Statement becomes
38
effective, of the release by you for publication of the first
newspaper advertisement which is subsequently published relating to the
Public Securities or the time, after the Registration Statement becomes
effective, when the Public Securities are first released by you for
offering to the pubic by the Underwriter or dealers by letter or telegram,
whichever shall first occur. You may prevent this Agreement from becoming
effective without liability to any other party, except as noted below, by
giving the notice indicated below in this Section 9 before the time this
Agreement becomes effective. The Underwriter agrees to give the Company
notice of the commencement of the offering described herein.
11.2 Termination.
11.2.1 By the Underwriter. The Underwriter shall have the right
to terminate this Agreement at any time prior to any Closing Date, (i)
if any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future
materially disrupt, general securities markets in the United States;
or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange or in the over-the-counter market shall have been suspended,
or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities 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 (iii) if the
United States shall have become involved in a war or material
hostilities, or (iv) if a banking moratorium has been declared by a
New York State or federal authority, or (v) if a moratorium on foreign
exchange trading has been declared which materially adversely impacts
the United States securities market, or (vi) if the Company shall have
sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which,
whether or not such loss shall have been injured, will, in your
opinion, make it inadvisable to proceed with the delivery of the
Securities, or (vii) if either Lew or Honigsfeld shall no longer serve
the Company in his present capacity, or (viii) if the Company has
materially breached any of its representations, warranties or
obligations hereunder, or (ix) if the Underwriter shall have become
aware after the date hereof of a Material Adverse Change, or such
adverse material change in general market conditions as in the
Underwriter's reasonable judgment would make it impracticable to
proceed with the offering, sale and/or delivery of the Securities or
to enforce contracts made by the Underwriter
39
for the sale of the Securities.
11.2.2 By the Company. The Company shall have the right to
terminate this Agreement as set forth in Section ___ (Conditions of
the Obligation of the Company) and (ii) in the event any action or
proceeding of the nature referred to in section [6].3 shall be
instituted against the Underwriter at any time prior to the Closing
Date hereunder, or in the event there shall be filed by or against the
Underwriter in any court pursuant to any federal, state, local or
municipal statute, a petition in bankruptcy or insolvency, or for
reorganization or for the appointment of a receiver or trustee of its
assets or if the Underwriter shall make an assignment for the benefit
of creditors, the Company shall have the right on three days notice to
the Underwriter to terminate this Agreement without any liability to
the Underwriter of any kind.
11.3 Notice. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11 the
Company shall be notified on the same day as such election is made by you
by telephone or telecopy, confirmed by letter.
11.4 Expenses. In the event that this Agreement shall not be carried
out for any reason, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay
the expenses related to the transactions contemplated herein shall be
governed by Section 3.15 hereof.
11.5 Indemnification. Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 shall not be in any way effected by such election
or termination or failure to carry out the terms of this Agreement or any
part hereof.
12. Miscellaneous.
12.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered
or telecopied and confirmed:
40
If to the Underwriter:
European Community Capital, Ltd.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to:
Blodnick, Blodnick & ▇▇▇▇▇, P.C.
Expressway ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax (▇▇▇) ▇▇▇-▇▇▇▇
41
If to the Company:
Compu-▇▇▇▇, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
Copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
-and-
Certilman Balin ▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
12.2 Headings. The headings contained herein are for the sole purpose
of convenience of reference and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this
Agreement.
12.3 Amendment. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
12.4 Entire Agreement. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with
this Agreement) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersede all prior agreements
and understandings of the parties, oral and written, with respect to the
subject matter hereof.
12.5 Binding Effect. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriter, the Company and the
controlling persons, directors and officers referred to in Section 6
hereof, and their respective successors, legal epresentatives and assigns,
and no other person shall have or be construed to have nay legal or
equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provisions herein contained.
12.6 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the law of the
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇, without giving effect to conflicts of law,
principles of such state. The Company hereby agrees that any action,
proceeding or claim against it arising out of, relating in any way to this
Agreement shall be brought and enforced in the courts of the State of New
York, New York County or the Federal District Court of the United States of
America for the Southern District of New York, and irrevocably submits to
such jurisdictions, which jurisdictions shall be exclusive. The Company
hereby waives any objection to such exclusive jurisdiction and that such
courts represent an inconvenient forum. Any such process or summons to be
served upon the Company or the Underwriter may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 10
hereof. Such mailing shall be deemed personal service and shall be legal
and binding upon the Company or the Underwriter, as the case may be, in any
action, proceeding or claim. The Company and the Underwriter agree that the
prevailing party(ies) in any such action shall be entitled to recover from
the other party(ies) all of its reasonable attorneys' fees and expenses
relating to such action or proceeding and/or incurred in connection with
the preparation therefor.
12.7 Execution in Counterparts; Facsimile Signatures. This Agreement
may be executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has
been signed by each of the parties hereto and delivered to each of the
other parties hereto. Facsimile signatures hereon shall be deemed to be
original signatures.
12.8 Waiver. Etc. The failure of any of the parties hereto to at any
time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way effect
the validity of this Agreement or any provision hereof or the right of any
of the parties hereto to thereafter enforce each and every provision of
this Agreement. No wavier of any breach, non-compliance or non-fulfillment
of any of the provisions of this Agreement shall be effective unless set
forth in a written instrument executed by the party or parties against whom
or which enforcement of such waiver is sought and no waiver of any such
breach, non-compliance or non-fulfillment shall be construed or deemed to
be a waiver of any other or subsequent breach, non-compliance or
non-fulfillment.
43
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
COMPU-▇▇▇▇, INC.
By: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer
Accepted as of the date first above written.
Mineola, New York
E.C. CAPITAL, LTD
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President
44
