UNDERWRITING AGREEMENT
among
PURO WATER GROUP, INC.
▇▇▇▇▇▇▇ EQUITIES, INC.
and
GILFORD SECURITIES INCORPORATED
Dated: January , 1997
TABLE OF CONTENTS
Page
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1. Purchase and Sale of Securities.......................................... 1
1.1 Firm Shares.................................................... 1
1.1.1 Purchase of Firm Shares........................................ 1
1.1.2 Delivery and Payment........................................... 1
1.2 Overallotment Option........................................... 2
1.2.1 Grant of Option................................................ 2
1.2.2 Exercise of Option............................................. 2
1.2.3 Delivery and Payment........................................... 2
1.3 Underwriter's Warrants......................................... 3
1.3.1 Purchase and Sale.............................................. 3
1.3.2 Delivery and Payment........................................... 3
2. Representations and Warranties of the Company............................ 3
2.1 Filings under Securities Laws.................................. 3
2.1.1 Pursuant to the Act............................................ 3
2.1.2 Pursuant to the Exchange Act................................... 4
2.2 No Stop or Other Orders........................................ 4
2.3 Disclosures in Registration Statement.......................... 4
2.3.1 Representation as to Contents.................................. 4
2.3.2 Disclosure Regarding Contracts................................. 4
2.3.3 Prior Securities Transactions.................................. 5
2.4 Changes After Dates in Registration Statement.................. 5
2.4.1 No Material Adverse Change..................................... 5
2.4.2 Recent Securities Transactions, Etc............................ 5
2.5 Independent Accountants........................................ 5
2.6 Financial Statements........................................... 6
2.7 Capitalization................................................. 6
2.8 Representations Regarding Securities........................... 6
2.8.1 Outstanding Securities......................................... 6
2.8.2 Securities Sold Hereunder...................................... 7
2.9 No Registration Rights......................................... 7
2.10 Representations Regarding This Agreement and the
Underwriter's Warrant Agreement................................ 7
2.11 No Improper Payments........................................... 8
2.12 No Defaults; Violations........................................ 8
2.13 Corporate Power; Licenses; Consents............................ 9
2.13.1 Conduct of Business............................................ 9
2.13.2 Required Consents.............................................. 9
2.14 Title to Property; Insurance................................... 9
2.15 Litigation; Governmental Proceedings........................... 9
2.16 Organization; Good Standing.................................... 9
2.17 Taxes.......................................................... 10
2.18 Transactions Affecting Disclosure to NASD...................... 10
2.18.1 Finders' Fees.................................................. 10
2.18.2 Payments Within Twelve (12) Months............................. 10
2.18.3 Use of Proceeds................................................ 11
2.18.4 Insiders' NASD Affiliation..................................... 11
2.19 Internal Accounting Controls................................... 11
2.20 AMEX Listing................................................... 11
2.21 Intangibles.................................................... 11
2.22 Employee Matters............................................... 11
(i)
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2.22.1 Relations With Employees....................................... 11
2.22.2 Employee Benefit Plans......................................... 12
2.23 Investment Company Representations............................. 12
2.24 Officers' Certificate.......................................... 12
2.25 Lock-Up Agreements With Insiders............................... 13
2.26 No Stabilization or Manipulation............................... 13
2.27 Subsidiaries................................................... 13
3. Covenants of the Company................................................. 13
3.1 Amendments to Registration Statement........................... 13
3.2 Federal Securities Laws........................................ 13
3.2.1 Compliance..................................................... 14
3.2.2 Filing of Final Prospectus..................................... 14
3.2.3 Exchange Act Registration...................................... 14
3.3 Blue Sky Filings............................................... 14
3.4 Delivery of Filings to Underwriter............................. 14
3.5 Effectiveness and Events Requiring Notice to the
Underwriter.................................................... 15
3.6 Unaudited Financials........................................... 15
3.7 Reports to the Underwriter..................................... 15
3.7.1 Periodic Reports, Etc.......................................... 15
3.7.2 Transfer Sheets................................................ 16
3.8 Delivery of Underwriter's Warrants............................. 16
3.9 Payment of Expenses............................................ 16
3.9.1 General Expenses............................................... 16
3.9.2 Underwriter's Expenses......................................... 17
3.10 Application of Net Proceeds.................................... 17
3.11 Delivery of Earnings Statements to Security Holders............ 18
3.12 Reservation of Shares.......................................... 18
3.13 Board of Directors............................................. 18
3.14 Press Releases................................................. 18
3.15 Secondary Market Trading and Standard & Poor's................. 18
3.16 AMEX Maintenance............................................... 19
3.17 Key Person Life Insurance...................................... 19
3.18 Disqualification on Form S-1 (or other appropriate
form).......................................................... 19
3.19 Accountants.................................................... 19
3.20 Sale of Securities............................................. 19
3.21 Exercise Price of Options/Warrants............................. 19
4. Conditions of the Underwriter's Obligations.............................. 20
4.1 Regulatory Matters............................................. 21
4.1.1 Effectiveness of Registration Statement........................ 21
4.1.2 NASD Clearance................................................. 21
4.1.3 No Blue Sky Stop Orders........................................ 21
4.2 Company Counsel Matters........................................ 21
4.2.1 Closing Date Opinion of Counsel................................ 21
4.2.2 Option Closing Date Opinion of Counsel......................... 26
4.2.3 Reliance....................................................... 26
4.3 Cold Comfort Letter............................................ 27
4.4 Certificates................................................... 28
4.4.1 Officers' Certificates......................................... 28
(ii)
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4.4.2 Secretary's Certificate........................................ 29
4.5 No Material Changes............................................ 29
4.6 Delivery of Underwriter's Warrants............................. 30
4.7 Opinion of Counsel for the Underwriter......................... 30
5. Indemnification.......................................................... 30
5.1 Indemnification of the Underwriter............................. 30
5.1.1 General........................................................ 30
5.1.2 Procedure...................................................... 31
5.2 Indemnification of the Company................................. 32
5.3 Contribution................................................... 32
5.3.1 Contribution Rights............................................ 32
5.3.2 Contribution Procedure......................................... 33
6. Representations and Agreements to Survive Delivery....................... 33
7. Effective Date of This Agreement and Termination Thereof................. 34
7.1 Effective Date................................................. 34
7.2 Termination.................................................... 34
7.3 Notice......................................................... 35
7.4 Expenses....................................................... 35
7.5 Indemnification................................................ 35
8. Miscellaneous............................................................ 35
8.1 Notices........................................................ 35
8.2 Headings....................................................... 36
8.3 Amendment...................................................... 36
8.4 Entire Agreement............................................... 36
8.5 Binding Effect................................................. 36
8.6 Governing Law.................................................. 36
8.7 Execution in Counterparts...................................... 37
8.8 Waiver, Etc.................................................... 37
(iii)
INDEX OF DEFINITIONS
Term Section
---- -------
Act...................................................................... 2.1.1
AMEX..................................................................... 2.2.0
Application.............................................................. 5.1.1
Closing Date............................................................. 1.1.2
Code.................................................................... 2.22.2
Commission............................................................... 2.1.1
Common Stock............................................................. 1.1.1
Company................................................. Introductory Paragraph
Controlling Person....................................................... 5.1.1
Effective Date........................................................... 1.1.2
ERISA....................................................................2.22.2
ERISA Plan...............................................................2.22.2
Exchange Act............................................................. 2.1.2
Filing Date..............................................................2.18.2
Firm Shares.............................................................. 1.1.1
Insiders................................................................. 2.25
Intangibles.............................................................. 2.21
NASD.....................................................................2.18.1
Option Closing Date...................................................... 1.2.2
Option Shares............................................................ 1.2.1
Overallotment Option..................................................... 1.2.1
Preliminary Prospectus................................................... 2.1.1
Principal Shareholders................................................... 3.22
Prospectus............................................................... 2.1.1
Registration Statement................................................... 2.1.1
Regulations.............................................................. 2.1.1
Returns.................................................................. 2.17
Right of First Refusal................................................... 3.22
Secondary Offering....................................................... 3.22
Subsequent Company Offering.............................................. 3.22
Underwriter............................................. Introductory Paragraph
Underwriter's Securities................................................. 1.3.1
Underwriter's Warrant Agreement.......................................... 2.10
Underwriter's Warrants................................................... 1.3.1
Securities............................................................... 1.3.1
Shares................................................................... 1.2.1
Subsidiaries............................................................. 2.27
Taxes.................................................................... 2.17
Unaudited Financials..................................................... 3.6
You..................................................... Introductory Paragraph
(iv)
1,350,000 SHARES
PURO WATER GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
New York, New York
January , 1997
▇▇▇▇▇▇▇ Equities, Inc.
Gilford Securities Incorporated
as Representatives of the
Several Underwriters
c/▇ ▇▇▇▇▇▇▇ Equities, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned, Puro Water Group, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you and the other underwriters
named in Schedule I annexed hereto (the "Underwriters") for whom you are acting
as representatives (the "Representatives" or "you") as follows:
1. Purchase and Sale of Securities.
1.1 Firm Shares.
1.1.1 PURCHASE OF FIRM SHARES. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, the Company agrees to issue and sell to the Underwriters 1,350,000
shares (the "Firm Shares") of the Company's Common Stock, $.0063 par value per
share (the "Common Stock"), and the Underwriters, severally and not jointly,
agree to purchase from the Company the respective number of Firm Shares set
forth opposite their names on Schedule I annexed hereto, at a purchase price of
[$________] per Firm Share.
1.1.2 DELIVERY AND PAYMENT. Delivery and payment for the Firm
Shares shall be made at 10:00 A.M., New York time, on or before the third full
business day following the effective date (the "Effective Date") of the
Registration Statement (as hereinafter defined), or at such other time as shall
be agreed upon by the Representatives and the Company, at the offices of ▇▇▇▇▇▇▇
Equities, Inc. or at such other place as shall be agreed upon by the
Representatives and the Company. The date of delivery and payment for the Firm
Shares is called the "Closing Date." Payment
for the Firm Shares shall be made on the Closing Date by certified or bank
cashier's check(s) in New York Clearing House (next day) funds, payable to the
order of the Company upon delivery to the Underwriters of certificates (in form
and substance complying with applicable law) representing the Firm Shares. The
Firm Shares shall be registered in such names and shall be in such denominations
as the Representatives may request in writing at least two (2) full business
days prior to the Closing Date. The Company shall permit the Representatives to
examine and package the Firm Shares for delivery, at least one (1) full business
day prior to the Closing Date. The Company shall not be obligated to sell or
deliver the Firm Shares, except upon tender of payment by the Underwriters for
all the Firm Shares.
1.2 OVERALLOTMENT OPTION.
1.2.1 GRANT OF OPTION. For the purposes of covering any
overallotments in connection with the distribution and sale of the Firm Shares,
the Underwriters, severally and not jointly, are hereby granted an option (the
"Overallotment Option") to purchase up to an additional 202,500 shares of Common
Stock (the "Option Shares") from the Company. The Firm Shares and the Option
Shares are hereinafter collectively referred to as the "Shares." The purchase
price to be paid for each Option Share shall be the same as the price paid for
each Firm Share pursuant to Section 1.1.1 hereof.
1.2.2 EXERCISE OF OPTION. The Overallotment Option may be
exercised by the Representatives on behalf of the Underwriters as to all or any
part of the Option Shares at any time, from time to time, within forty-five (45)
days after the Effective Date. The Underwriters shall not be under any
obligation to purchase any Option Shares prior to the exercise of the
Overallotment Option. The Overallotment Option granted hereby may be exercised
by the giving of written or telegraphic notice to the Company by the
Representatives setting forth the number of Option Shares to be purchased, the
date and time for delivery of and payment for the Option Shares and stating that
the Option Shares referred to therein are to be used for the purpose of covering
overallotments in connection with the distribution and sale of the Firm Shares.
If such notice is given two (2) full business days prior to the Closing Date,
the date set forth therein for such delivery and payment shall be the Closing
Date. If such notice is given thereafter, the date set forth therein for such
delivery and payment shall not be earlier than three (3) full business days
after the date of the notice. If such delivery and payment for the Option
Shares does not occur on the closing Date, the date and time of the closing for
such Option Shares shall be as set forth in the notice (the "Option Closing
Date"). Upon exercise of the Overallotment Option, the Company shall become
obligated to convey to the Underwriters the number of Option Shares specified in
such notice, and, subject to the terms and conditions set forth herein,
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each Underwriter shall be obligated to purchase that percentage of the Option
Shares as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives so as to avoid fractional shares.
1.2.3 DELIVERY AND PAYMENT. Payment for the Option Shares shall
be made by certified or bank cashier's check(s) in New York Clearing House (next
day) funds, payable to the order of the Company and shall be made at the offices
of ▇▇▇▇▇▇▇ Equities, Inc. or at such other place as shall be agreed upon by the
Representatives and the Company, upon delivery to you of certificates
representing the Option Shares being purchased. The certificates representing
the Option Shares to be delivered shall be in such denominations and registered
in such names as the Representatives request not less than two (2) full business
days prior to the Closing Date or the Option Closing Date, as the case may be,
and shall be made available to the Representatives for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one (1) full business day prior to such Closing
Date.
1.3 REPRESENTATIVES' WARRANTS.
1.3.1 PURCHASE AND SALE. The Company hereby agrees to issue and
to sell to you and/or to such persons as you may designate, on the Closing Date,
warrants for the purchase of an aggregate of 135,000 shares of Common Stock (the
"Representatives' Warrants") for an aggregate purchase price of $135.00. The
Representatives' Warrants and the shares of Common Stock issuable upon exercise
of the Representatives' Warrants are hereinafter referred to collectively as the
"Representatives' Securities." The Shares and the Representatives' Securities
are hereinafter referred to collectively as the "Securities."
1.3.2 DELIVERY AND PAYMENT. Delivery and payment for the
Representatives' Warrants shall be made on the Closing Date. The Company shall
deliver to the Representatives, upon payment therefor, certificates for the
Representatives' Warrants in the name or names and in such denominations as the
Representatives may request. The Representatives' Warrants shall be exercisable
for a period of four (4) years commencing one (1) year after the Effective Date
at an initial exercise price per share of 140% of the per share initial public
offering price for the Shares and shall be substantially in the form of the
Representatives' common stock purchase warrant filed as an exhibit to the
Registration Statement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Underwriters that:
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2.1 FILINGS UNDER SECURITIES LAWS.
2.1.1 PURSUANT TO THE ACT. The Company has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
and an amendment or amendments thereto, on Form SB-2 (Registration No.
333-16247), including any related preliminary prospectus (a "Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations of the Commission under the Act (the
"Regulations"). 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."
2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed with
the Commission a Form 8-A Registration Statement (File No. _______) providing
for the registration under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of the shares of Common Stock. The registration of the Common
Stock has been or will be declared effective by the Commission on the date
hereof.
2.2 NO STOP OR OTHER ORDERS. Neither the Commission, nor any state
regulatory authority, has issued any order preventing or suspending the use of
any Preliminary Prospectus or has instituted or threatened to institute any
proceedings with respect to such an order.
2.3 DISCLOSURES IN REGISTRATION STATEMENT.
2.3.1 REPRESENTATION AS TO CONTENTS. At the time the Registration
Statement became effective and at all times subsequent thereto up to the Closing
Date and any Option Closing Date, the Registration Statement and the Prospectus
shall contain all material statements that are required to be stated therein in
accordance with the Act and the Regulations, and shall in all material respects
conform to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, on such dates, shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
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which they were made, not misleading. 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 Underwriters expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto. The Company
acknowledges that such information consists solely of the information under the
heading "Underwriting" in the Prospectus.
2.3.2 DISCLOSURE REGARDING CONTRACTS. The description in the
Registration Statement and the Prospectus of contracts, instruments and other
documents is accurate in all material respects. There are no contracts,
instruments or other documents of a character 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, instrument and other document (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 which is referred to in the Prospectus, or is
material to the Company's business, has been duly and validly executed, is in
full force and effect and is enforceable against the parties thereto in
accordance with its terms. Neither the Company nor, to the best knowledge of
the Company, any other party thereto is in default thereunder and no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default by the Company thereunder.
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 three (3) 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 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
operations, assets, properties, business or business prospects of the Company,
including, but not limited to, any material loss 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 to the
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results of operations, business or business prospects of the Company.
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. To the best knowledge of the Company, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP, whose report is filed with the Commission as part of the
Registration Statement, are independent accountants as required by the Act and
the Regulations. The statements included in the Registration Statement with
respect to such accountants are true and correct in all material respects.
2.6 FINANCIAL STATEMENTS. The financial statements, including the notes
thereto and supporting schedules, if any, included in the Registration Statement
and Prospectus fairly present the financial position, the results of operations
and cash flows of the Company at the dates and for the periods to which they
apply; and, except as otherwise indicated in the Registration Statement, such
financial statements have been prepared in conformity with United States
generally accepted accounting principles, consistently applied throughout the
periods involved; and the supporting schedules, if any, included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be included
in the Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Summary Financial Information," "Capitalization,"
"Pro Forma Financial Information" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.
2.7 CAPITALIZATION. The Company had at the date or dates indicated in the
Registration Statement and Prospectus 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 and on the Closing Date and
any Option Closing Date, there will be no options, warrants, or other rights to
purchase or otherwise acquire any authorized but unissued shares of Common
Stock, preferred stock of the Company, if any, or any security convertible into
shares of Common Stock or preferred stock, or any contracts or commitments to
issue or sell shares of Common Stock or preferred
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stock or any such options, warrants, rights or convertible securities.
2.8 REPRESENTATIONS REGARDING SECURITIES.
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 are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holder of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and
warrants, if any, to purchase shares of Common Stock constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms.
The authorized Common Stock and any 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, and any options and warrants to purchase shares of
Common Stock, were at all relevant times either registered under the Act and
applicable state securities or Blue Sky Laws or were exempt from such
registration requirements.
2.8.2 SECURITIES SOLD HEREUNDER. The Securities have been duly
authorized and, when issued and paid for, will be validly issued, fully paid and
non-assessable and the holders thereof are not and will not be subject to
personal liability by reason of being such holders; 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 action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. When issued, the
Representatives' Warrants will constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby and the
Representatives' Warrants are enforceable against the Company in accordance with
their respective terms.
2.9 NO REGISTRATION RIGHTS. No holder 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 has 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,
including the Registration Statement, except as disclosed in the Prospectus.
2.10 REPRESENTATIONS REGARDING THIS AGREEMENT AND THE REPRESENTATIVES'
WARRANT AGREEMENT. The Company has full power and
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authority, corporate and otherwise, to enter into this Agreement and the
Agreement governing the Representatives' Warrants (the "Representatives' Warrant
Agreement") and to carry out the provisions and conditions hereof and thereof.
This Agreement and the Representatives' Warrant Agreement have been duly and
validly authorized by the Company and constitute, or when executed and
delivered, will constitute valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws offering creditors' rights generally, (b) as
enforceability of any indemnification and contribution provision may be limited
under the federal and state securities laws, and (c) that, the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The execution, delivery and performance
by the Company of this Agreement and the Representatives' Warrant Agreement, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms and conditions hereof and
thereof have been duly authorized by all necessary corporate action and 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 property
or assets of the Company pursuant to the terms of any indenture, mortgage, deed
of trust, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject; (ii) result
in any violation of the provisions of the Certificate of Incorporation or the
By-Laws of the Company; (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business; or (iv) have a material adverse effect on any permit,
license, certificate, registration, approval, consent or franchise concerning
the Company.
2.11 NO IMPROPER PAYMENTS. Neither the Company nor any director, officer,
employee or agent of the Company has made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation or of
a character required to be disclosed in the Prospectus.
2.12 NO DEFAULTS; VIOLATIONS. Except as set forth in the Prospectus, no
default exists in the due performance and observance of any material term,
covenant or condition of any license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an
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obligation for borrowed money, or any other 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. The Company is not in violation
of any term or provision of its Certificate of Incorporation or By-Laws. The
Company is not 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 the Company or any of its
properties or business, which violation would result in a material adverse
change in the condition (financial or other), business, prospects or properties
of the Company.
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 the Company is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates and permits and all federal, state and local laws, rules
and regulations.
2.13.2 REQUIRED CONSENTS. The Company has obtained all consents,
authorizations, approvals and orders required in connection with the execution
and delivery of this Agreement and the Representatives' Warrant Agreement and
the performance of its obligations hereunder and thereunder. 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 and the Representatives' Warrant Agreement
and as contemplated by the Prospectus, except those required under 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, 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. The Company has adequately insured its properties against loss
or damage by fire or other casualty and maintains such other insurance as is
usually maintained by companies engaged in the same business or in similar
businesses.
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 threatened
against, or involving the properties or business of, the Company which would
materially and adversely affect the financial position, prospects, value or the
-9-
operation or 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, its properties or business, is bound or subject.
2.16 ORGANIZATION; 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.
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 the Company. 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 no waivers of statutes of limitation with respect to the returns or
collection of taxes have been given by or requested from the Company or any
subsidiary. 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 or 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 to taxes.
2.18 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.
2.18.1 FINDERS' FEES. Except as described in the Prospectus, there
are no claims, payments, issuances, arrangements or understandings for services
in the nature of finders' or origination fees with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. (the "NASD").
-10-
2.18.2 PAYMENTS WITHIN TWELVE (12) MONTHS. 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 within the
twelve month period to November 15, 1996, the date on which the Registration
Statement was filed with the Commission (the "Filing Date") or thereafter, other
than payments to the Representatives.
2.18.3 USE OF PROCEEDS. None of the net proceeds of the offering
will be paid by the Company to any participating NASD member or any of its
affiliates.
2.18.4 INSIDERS' NASD AFFILIATION. No officer, director or holder
of five percent (5%) or more of any class of securities of the Company has any
direct or indirect affiliation or association with any NASD member. No
beneficial owner of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member.
2.19 INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity 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.
2.20 AMEX LISTING. As of the Effective Date, the Shares have been
approved for listing on the American Stock Exchange ("AMEX").
2.21 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, the
"Intangibles") owned or used by it. The Company's Intangibles which have been
registered in the United States Patent and Trademark Office and/or the United
States Copyright office have been fully maintained and are in full force and
effect. There is no claim or action by any person, or proceeding pending or, to
the Company's knowledge, threatened, and the Company has not received any notice
of conflict with the asserted rights of others, which challenges the exclusive
right of the Company with respect to any Intangibles used in the conduct of the
Company's business. Neither the Company's Intangibles, nor the
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Company's current products, services and processes infringe on any Intangibles
held by any third party. No others have infringed or are infringing upon the
Intangibles of the Company.
2.22 EMPLOYEE MATTERS.
2.22.1 RELATIONS WITH EMPLOYEES. The Company has generally enjoyed
a satisfactory relationship with its employees and is in compliance 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, slowdown or stoppage pending or threatened against
or involving the Company or any predecessor entity, and none has ever occurred.
No issue 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 or threatened under any expired or existing collective
bargaining agreement of the Company, if any.
2.22.2 EMPLOYEE BENEFIT PLANS. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to maintain, sponsor or contribute to, any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a, "multi-employer plan" (each, an "ERISA 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"). The Company does
not, and has at no 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 a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), which could subject the Company to any tax penalty for
prohibited transactions and which has not adequately been corrected. Each 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 that 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."
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2.23 INVESTMENT COMPANY REPRESENTATIONS. The Company is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.24 OFFICERS' CERTIFICATE. Any Certificate signed by any duly authorized
officer or the Company and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company to the Representatives as to the
matters covered thereby.
2.25 LOCK-UP AGREEMENTS WITH INSIDERS. The Company has caused to be duly
executed a legally binding and enforceable agreement pursuant to which all
officers, all directors, all stockholders who own 5% or more of the outstanding
Common Stock of the Company or options, warrants or other securities convertible
into 5% or more of the Company's Common Stock and ▇▇▇▇▇▇ Associates, LP and
their family members and affiliates (as defined in the securities laws)
(collectively, the "Insiders") agree not to sell any shares of Common Stock or
warrants or options to purchase Common Stock or securities convertible into
Common Stock owned by them (either pursuant to Rule 144 of the Regulations or
otherwise) for a period of eighteen (18) months following the Effective Date,
except with the consent of the Representatives (other than by the laws of
descent and distribution). In order to enforce such agreements, the Company
shall impose stop transfer instructions with respect to all such shares of
Common Stock or warrants or options to purchase Common Stock or securities
convertible into Common Stock until the end of such period.
2.26 NO STABILIZATION OR MANIPULATION. Neither the Company, nor any of its
officers, directors or controlling persons, has taken or will take, directly or
indirectly, any action designed, or which reasonably might be expected, to cause
or result, under the Act or otherwise, in, or that has constituted,
stabilization or manipulation of the price of any Security or to facilitate the
sale or resale of the Shares.
2.27 SUBSIDIARIES. The representations and warranties made by the Company
in this Agreement shall, in the event that the Company has one or more
subsidiaries (the "subsidiaries") also apply and be true with respect to each
subsidiary, individually (except as the context otherwise requires) and taken as
a whole with the Company and all other subsidiaries, as if each representation
and warranty contained herein made specific reference to each subsidiary each
time the term "Company" was used. Except as described in the Prospectus, the
Company does not own any interest in any corporation, partnership, joint
venture, trust or other business entity.
3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with the
Underwriters as follows:
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3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company shall deliver to
the Representatives, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and shall not file any such amendment or supplement to which the
Representatives 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 shall 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, so far as necessary to permit the continuance of sales of or dealings
in the Shares in accordance with the provisions hereof and the Prospectus. If
at any time when a Prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or counsel for the Underwriters, the
Prospectus, as then amended or supplemented, includes any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, 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 shall notify the
Representatives 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 FILING OF FINAL PROSPECTUS. The Company shall file the
Final Prospectus (in form and substance satisfactory to the Representatives)
with the Commission pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 EXCHANGE ACT REGISTRATION. For a period of five years from
the Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock under the provisions of the Exchange Act.
3.3 BLUE SKY FILINGS. The Company shall endeavor in good faith, in
cooperation with the Representatives and their counsel, at or prior to the time
the Registration Statement becomes effective, to qualify the Shares for offering
and sale under the securities laws of such jurisdictions as the Representatives
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 would be required to qualify to do business as a
foreign corporation. In each jurisdiction where such qualification shall be
effected, the Company shall, unless the Representatives agree that such action
is not at the time necessary or advisable, use all reasonable efforts
-14-
to file and make such statements or reports at such times as are or may be
required by the laws of such jurisdiction.
3.4 DELIVERY OF FILINGS TO UNDERWRITERS. The Company shall deliver to the
Underwriters, without charge, from time to time during the period when the
Prospectus is required to be delivered under the Act, such number of copies of
each Preliminary Prospectus and the Prospectus as the Underwriters may
reasonably request and, immediately after the Registration Statement or any
amendment or supplement thereto is filed, deliver to the Representatives two (2)
original executed Registration Statements, including exhibits, and all
post-effective amendments thereto and copies of documents filed therewith or
incorporated therein by reference and all original executed consents of
certified experts.
3.5 EFFECTIVENESS AND EVENTS REQUIRING NOTICE TO THE REPRESENTATIVES. The
Company shall cause the Registration Statement to remain effective until the
later of the completion by the Underwriters of the distribution of the Shares
(but in no event more than 9 months after the date on which the Registration
Statement shall have been declared effective) or 25 days after the date on which
the Registration Statement shall have been declared effective and shall notify
the Representatives immediately and shall promptly confirm the notice in writing
of (i) the effectiveness of the Registration Statement and any amendment
thereto, (ii) the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding for that purpose, (iii) the
issuance by any state securities commission of any proceedings for the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) the mailing and delivery to the Commission for filing of any
amendment or supplement to the Registration Statement or Prospectus, (v) the
receipt of any comments or request for any additional information from the
Commission, and (vi) the happening of any event during the period described in
Section 3.4 hereof that makes any statement of a material fact made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Commission or any state securities commission shall
enter a stop order or suspend such qualification at any time, the Company shall
make every reasonable effort to obtain promptly the lifting of such order.
3.6 FINANCIAL STATEMENTS.
3.6.1 UNAUDITED FINANCIALS. The Company shall furnish to the
Representatives as early as practicable prior to the date hereof and the Closing
Date, but no later than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements (the "Unaudited
Financials")
-15-
of the Company (which in no event shall be as of a date more than ninety (90)
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.
3.7 REPORTS TO THE REPRESENTATIVES.
3.7.1 PERIODIC REPORTS, ETC.. For a period of five years from the
Effective Date, the Company will furnish to the Representatives, and to each
other Underwriter who may so request, 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
Representatives (i) a copy of each periodic report the Company shall be required
to file with the Commission, (ii) a copy of every press release and every news
item and article with respect to the Company or its affairs which was 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 as the Representatives may
from time to time reasonably request.
3.7.2 TRANSFER SHEETS. For a period of three years from the
Closing Date, the Company will furnish to the Representatives, at the Company's
sole expense such transfer sheets of the Company's securities as the
Representatives may request, including the daily, weekly and monthly
consolidated transfer sheets of the transfer agent of the Company.
3.8 DELIVERY OF REPRESENTATIVES' WARRANTS. On the Closing Date, the
Company shall execute and deliver to the Representatives the Representatives'
Warrants substantially in the form filed as an exhibit to the Registration
Statement.
3.9 PAYMENT OF EXPENSES.
3.9.1 GENERAL EXPENSES. The Company shall pay on each of the
Closing Date and any Option Closing Date to the extent not paid at the 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 and mailing (including the payment of postage with respect to
such mailing) of the Registration Statement, the Preliminary Prospectuses and
the Prospectus and the printing and mailing of this Agreement and related
documents, including the cost of all copies thereof and any amendments or
supplements thereto supplied to the Representatives in quantities as may be
required by the Underwriters, (ii) the printing, engraving, issuance and
delivery of the Shares and the Representatives' Warrants, including any transfer
taxes and other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or
-16-
Blue Sky laws, including the costs of printing and mailing the "Preliminary Blue
Sky Memorandum," and all amendments and supplements thereto, fees and
disbursements for the Underwriters' counsel and fees and disbursements of local
counsel, if any, retained for such purpose, (iv) costs associated with
applications for assignments of a rating of the Shares by qualified rating
agencies, (v) filing fees incurred in registering the offering with the NASD,
(vi) costs of placing "tombstone" advertisements in publications that shall be
selected by the Representatives, (vii) fees and disbursements of the transfer
agent, (viii) the Company's expenses associated with "due diligence" meetings
arranged by the Representatives and "road show" expenses; (ix) the preparation,
binding and delivery of seven (7) transaction "bibles" for the Representatives,
(x) any listing of the Shares on the AMEX or any listing in Standard & Poor's,
and (xi) all other costs and expenses incident to the performance of its
obligations hereunder that are not otherwise specifically provided for in this
Section 3.9.1. 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 has engaged and will pay for an investigative search firm
of the Representatives' choice to conduct an investigation of principals of the
Company mutually selected by the Representatives and the Company. The
Representatives may deduct from the net proceeds of the offering payable to the
Company on the Closing Date or any Option Closing Date the expenses set forth
herein to be paid by the Company to the Representatives and/or to third parties.
If this Agreement shall not be carried out for any reason whatsoever, the
Company shall remain liable for all of its actual out-of-pocket expenses
pursuant to this Section 3.9.1.
3.9.2 UNDERWRITERS' EXPENSES. The Company further agrees that, in
addition to the expenses payable pursuant to Section 3.9.1, upon the sale of the
Firm Shares or any of the Option Shares, it shall pay to the Representatives, as
a non-accountable expense allowance, an amount equal to 3% of the gross proceeds
payable to the Company from the sale of the Firm Shares and the Option Shares,
if any are sold to the Underwriters, of which $50,000 has been paid to date, and
it shall pay the balance on the Closing Date as to the Firm Shares and any
Option Closing Date as to Option Shares, by certified or bank cashier's check
or, at the election of the Representatives, by deduction from the proceeds of
the offering contemplated hereby. If the offering contemplated by this
Agreement is not consummated for any reason, the Company shall be liable for the
accountable expenses of the Representatives, including, but not limited to,
legal fees, Blue Sky counsel fees, "road show" and due diligence expenses. The
Representatives 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
-17-
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 Representatives shall promptly remit to the Company any such excess.
3.10 APPLICATION OF NET PROCEEDS. The Company shall apply 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 and shall file
such reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.
3.11 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The Company
shall make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth full calendar month following
the Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section 11(a) of the Act) covering a period of at least twelve (12)
consecutive months beginning on the date immediately after the Effective Date.
3.12 RESERVATION OF SHARES. The Company shall reserve and keep available
that maximum number of its authorized but unissued shares of Common Stock as is
issuable upon the exercise of the Representatives' Warrants.
3.13 BOARD OF DIRECTORS. For a period of three (3) years after the
Effective Date, ▇▇▇▇▇▇▇ Equities, Inc. shall have the right to appoint a
designee as an observer to the Company's Board of Directors. Such observer
shall have the right to attend all meetings of the Board of Directors. 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, transportation, and any fees paid to a non-management
director for attending meetings. ▇▇▇▇▇▇▇ Equities, Inc. shall be given notice
of such meetings at the same time and in the same manner as Directors of the
Company are informed. Subject to the provisions of applicable law, ▇▇▇▇▇▇▇
Equities, Inc. and such observer shall be indemnified to the same extent as the
other Directors. The Company shall purchase Directors and Officers insurance in
an amount of not less than $2,000,000, with a deductible of not more than
$250,000 and maintain such insurance for a period of four years, provided,
however, that the Company shall not be required to pay more than $30,000 per
year after the first year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall purchase that
amount of such insurance that is available at a cost of $30,000 per year.
-18-
3.14 PRESS RELEASES. The Company shall not issue a press release or engage
in any other publicity until twenty-five (25) days after the Effective Date,
without the Representatives' prior written consent, which consent shall not be
unreasonably withheld.
3.15 SECONDARY MARKET TRADING AND STANDARD & POOR'S. The Company will take
all necessary and appropriate actions to be included in Standard and Poor's
Daily News and Corporation Records Corporate Descriptions for a period of five
years from the Effective Date, including the payment of any necessary fees and
expenses. The Company shall take such action as may be reasonably requested by
the Representatives to obtain a secondary market trading exemption in such
States as may be requested by the Representatives, including the payment of any
necessary fees and expenses and the filing of a Form (e.g., 25101(b)) for
secondary market trading in the State of California on the Effective Date.
3.16 AMEX MAINTENANCE. For a period of five years from the date hereof,
the Company will use its best efforts to maintain the listing by AMEX of the
Common Stock.
3.17 KEY PERSON LIFE INSURANCE. The Company will maintain key person life
insurance with an insurance company which is reasonably satisfactory to the
Representatives in an amount no less than $2,000,000 on the lives of each of
Messrs. ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇, naming the Company as the sole
beneficiary thereof, for at least three years following the Effective Date.
3.18 DISQUALIFICATION ON FORM S-1 (OR OTHER APPROPRIATE FORM). For a
period equal to seven years from the date hereof, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration of the shares underlying
Representatives' Warrants under the Act.
3.19 ACCOUNTANTS. For a period of three years from the Effective Date, the
Company will not effect a change in its accounting firm without the prior
written consent of the Representatives, which consent will not be unreasonably
withheld, except that no such consent is required if the new firm is a member of
the so-called "Big-Six."
3.20 SALE OF SECURITIES. The Company agrees not to 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 Insiders for a period of 18 months following the Effective
Date without obtaining the prior written consent of the Representatives.
3.21 EXERCISE PRICE OF OPTIONS/WARRANTS. For a period of 24 months after
the Effective Date, the Company will not grant or issue options or warrants
except for options to purchase no more
-19-
than 400,000 shares of the Company's Common Stock pursuant to the Company's
Stock Option Plan, and the exercise price of such options shall not be less than
the fair market value of the Common Stock on the date of the grant.
-20-
4. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Shares, 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 any Option
Closing Date 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. The Registration
Statement shall have become effective not later than 5:00 P.M., New York time,
on the date of this Agreement or such later date and time as shall be consented
to in writing by you, and, at each of the Closing Date and any Option Closing
Date, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for the purpose shall have been
instituted or shall be pending or contemplated by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome &
▇▇▇▇▇▇▇▇▇▇ LLP, counsel to the Underwriters.
4.1.2 NASD CLEARANCE. On or before the Effective Date, the
Underwriters shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement.
4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the sale of
the Shares in any jurisdiction designated by you pursuant to Section 3.3 hereof
shall have been issued either on the Closing Date or any Option Closing Date,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
4.2 COMPANY COUNSEL MATTERS.
4.2.1 CLOSING DATE OPINION OF COUNSEL. On the Closing Date, the
Underwriters shall have received the favorable opinion of Lev, Berlin & ▇▇▇▇,
P.C., counsel to the Company, dated the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome &
▇▇▇▇▇▇▇▇▇▇ LLP, counsel to the Underwriters, to the effect that:
(i) The Company and each of its subsidiaries has been duly
organized and is validly existing as a corporation and is in good standing under
the laws of its respective state of incorporation. The Company and each of its
subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any of its
respective properties or the character of its
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respective operations requires such qualification or licensing (except where the
failure to be so qualified or licensed would not have a material adverse effect
on the Company and its subsidiaries (taken as a whole).
(ii) The Company and each of its subsidiaries has all
requisite corporate power and authority, and has all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental or regulatory officials and bodies to own or lease its properties
and to conduct its business as described in the Prospectus, and the Company and
each of its subsidiaries is in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and all federal, state and
local laws, rules and regulations. The Company has all requisite corporate
power and authority to enter into this Agreement and to carry out the terms and
conditions hereof. 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
and the Representatives' Warrants, and as contemplated by the Prospectus or, if
required, all such authorizations, approvals, consents, orders, registrations,
licenses and permits have been duly obtained and are in full force and effect
and have been disclosed to the Representative.
(iii) 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 are
not subject to personal liability by reason of being such holders; and none of
such securities were issued in violation of the preemptive rights of any holders
of any security of the Company or similar contractual rights granted by the
Company. The outstanding options and warrants, if any, to purchase shares of
Common Stock constitute the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification and contribution provision may be limited under the federal and
state securities laws, and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The offers and sales of the outstanding Common Stock and, if
any, options and warrants to purchase shares of Common Stock, have been at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky Laws or exempt from such registration requirements.
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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 delivered in accordance herewith will be, validly issued, fully paid and
non-assessable; the holders thereof are not and will not be subject to personal
liability by reason of being such holders. 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. 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 Representatives'
Warrants will constitute valid and binding obligations of the Company to issue
and sell, upon exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby and the Representatives' Warrants,
when issued, will be enforceable against the Company in accordance with their
terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provision may be limited under federal and state securities laws, and (c) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The certificates
representing the Securities are in due and proper form.
(v) 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.
(vi) The Shares have been approved for listing on AMEX.
(vii) This Agreement and the Representatives' Warrants 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 (a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (b) as
enforceability of any indemnification provisions may be limited under federal
and state securities laws and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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(viii) The execution, delivery and performance of this Agreement
and the Representatives' Warrants, 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) 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 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 the Company is a party or by which
the Company or any of its properties or assets may be bound, (b) result in any
violation of any of the provisions of the Certificate of Incorporation or the
By-Laws of the Company, (c) violate any statute or any 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 the Company, its properties or
assets, or (d) have a material effect on any permit, certification,
registration, approval, consent, license or franchise of the Company.
(ix) The Registration Statement, each Preliminary Prospectus
and the Prospectus and any post-effective amendments or supplements thereto
(other than the financial statements and notes thereto and other financial data
included therein or omitted therefrom, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements of the Act and
the Regulations. The Securities and all other securities issued or issuable by
the Company conform in all respects to the description thereof contained in the
Registration Statement and the Prospectus. All statements in the Prospectus
(other than those set forth under the caption "Underwriting"), have been
reviewed by such counsel and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations have been reviewed by
such counsel and are correct in all material respects. No statute or regulation
or legal or governmental proceeding required to be described in the Prospectus
is not described as required, nor are any contracts, instruments or other
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement not
so described or filed as required.
(x) Such counsel has participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, the Representatives and counsel
to the Underwriters at which the contents of the Registration Statement and
Prospectus and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the
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accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise expressly set forth
in its opinion), on the basis of the foregoing (relying as to the factual
matters upon the statements of officers and other representatives of the Company
and state officials) no facts have come to the attention of such counsel that
caused it to believe that the Registration Statement as amended or supplemented
(other than the financial statements and notes thereto and other financial data
included therein, or omitted therefrom, as to which no opinion is requested or
need be rendered) at the time such Registration Statement became effective,
contained an 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 (other than information omitted therefrom in reliance on Rule
430A under the Act) or the Prospectus (other than the financial statements and
notes thereto and other financial data included therein, or omitted therefrom,
as to which no opinion is requested or need be rendered) as amended or
supplemented, as of its date, the date of this Agreement and as of the date of
its opinion, contained an untrue statement of material fact or omitted to state
a 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 is effective under the Act and
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) There is no claim or action by any person pertaining to,
or proceeding, pending or threatened, which challenges the exclusive rights of
the Company with respect to any Intangibles used in the conduct of its business
(including, but not limited to, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company).
(xiii) 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 material agreement, instrument or other document
evidencing an obligation for borrowed money, or any other material agreement,
instrument or other document to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries may be bound or to
which any of the properties or assets of the Company or any of its subsidiaries
is subject. Neither the Company nor any of its subsidiaries is not in violation
of any term or provision of its respective Certificate of Incorporation or
By-Laws, or any material franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having
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jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or businesses, except as described in the Prospectus.
(xiv) 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 Underwriters' compensation, as determined by the
NASD.
(xv) Except as described in the Prospectus, the Company does
not own any interest in any corporation, partnership, joint venture, trust or
other business entity.
(xvi) Except as 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 or any
of its subsidiaries, which would have a material adverse effect on the Company.
(xvii) The Company and each of its subsidiaries owns or
possesses, free and clear of all liens or encumbrances and rights thereto or
therein by third parties, other than as described in the Prospectus, the
requisite licenses or other rights to use Intangibles owned or used by the
Company and each of its subsidiaries (including, but not limited to, any such
licenses or right described in the prospectus as being owned or possessed by the
Company); except as set forth in the Prospectus, there is no action, suite or
proceeding before or by any court or governmental agency or body, domestic or
foreign, now pending, or threatened against the Company or any of its
subsidiaries, that might result in any material adverse change in the condition
(financial or other), business, prospects or properties of the Company and its
subsidiaries taken as a whole.
The opinion of counsel for the Company and any opinion relied
upon by such counsel shall include a statement to the effect that it may be
relied upon by counsel for the Underwriters in their opinion delivered to the
Underwriters.
4.2.2 OPTION CLOSING DATE OPINION OF COUNSEL. On the Option
Closing Date, if any, the Representatives shall have received the favorable
opinion of Lev, Berlin & ▇▇▇▇, P.C., counsel to the Company, and dated the
Option Closing Date, addressed to the Underwriters and in form and substance
reasonably satisfactory to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇ LLP, counsel to
the Underwriters, confirming, as of the Option Closing Date, the statements made
by such counsel for the Company in their opinion delivered on the Closing Date.
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4.2.3 RELIANCE. In rendering such opinions, such counsel may rely
(i) as to matters involving the application of laws other than the laws of the
United States, the Delaware General Corporation Law and jurisdictions in which
they are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel, familiar with the applicable laws, and (ii)
as to matters of fact, to the extent they deem proper, (a) on certificates or
other written statements of responsible officers of the Company and (b) on
certificates or other written statements of officers of departments of various
jurisdiction 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 Underwriters' counsel. Such opinions of
counsel shall include a statement to the effect that they may be relied upon by
counsel for the Underwriters. Such opinion may assume the due authorization,
execution and delivery of all documentation referred to therein by the parties
thereto other than the Company.
4.3 COLD COMFORT LETTER. At the time this Agreement is executed, and at
each of the Closing Date and any Option Closing Date, you shall have received a
letter, addressed to the Underwriters 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome &
▇▇▇▇▇▇▇▇▇▇ LLP, counsel to the Underwriters, from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, dated,
respectively, as of the date of this Agreement, as of the Closing Date and as of
any Option Closing Date:
(i) Confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
Regulations;
(ii) Stating that in their opinion the financial statements of
the Company included in the Registration Statement and Prospectus comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Regulations thereunder;
(iii) Stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a review
of the latest available unaudited interim financial statements of the Company
(as defined in SAS No. 71 Interim Financial Interpretation) with an indication
of the date of such unaudited financial statements, a reading of the latest
available minutes of the stockholders and Board of Directors of the Company and
the various committees of the Board of Directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other
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specified procedures and inquiries, nothing has come to their attention which
would lead them to believe that (a) the unaudited financials of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Regulations or any material modification should be made to the unaudited interim
financial statements included in the registration statement for them to be in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company included in the Registration Statement, (b) at a date not later than
five (5) days prior to the Effective Date, Closing Date or any Option Closing
Date, as the case may be, there was any change in the capital stock or long-term
debt of the Company, or any decrease in the stockholders' equity of the Company
as compared with amounts shown in the most recent balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any decrease, setting forth the amount
of such decrease, and (c) during the period from [October 1, 1996] to a
specified date not later than five (5) days prior to the Effective Date, Closing
Date or Option Closing Date, if any, as the case may be, there was any decrease
in revenues, net earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period in the preceding year, and as
compared with the corresponding period in the preceding quarter other than as
set forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
(iv) Setting forth, at a date not later than five days prior
to the Effective Date, the amount of liability of the Company (including a
break-down of commercial papers and notes payable to banks);
(v) Stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(vi) Stating that they have not during the immediately
preceding five year period brought to the attention of the Company's management
any reportable condition related to internal structure, design or operation as
defined in the Statement on Auditing Standards No. 60 -- "Communication of
Internal Control
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Structure Related Matters Noted in an Audit," in the Company's internal
controls; and
(vii) Statements as to such other matters incident to the
transactions contemplated hereby as you may reasonably request.
4.4 CERTIFICATES.
4.4.1 OFFICERS' CERTIFICATES. At each of the Closing Date and any
Option Closing Date the Representatives shall have received a certificate of the
Company signed by each of the President and the Chief Financial Officer of the
Company, dated the Closing Date or any Option Closing Date, as the case may be,
respectively, to the effect that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to and as of the Closing Date, or any 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 Closing Date and
any 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 addition,
the Representatives shall have received such other and further certificates of
officers of the Company as the Representatives may reasonably request.
4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Representatives shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or any Option Closing Date, as the case may be, respectively,
certifying (i) that the Certificate of Incorporation and By-Laws, as amended, 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 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 AMEX 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 any
Option Closing Date, (i) there shall have been no material adverse change or
development involving a prospective material change in the condition or
prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus which is or might be
materially adverse to the Company, (iii) 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, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement
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and Prospectus, (v) no action, suit or proceeding, at law or in equity, shall be
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, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all material statements that are
required to be stated therein in accordance with the Act and the Regulations and
shall 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 shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.6 DELIVERY OF REPRESENTATIVES' WARRANTS. The Company shall have
delivered to the Representatives executed copies of the Representatives'
Warrants, registered in such names and in such denominations as the
Representatives shall have requested.
4.7 OPINION OF COUNSEL FOR THE UNDERWRITERS. 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇ LLP, counsel to the Underwriters, and you
shall have received from such counsel a favorable opinion, dated the Closing
Date and any Option Closing Date, with respect to such of these proceedings as
you may reasonably require. On or prior to the Effective Date, the Closing Date
and any Option Closing Date, as the case may be, counsel for the Underwriters
shall have been furnished with 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.
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5. INDEMNIFICATION.
5.1 INDEMNIFICATION OF THE UNDERWRITERS.
5.1.1 GENERAL. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless each of the Underwriters, their
directors, officers and employees and each person, if any, who controls each
Underwriter (a "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) the Registration
Statement, any Preliminary Prospectus or the Prospectus (as from time to time
each may be amended or 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
Representatives' Warrants; or (iii) any application or other document or written
communication (in this Section 5 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,
or AMEX 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 the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in any Preliminary Prospectus, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, or in any application, as the case may
be. The Company agrees promptly to notify the Representatives 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 the
Prospectus.
5.1.2 PROCEDURE. If any action is brought against any Underwriter
or controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the
Company in writing of the institution of such action, but the failure to so
notify the Company shall not relieve them from any liability they may have
hereunder, unless such failure results in the forfeiture by the
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Company of material substantive rights and defenses and the Company shall assume
the defense of such action, including the employment and fees of counsel
(subject to the reasonable approval of such Underwriter) and payment of actual
expenses incurred in connection therewith. Such 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 such
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, (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 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 such Underwriter and/or controlling person shall be borne by the
Company. Notwithstanding anything to the contrary contained herein, if such
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.
5.2 INDEMNIFICATION OF THE COMPANY. Each Underwriter severally agrees to
indemnify and hold harmless the Company against any and all loss, liability,
claim, damage and expense described in the foregoing indemnity from the Company
to the Underwriters, 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 Underwriters in connection with this offering made
in any Preliminary Prospectus, the Registration Statement or the 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 by the
Underwriters expressly for use in such Preliminary Prospectus, the Registration
Statement or the 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
any application, and in respect of which indemnity may be sought against the
Underwriters, the Underwriters 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 Underwriters by the provisions of Section 5.1.2.
5.3 CONTRIBUTION.
5.3.1 CONTRIBUTION RIGHTS. In order to provide for just and
equitable contribution under the Act in any case in which
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(i) any person entitled to indemnification under this Section 5 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 the fact
that this Section 5 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 5, then, and in each such case, the Company and the
Underwriters 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 Underwriters, as incurred, in such proportions
that the Underwriters are 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, however, that, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section
5.3, no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section 5, each respective director, officer and employee of any Underwriter,
and each respective person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter.
5.3.2 CONTRIBUTION PROCEDURE. Within fifteen (15) 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 (the
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 (15) 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 party seeking contribution on account of any settlement of
any
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claim, action or proceeding effected by such party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The contribution provisions contained in this Section 5 are intended to
supersede, to the extent permitted by law, any right to contribution under the
Act, the Exchange Act or otherwise available.
6. 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 and any Option Closing Date, and such representations,
warranties and agreements of the Underwriters and the Company, including the
indemnity agreements contained in Section 5 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Underwriters, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Shares to the
Underwriters.
7. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase Firm Shares hereunder on the
Closing Date and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares that the Underwriters are obligated to purchase
at the Closing Date, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Firm
Shares that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters shall so default and the aggregate
number of Firm Shares with respect to which such default or defaults occur is
more than 10% of the total number of Firm Shares and arrangements satisfactory
to the Representatives and the Company for the purchase of Firm Shares by other
persons are not made within 48 hours of such default, this Agreement shall
terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the Firm Shares of a defaulting
Underwriter or Underwriters as provided in this Section 7, (i) the Company shall
have the right to postpone the Closing Date for a period of not more than five
full business days, in order that the Company may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of Firm Shares to
be purchased by the remaining Underwriters or substituted underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve
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any defaulting Underwriter of its liability to the Company or the Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 7 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 3.9 hereof and except for the provisions of
Section 5 hereof.
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
8.1 EFFECTIVE DATE. This Agreement shall become effective upon its
execution, except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time, on the first full business day following the
Effective Date or at the time of the initial public offering of the Shares,
whichever is earlier. The time of the initial public offering, for the purpose
of this Section 8 shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by the Underwriters 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 8 before the time this
Agreement becomes effective. You agree to give the undersigned notice of the
commencement of the offering described herein.
8.2 TERMINATION. You shall have the right to terminate this Agreement at
any time prior to the 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; (ii) if trading on the New York Stock Exchange or the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required in the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction, (iii) if the United States shall have become
involved in a war or material hostilities, (iv) if a banking moratorium has been
declared by a New York State or federal authority, (v) if a moratorium on
foreign exchange trading has been declared which materially adversely impacts
the United States securities market, (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 insured, will, in your opinion, make it inadvisable to proceed with the
delivery of the Shares, (vii) if ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇ shall no
longer serve the Company in their present capacities, (viii) if the Company has
breached any of its
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representations, warranties or obligations hereunder, or failed to expeditiously
proceed with the offering or to cooperate with you in requesting effectiveness
of the Registration Statement at such time as you may deem appropriate, or (ix)
if any Underwriter shall have become aware after the date hereof of such a
material adverse change in the condition (financial or otherwise), business or
prospects of the Company, or such material adverse change in general market
conditions as in your judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Shares or to enforce contracts made by the
Underwriters for the sale of the Shares.
8.3 NOTICE. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 8, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
8.4 EXPENSES. In the event that this Agreement shall not be carried out
for any reason whatsoever 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 3.9 hereof.
8.5 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 affected by, such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
9. MISCELLANEOUS.
9.1 NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed:
If to the Underwriters:
▇▇▇▇▇▇▇ Equities, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing Director
Copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
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If to the Company:
Puro Water Group, Inc.
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇, President
Copy to: Lev, Berlin & ▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
9.2 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.
9.3 AMENDMENT. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.
9.4 ENTIRE AGREEMENT. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitute 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.
9.5 BINDING EFFECT. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company, and the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
9.6 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to conflict of laws rules of such State. Any action, proceeding or claim
against any of the parties hereto arising out of, relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or the federal court for the Southern District of New York, and the parties
hereto irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive. The parties hereto hereby waive any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Except as
otherwise provided in this Agreement, 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
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proceeding and/or incurred in connection with the preparation therefor.
9.7 EXECUTION IN COUNTERPARTS. 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.
9.8 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 waiver 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.
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If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
PURO WATER GROUP, INC.
By:
---------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: President
Accepted as of the date first
above written.
New York, New York
▇▇▇▇▇▇▇ EQUITIES, INC.
GILFORD SECURITIES INCORPORATED
Acting on behalf of themselves and as
the Representatives
of the other several
Underwriters named in
Schedule I hereof.
By: ▇▇▇▇▇▇▇ EQUITIES, INC.
By:
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
By: GILFORD SECURITIES INCORPORATED
By:
-----------------------------------
Name:
Title:
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SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
------------------- ----------------------
▇▇▇▇▇▇▇ Equities, Inc. . . . . . .
Gilford Securities
Incorporated
Total . . . . . . . . . . . 1,350,000
---------
---------
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