Conolog Corporation
0 Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
UNDERWRITING AGREEMENT
IAR Securities Corp. __________, 1997
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
Conolog Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to IAR Securities Corp. ("IAR" or the "Representative") and to
each of the other underwriters named in Schedule I hereto (the "Underwriters"),
for each of whom you are acting as Representative, an aggregate of 700,000 Units
(the "Units"), each Unit consisting of one share of Common Stock, par value
$1.00 ("Common Stock"), and four Redeemable Class A Common Stock Purchase
Warrants (the "Warrants") of the Company at a public offering price of $5.00 per
Unit. Each Warrant shall entitle the holder to purchase one share of Common
Stock at a price of $6.00 per share as disclosed in the Registration Statement.
The Warrants will be immediately detachable from the Common Stock on the
Effective Date. The Warrants may be called by the Company in accordance with the
terms of the Prospectus. The Units are hereinafter referred to as the "Firm
Units." Upon the request of the Representative, and as provided in Section 3
hereof, the Company will also issue and sell to the Underwriters up to a maximum
of an additional 105,000 Units for the purpose of covering over-allotments. Such
additional Units are hereinafter sometimes referred to as the "Optional Units."
Both the Firm Units and the Optional Units are sometimes collectively referred
to herein as the "Units." All of the securities which are the subject of this
Agreement are more fully described in the Prospectus of the Company described
below. In the event that the Representative does not form an underwriting group
but decides to act as the sole Underwriter, then all references to IAR herein as
Representative shall be deemed to be to it as such sole Underwriter and Section
14 hereof shall be deemed deleted in its entirety.
In an alternate Prospectus, the Registration Statement also covers certain
additional securities for sale by certain Class A Warrant holders hereinafter
referred to as the "Selling Security Holders". Such reoffering by Selling
Security Holders is not the subject of this Underwriting Agreement.
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration Statement hereinafter referred to becomes effective. The Company
hereby confirms its agreement with the Representative and the other Underwriters
as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants and other securities will be as set forth in the Prospectus
(hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto (No.
____-9761) with respect to the Units, including a form of Prospectus
relating thereto, copies of which have been previously delivered to you,
have been prepared by the Company in conformity with the requirements of
the Act, and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission under the Act. The Company, subject to the
provisions of Section 6(a) hereof, may file one or more amendments to such
Registration Statement and Prospectus. The Underwriters will receive copies
of each such amendment.
The date on which such Registration Statement is declared effective
under the Act and the public offering of the Units as contemplated by this
Agreement is therefore authorized to commence, is herein called the
"Effective Date." The Registration Statement and Prospectus, as finally
amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of
the Rules and Regulations which differs from the Prospectus, the term
"Prospectus" shall also include the prospectus filed pursuant to Rule
424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act, (as thereafter amended or as supplemented
if the Company shall have filed with the Commission an amendment or
supplement), and, with respect to all such documents, on the Closing Date
(hereinafter defined), will in all material respects comply with the
provisions of the Act and the Rules and Regulations, and will not contain
an untrue statement of a material fact and will not omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that none of the
representations and warranties contained in this subsection (b) shall
extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon
information furnished in writing to the Company by the Underwriters
specifically for use in connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing
under the laws of the State of Delaware, having all required corporate
power and authority to own its
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properties and conduct its business as described in the Prospectus. The
Company is now, and on the Closing Date will be, duly qualified to do
business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or
location of its properties requires such qualifications except where the
failure to so qualify would not materially adversely affect the Company's
business, properties or financial condition. The Company has no
subsidiaries, except as are set forth in the Prospectus.
(d) The financial statements of the Company (audited and unaudited)
included in the Registration Statement and Prospectus present fairly the
financial position and results of operations and changes in financial
condition of the Company at the respective dates and for the respective
periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and are in accordance
with the books and records of the Company.
(e) Xxxxxxxxx, Rich, Baker, Xxxxxx & Company, independent auditors,
who have given their report on certain financial statements which are
included as a part of the Registration Statement and the Prospectus are
independent public accountants as required under the Act and the Rules and
Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set
forth in or contemplated in the Prospectus, (I) the Company has not
incurred, nor will it incur, any material liabilities or obligations,
direct or contingent, nor has it, nor will it have entered into any
material transactions, in each case not in the ordinary course of business;
(ii) there has not been, and will not have been, any material change in the
Company's Certificate of Incorporation or in its capital stock or funded
debt; and (iii) there has not been, and will not have been, any material
adverse change in the business, net worth or properties or condition
(financial or otherwise) of the Company whether or not arising from
transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and
Registration Statement to be owned by the Company are owned by the Company
by good and marketable title free and clear of all liens and encumbrances,
except those specifically referred to in the Prospectus, and except those
which do not materially adversely affect the use or value of such assets
and except the lien for current taxes not now due, or are held by the
Company by valid leases, none of which is in default. Except as disclosed
in the Prospectus and Registration Statement, the Company in all material
respects has full right and licenses, permits and governmental
authorizations required to maintain and operate its business and properties
as the same are now operated and, to its best knowledge, none of the
activities or business of the Company is in material violation of, or
causes the Company to violate any laws, ordinances and regulations
applicable thereto, the violation of which
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would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
(h) The Company has no material contingent obligations, nor are its
properties or business subject to any material risks, which may be
reasonably anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration Statement,
there are no material actions, suits or proceedings at law or in equity of
a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which
might result in a material adverse change in the condition (financial or
otherwise), properties or net worth of the Company, and there are no
proceedings pending or, to the knowledge of the Company, threatened against
the Company before or by any Federal or State Commission, regulatory body,
or administrative agency or other governmental body, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
properties or net worth or financial condition or income of the Company,
which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock and preferred stock
are duly authorized and validly issued and outstanding, fully paid,
non-assessable, and do not have any and were not issued in violation of any
preemptive rights. All of the Common Stock as described in the Prospectus
when paid for shall be duly authorized and validly issued and outstanding,
fully paid, non-assessable, and will not have any and will not be issued in
violation of any preemptive rights. The Common Stock issuable upon exercise
of the Warrants when issued and paid for in accordance with the Warrant
Agreement shall be duly authorized and validly issued and outstanding,
fully paid, non-assessable, and will not have any and will not be issued in
violation of any preemptive rights. The Common Stock and Warrants will be
delivered in accordance with this Agreement and the Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company. The
Underwriters will receive good and marketable title to the Units purchased
by them from the Company, free and clear of all liens, encumbrances,
claims, security interests, restrictions, stockholders' agreements and
voting trusts whatsoever. Except as set forth in the Prospectus, there are
no outstanding options, warrants, or other rights, providing for the
issuance of, and no commitments, plans or arrangements to issue, any shares
of any class of capital stock of the Company, or any security convertible
into, or exchangeable for, any shares of any class of capital stock of the
Company. All of the Units of the Company to which this Agreement relates
conform to the statements relating to them that are contained in the
Registration Statement and Prospectus.
(k) The certificate or certificates required to be furnished to the
Underwriters pursuant to the provisions of Section 11 hereof will be true
and correct.
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(l) The execution and delivery by the Company of this Agreement has
been duly authorized by all necessary corporate action and it is a valid
and binding obligation of the Company, enforceable against it in accordance
with its terms except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining
to creditors' rights generally.
(m) Except as disclosed in the Prospectus, no default exists, and no
event has occurred which, with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any material
term, covenant or condition by the Company or any other party, of any
material indenture, mortgage, deed of trust, note or any other material
agreement or instrument to which the Company is a party or by which it or
its business or its properties may be bound or affected, except (I) as
disclosed in the Prospectus, (ii) such defaults as have been waived by all
parties who would otherwise have a remedy or right with respect thereto or
(iii) such defaults which will not cause any material adverse change in the
business, net worth, properties or conditions (financial or otherwise), of
the Company. The Company has full power and lawful authority to authorize,
issue and sell the Units to be sold by it hereunder on the terms and
conditions set forth herein and in the Registration Statement and in the
Prospectus. No consent, approval, authorization or other order of any
regulatory authority is required for such authorization, issue or sale,
except as may be required under the Act or State securities laws. The
execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and compliance with the terms hereof will
not conflict with, or constitute a default under any indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the
Company is now a party or by which it or its business or its properties may
be bound or affected; the Certificate of Incorporation and any amendments
thereto; the by-laws of the Company, as amended; or any law, order, rule or
regulation, writ, injunction or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over
the Company or its business or properties.
(n) No officer or director of the Company has taken, and each officer
and director has agreed that he will not take, directly or indirectly, any
action designed to stabilize or manipulate the price of the Units, the
Common Stock or the Warrants in the open market following the Closing Date
or any other type of action designed to, or that may reasonably be expected
to cause or result in such stabilization or manipulation, or that may
reasonably be expected to facilitate the initial sale, or resale, of any of
the securities which are the subject of this Agreement.
(o) The Warrants to be issued to the Representative (the
"Underwriters' Unit Warrants") hereunder will be, when issued, duly and
validly authorized and executed by the Company and will constitute valid
and binding obligations of the Company, legally enforceable in accordance
with their terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws pertaining
to creditors rights generally), and the Company will have duly authorized,
reserved and set
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aside the shares of its Common Stock issuable upon exercise of the
Underwriters' Unit Warrants and the underlying Warrants, (hereinafter
called the "Underwriters' Class Warrants") and such stock, when issued and
paid for upon exercise of the Underwriters' Unit Warrants and the
Underwriters' Class A Warrants in accordance with the provisions thereof,
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements, and warranties
shall survive delivery of, and payment for, the Units.
SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units and the Underwriters' Warrants.
(a) Upon the basis of the representations, warranties, covenants and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of the Firm Units set forth opposite the respective
names of the Underwriters in Schedule I hereto, plus any additional Units which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 14 hereof.
The purchase price of the Units to be paid by the several Underwriters
shall be $4.50 per Unit ($5.00 per Unit less a ten percent discount equal to
$.50 per Unit).
In addition, and upon the same basis, and subject to the same terms and
conditions, the Company hereby grants an option to you to purchase, but only for
the purpose of covering over-allotments, upon not less than two days' notice
from the Representative, the Optional Units, or any portion thereof, at the same
price per Unit as that set forth in the preceding sentence; and each Underwriter
agrees, severally and not jointly, to purchase Optional Units in the same
proportion in which it has agreed to purchase Firm Units. Notwithstanding
anything contained herein to the contrary, you individually and not as
Representative may provide in the Agreement Among Underwriters for the
Representative to purchase all or any part of the Optional Units and are not
obligated to offer the Optional Units to the other Underwriters. The Optional
Units may be exercised at any time, and from time to time, thereafter within a
period of 45 calendar days following the Effective Date. The time(s) and date(s)
(if any) so designated for delivery and payment for the Optional Units shall be
set forth in the notice to the Company. Such dates are herein defined as the
Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or official bank
checks in New York Clearing House funds, payable to the order of the Company at
the offices of the Representative, or its clearing agent, or at such other place
as shall be agreed upon by the Representative and the Company, upon delivery of
the Firm Units to the Representative for the respective accounts of the
Underwriters. In making payment to the Company with respect to the Firm Units,
the Representative may first deduct all
6
sums due to it for the balance of the non-accountable expense allowance and
under the Financial Consulting Agreement (as hereinafter defined). Such delivery
and payment shall be made at 9:30 A.M., New York City Time on the third business
day after the Effective Date which may be extended by the Representative to not
later than the fifth business day, following the Effective Date (unless
postponed in accordance with the provisions of Section 14 hereof) or at such
other time as shall be agreed upon by the Representative and the Company. The
time and date of such delivery and payment are hereby defined as the Closing
Date. It is understood that each Underwriter has authorized the Representative,
for the account of such Underwriter, to accept delivery of, receipt for, and
make payment of the purchase price for, the Firm Units which it has agreed to
purchase. You, individually, and not as Representative may (but shall not be
obligated to) make payment of the purchase price for the Firm Units to be
purchased by any Underwriter whose check shall not have been received by the
Closing Date, for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Units shall be made at the offices of the
Representative, or its clearing agent or at such other place as shall be agreed
upon by the Representative and the Company, in accordance with the notice
delivered pursuant to Section 3(a) which shall be no later than seven business
days from the expiration of the 45-day option period.
(d) Certificates for the Firm Units and for the Optional Units shall be
registered in such name or names and in such authorized denominations as the
Representative may request in writing at least two business days prior to the
Closing Date, and the Additional Closing Date(s) (if any). The Company shall
permit the Representative to examine and package said certificates for delivery
at least one full business day prior to the Closing Date and prior to the
Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Units except upon tender of payment by the Underwriters
for all of the Firm Units agreed to be purchased by them hereunder. The
Representative, however, shall have the sole discretion to determine the number
of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the Company also
hereby agrees to sell to the Representative, Warrants to purchase 70,000 Units
for an aggregate purchase price of $70 (hereinafter referred to as the
"Underwriters' Unit Warrants"). The 70,000 Units underlying the Underwriters'
Warrants shall be identical to the Units sold to the public. Each Underwriters'
Unit Warrant shall entitle the owner thereof to purchase one Unit of the Company
at an exercise price of $6.00 per Unit. Such Underwriters' Unit Warrants are to
become exercisable one year from the Effective Date, and shall remain
exercisable for a period of four years thereafter. From the Effective Date and
until one (1) year thereafter, such warrants may be transferred only to officers
or partners of the Underwriters and selling group members and their officers or
partners.
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The Underwriters' Unit Warrants shall contain customary clauses protecting
the holders thereof in the event the Company pays stock dividends, effects stock
splits, or effects a sale of assets, merger or consolidation.
(f) On and subject to the Closing Date, the Company will give irrevocable
instructions to its transfer agent and Depository Trust Company to deliver to
the Representative (at the Company's expense) for a period of five years from
the Closing Date, daily transfer sheets showing any transfers of the Units,
Common Stock and Warrants and in the case of the transfer agent, from time to
time during the aforesaid period a complete stockholders' list will be promptly
furnished by the Company when requested by the Representative on not more than
two occasions per year.
SECTION 4. Public Offering. The several Underwriters agree, subject to the
terms and provisions of this Agreement, to offer the Units to the public as soon
as practicable after the Effective Date, at the initial offering price of $5.00
per Unit and upon the terms described in the Prospectus. The Representative may,
from time to time, decrease the public offering price, after the initial public
offering, to such extent as the Representative may determine, however, such
decreases will not affect the price payable to the Company hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will furnish
the Representative, without charge, two signed copies of the Registration
Statement and of each amendment thereto, including all exhibits thereto and such
amount of conformed copies of the Registration Statement and Amendments as may
be reasonably requested by the Representative for distribution to each of the
Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed copies of a
Preliminary Prospectus and of the Prospectus as the Representative may request
for the purposes contemplated by this Agreement. If, while the Prospectus is
required to be delivered under the Act or the Rules and Regulations, any event
known to the Company relating to or affecting the Company shall occur which
should be set forth in a supplement to or an amendment of the Prospectus in
order to comply with the Act (or other applicable law) or with the Rules and
Regulations, the Company will forthwith prepare, furnish and deliver to the
Representative and to each of the other Underwriters and to others whose names
and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected dealers, if any,
in connection with the distribution of the Units and all dealers to whom any of
the Units may be sold by the Underwriters or by any participating broker-dealer
("Selected Dealer") to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the applicable
8
provisions of the Act and the applicable Rules and Regulations and applicable
State securities laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees with
each Underwriter that:
(a) After the date hereof, the Company will not at any time, whether
before or after the Effective Date, file any amendment to the Registration
Statement or the Prospectus, or any supplement to the Prospectus, of which
the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative or the Underwriters' counsel
shall have reasonably objected in writing on the ground that it is not in
compliance with the Act or the Rules and Regulations.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective (provided, however, the Company shall not
cause the Registration Statement to become effective without the written
consent of IAR) and will advise the Representative, (i) when the
Registration Statement shall have become effective and when any amendment
thereto shall have become effective, and when any amendment of or
supplement to the Prospectus shall be filed with the Commission, (ii) when
the Commission shall make request or suggestion for any amendment to the
Registration Statement or the Prospectus or for additional information and
the nature and substance thereof, and (iii) of the issuance by the
Commission of an order suspending the effectiveness of the Registration
Statement or of the initiation of any proceedings for that purpose, and
will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the
earliest possible moment.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representative, such amendments, or supplements to
the Registration Statement or Prospectus, in form and substance
satisfactory to counsel to the Company, as in the reasonable opinion of
Xxxxxx Xxxxx P.C., as counsel to the Underwriters, may be necessary or
advisable in connection with the offering or distribution of the Units, and
will diligently use its best efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information,
and execute all such applications, instruments and papers as may be
required, in the opinion of the Underwriters' counsel, to qualify the Units
or such part thereof as the Representative may determine, for sale under
the so-called "Blue Sky" Laws of such states as the Representative shall
designate, and to continue such qualification in effect so long as required
for the purposes of the distribution of the Units, provided, however, that
the Company shall not be required to qualify as a foreign corporation or
dealer in securities or to file a consent to service of process in any
state in any action other than one arising out of the offering or sale of
the Units.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be
9
required by the Commission, or the proper public bodies of the States in
which the Units may be qualified for sale, for so long as required by
applicable law, rule or regulation and will provide the Representative with
copies of all such registrations, filings and reports on a timely basis.
(f) During the period of five years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the
end of each of the Company's first three quarter-yearly fiscal periods, a
balance sheet of the Company as at the end of such quarter-yearly period,
together with a statement of its income and a statement of changes in its
cash flow for such period (Form 10-Q or 10-QSB), all in reasonable detail,
signed by its principal financial or accounting officer, (ii) within 105
days after the end of each fiscal year, a balance sheet of the Company as
at the end of such fiscal year, together with a statement of its income and
statement of cash flow for such fiscal year (Form 10-K or 10- KSB), such
balance sheet and statement of cash flow for such fiscal year to be in
reasonable detail and to be accompanied by a certificate or report of
independent public accountants, (who may be the regular accountants for the
Company), (iii) as soon as available a copy of every other report
(financial or other) mailed to the stockholders, and (iv) as soon as
available a copy of every non-confidential report and financial statement
furnished to or filed with the Commission or with any securities exchange
pursuant to requirements by or agreement with such exchange or the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or any regulations of the Commission thereunder. If and for so
long as the Company has one or more active subsidiaries, the financial
statements required by (i) and (ii) above shall be furnished on a
consolidated basis in respect of the Company and all of the Company's
subsidiaries. The financial statements referred to in (ii) shall also be
furnished to all of the stockholders of the Company as soon as practicable
after the 105 days referred to therein.
(g) The Company shall comply with all periodic reporting and proxy
solicitation requirements imposed by the Commission pursuant to the 1934
Act, and shall promptly furnish you with copies of all material filed with
the Commission pursuant to the 1934 Act or otherwise furnished to
shareholders of the Company.
(h) The Company will make generally available to its security holders,
as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be
audited) in reasonable detail, covering a period of at least twelve months
beginning after the Effective Date, which earnings statement shall satisfy
the provisions of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply for (or
maintain) listing in Standard and Poor's Corporation Records and Standard &
Poor's Monthly Stock Guide and shall use its best efforts to have the
Company listed in such reports for a period of not less than five (5) years
from the Closing Date. The Company will request accelerated treatment in
the Daily News Supplement of Standard and Poor's Corporation Records.
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(j) The Company shall employ the services of an auditing firm
acceptable to the Representative in connection with the preparation of the
financial statements required to be included in the Registration Statement
and shall continue to appoint such auditors or such other auditors as are
reasonably acceptable to the Representative for a period of five (5) years
following the Effective Date of the Registration Statement. Said financial
statements shall be prepared in accordance with Regulation S-X under the
General Rules and Regulations of the 1933 Act. The firm of Xxxxxxxxx, Rich,
Baker, Xxxxxx & Company are deemed acceptable to the Underwriter. The
Company shall appoint Continental Stock Transfer & Trust Company transfer
agent (the "Transfer Agent") for the Common Stock and as Warrant Agent for
the Warrants.
(k) Until such time as the Company's Common Stock is listed on the New
York Stock Exchange, the American Stock Exchange, or the NASDAQ/NMS; the
Company shall cause its legal counsel or an independent firm acceptable to
the Representative to provide the Representative with a survey, to be
updated upon request of the Underwriter, of those states in which the
securities of the Company may be traded in non-issuer transactions under
the Blue Sky laws of the states and the basis for such authority. The first
such survey shall be delivered by such counsel at closing; the second such
survey shall be delivered by such counsel within five business days of
publication of the Company in Standard & Poor's Corporation Records and,
thereafter upon request of the Underwriter.
(l) As soon as practicable after the Closing Date, the Company will
deliver to the Representative and its counsel a total of two bound volumes
of copies of all documents relating to the public offering which is the
subject of this Agreement.
(m) The Company and its officers, directors and principal stockholders
have agreed not to issue, sell, offer to sell or otherwise dispose of any
shares of the Company's Common Stock, or securities convertible into Common
Stock, owned by them, for a period of two (2) months from the Effective
Date without the prior written consent of the Representative.
SECTION 7. Expenses of the Company.
(a) The Company shall be responsible for and shall bear all expenses
directly and necessarily incurred in connection with the proposed financing,
including: (I) the preparation, printing and filing of the Registration
Statement and amendments thereto, including NASD and SEC filing fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among the Underwriters and the Selected Dealers' Agreement, a Blue
Sky Memorandum and material to be circulated to the Under writers by us; (ii)
the issuance and delivery of certificates representing the Common Stock and
Warrants including original issue and transfer taxes, if any; (iii) the
qualifications of the Company's Units (covered by the "firm commitment"
offering) under State securities or "Blue Sky" laws, including counsel fees of
Xxxxxx Xxxxx P.C. relating thereto in the sum of Thirty ($30,000) Dollars
($_________ of which has been paid, together with appropriate state filing fees)
plus disbursements relating to, but not limited to, long-distance telephone
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calls, photocopying, messengers, excess postage, overnight mail and courier
services; and (iv) the fees and disbursements of counsel for the Company and the
accountants for the Company. Upon the commencement of the necessary state Blue
Sky filings by our counsel, the Company shall supply him at his request, all
necessary state filing fees.
(b) In addition, the Company shall bear each of the following costs:
investigative reports (such as Xxxxxx'x Reports) of the Company's executive
officers, directors and principal shareholders, not to exceed $5,000 in the
aggregate and (ii) otherwise unreimbursed postage including mailing of
preliminary and final prospectuses incurred by or on behalf of the
Representative and the Underwriters in preparation for, or in connection with
the offering and sale and distribution of the Units on an accountable basis.
SECTION 8. Payment of Underwriters' Expenses.
On the Closing Date and Additional Closing Date(s) (if any) the Company
will pay to you an expense allowance equal to three (3%) percent of the total
gross proceeds derived from the public offering contemplated by this Agreement
for the fees and disbursements of counsel to the Underwriters and for costs of
otherwise unreimbursed advertising, traveling, postage, telephone and telegraph
expenses and other miscellaneous expenses incurred by or on behalf of the
Representative and the Underwriters in preparation for, or in connection with
the offering and sale and distribution of the Units; and you shall not be
obligated to account to the Company for such disbursements and expenses.
Further, in the event that this Agreement is terminated pursuant to Section 12
hereof, the Company will be obligated to reimburse the Representative on an
accountable basis for its reasonable out-of-pocket expenses incurred in
connection hereunder.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law or
otherwise, and to reimburse persons indemnified as above for any reasonable
legal or other expense (including the cost of any investigation and preparation)
incurred by them (as incurred), or any of them, in connection with
investigating, defending against or appearing as a third party witness in
connection with any claim or litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, liabilities, expenses or
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented, if amended or supplemented), or in any
"Blue Sky" application, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances
12
under which they are made, not misleading; provided, however, that the indemnity
agreement contained in this subsection (a) shall not apply to amounts paid in
settlement of any such claims or litigation if such settlement is effected
without the consent of the Company, nor shall it apply to the Underwriters or
any person controlling the Underwriters in respect of any such losses, claims,
damages, expenses, liabilities or litigation arising out of, or based upon, any
such untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon and in
conformity with written information furnished in writing to the Company by such
Underwriter, or on its behalf, specifically for use in connection with the
preparation of the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto or any such "Blue Sky" application.
(b) Each of the Underwriters severally agrees, in the same manner and to
the same extent as set forth in subsection (a) above, to indemnify and hold
harmless the Company, each of the directors and officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement, or the Prospectus (as amended or as
supplemented, if amended or supplemented), or in any "Blue Sky" application, if
such statement or omission was made in reliance upon and in conformity with
written information furnished in writing to the Company by such Underwriter, or
on its behalf, specifically for use in connection with the preparation of the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, or any such application. An Underwriter shall not be liable
for amounts paid in settlement of any such claim or litigation if such
settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any claim asserted against it and of any action commenced against it in
respect of which indemnity may be sought hereunder. The omission to so notify an
indemnifying party shall relieve such party of its obligation to indemnify
pursuant to this Agreement, but failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the
13
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (I) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the defendants in any such action
include both the indemnified and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party or parties), it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party which firm shall be designated in writing by the indemnified
party.
(d) The respective indemnity agreements between the Underwriters and the
Company contained in subsections (a) and (b) above, and the representations and
warranties of the Company set forth in Section 2 hereof or elsewhere in this
Agreement, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters or by or on behalf of
any controlling person of the Underwriters or the Company or any such officer or
director or any controlling person of the Company, and shall survive the
delivery of the Units. Any successor of the Company, or of the Underwriters, or
of any controlling person of the Underwriters or the Company, as the case may
be, shall be entitled to the benefit of such respective indemnity agreements.
(e) In order to provide for just and equitable contribution under the Act
in any case in which (I) any person entitled to indemnification under this
Section 9 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 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
14
Within twenty 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,
in writing, of the commencement thereof, but the omission so to 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 so notifies a
contributing party or his or its representative of the commencement thereof
within the aforesaid twenty 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 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 9 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (I) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Units,
or the time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Units which the
Underwriters have agreed to purchase hereunder are subject to: the accuracy, as
of the date hereof and as of the Closing Date and the Additional Closing
Date(s), if any, (together, the "Closing Dates"), of all of the representations
and warranties of the Company contained in this Agreement; the Company's
compliance with, or performance of, all of its covenants, undertakings and
agreements contained in this Agreement that are required to be complied with or
performed on or prior to each of the Closing Dates and to the following
additional conditions:
(a) On or prior to the Closing Date, no order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or be pending or, to the knowledge of the
Company, shall be threatened by the Commission; any request for additional
information on the part of the
15
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the Commission;
and neither the Registration Statement nor any amendment thereto shall have been
filed to which counsel to the Underwriters shall have reasonably objected, in
writing.
(b) The Representative shall not have disclosed in writing to the Company
that the Registration Statement or Prospectus or any amendment or supplement
thereto contained, as of the date thereof, an untrue statement of a fact which,
in the opinion of counsel to the Underwriters, is material, or omits to state a
fact which, in the opinion of such counsel, is material and is required to be
stated therein, or is necessary to make the statements therein not materially
misleading.
(c) Between the date hereof and the Closing Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or other cause, of such character as materially adversely affects its business
or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or, to the knowledge of the Company, threatened against
the Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, licenses, permits, operations or financial condition or income of the
Company.
(e) Except as contemplated herein or as set forth in the Registration
Statement and Prospectus, during the period subsequent to the Effective Date and
prior to the Closing Date, (A) the Company shall have conducted its business in
the usual and ordinary manner as the same was being conducted on the date of the
filing of the initial Registration Statement and (B) except in the ordinary
course of its business, the Company shall not have incurred any material
liabilities or obligations (direct or contingent), or disposed of any of its
assets, or entered into any material transaction, and (C) the Company shall not
have suffered or experienced any material adverse change in its business,
affairs or in its condition, financial or otherwise. On the Closing Date, the
capital stock and surplus accounts of the Company shall be substantially as
great as at its last financial report without considering the proceeds from the
sale of the Units except to the extent that any decrease is disclosed in or
contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the Warrants, the
Registration Statement, the Prospectus and all corporate proceedings and other
legal matters incident thereto and to this Agreement, shall be reasonably
satisfactory in all respects to counsel to the Underwriters.
16
(g) The Company shall have furnished to the Representative the opinions,
dated the Closing Date, and Additional Closing Date(s), addressed to you, of its
counsel that:
(i) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and
Prospectus; it has authorized and outstanding capital as set forth in the
Registration Statement and Prospectus; and the Company is duly licensed or
qualified as a foreign corporation in all jurisdictions in which by reason
of maintaining an office in such jurisdiction or by owning or leasing real
property in such jurisdiction it is required to be so licensed or qualified
except where failure to be so qualified or licensed would have no material
adverse effect.
(ii) All of the outstanding shares of Common Stock and preferred stock
are duly and validly issued and outstanding, fully paid, and
non-assessable, and do not have any, and were not issued in violation of
any, preemptive rights. The Company will have duly authorized, reserved and
set aside shares of Common Stock issuable upon exercise of the Warrants and
any other outstanding options or warrants and when issued in accordance
with such terms contained in the Prospectus, will be duly and validly
authorized and issued, fully paid and non-assessable.
(iii) All of the Units of the Company to which this Agreement relates
conform to the statements relating to them that are contained in the
Registration Statement and Prospectus (excluding financial statements).
(iv) The Underwriters against payment therefor, will receive good and
marketable title to the Units purchased by them from the Company in
accordance with the terms and provisions of this Agreement.
(v) To the best of the knowledge of such counsel, except as set forth
in the Prospectus, there are no outstanding options, warrants, or other
rights, providing for the issuance of, and, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the
Company, or any security convertible into, or exchangeable for, any shares
of any class of capital stock of the Company.
(vi) To the best of such counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Units hereunder, except such as may be required under the Act or state
securities or Blue Sky Laws.
(vii) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and the Registration
17
Statement and Prospectus, and each amendment thereof and supplement
thereto, comply as to form in all material respects with the requirements
of the Act and the Rules and Regulations (except that no opinion need be
expressed as to financial statements and financial data contained in the
Registration Statement or Prospectus), and in the course of the preparation
of the Registration Statement, nothing has come to the attention of said
counsel to cause them to believe that either the Registration Statement or
the Prospectus or any such amendment or supplement contains any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; and such counsel is familiar with all contracts referred to in
the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, or filed as exhibits thereto,
as required, and such counsel does not know of any other contracts required
to be summarized or disclosed or filed; and such counsel does not know of
any legal or governmental proceedings pending or threatened to which the
Company is a party, or in which property of the Company is the subject, of
a character required to be disclosed in the Registration Statement or the
Prospectus which are not disclosed and properly described therein.
(viii) The Underwriters' Unit Warrants to be issued to the
Representative hereunder will be, when issued against payment therefor duly
and validly authorized and executed by the Company and will constitute
valid and binding obligations of the Company, legally enforceable in
accordance with their terms (except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally), and
the Company will have duly authorized, reserved and set aside the shares of
its Common Stock issuable upon exercise of the Underwriters' Warrants and
Underwriters' Class A Warrants , and such stock, when issued and paid for
upon exercise of the Underwriters' Unit Warrants and Underwriters' Class A
Warrants in accordance with the provisions thereof, will be duly and
validly authorized and issued, fully-paid and non-assessable.
(ix) The Company holds by valid lease, its properties as shown in the
Prospectus, and is in all material respects complying with all laws,
ordinances and regulations applicable thereto.
(x) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company.
(xi) To the best of the knowledge of such counsel, no default exists,
and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any
material term, covenant or condition by the Company or any other party, of
any indenture, mortgage, deed of trust, note or any other agreement or
instrument known to counsel to which the Company is a party or by which it
or its business or its properties may be bound or affected, except as
disclosed in the Prospectus. The Company has full power and lawful
authority to authorize, issue and sell the Units on the terms and
conditions set forth herein and in the Registration Statement and in the
Prospectus. No consent, approval, authorization or other order of
18
any regulatory authority is required for such authorization, issue or sale,
except as may be required under the Act or State securities laws. The
execution and delivery of this Agreement, the consummation of the
transactions herein contemplated, and compliance with the terms hereof will
not conflict with, or constitute a default under any indenture, mortgage,
deed or trust, note or any other agreement or instrument known to counsel
to which the Company is now a party or by which it or its business or its
properties may be bound or affected; the Certificate of Incorporation and
any amendments thereto; the by-laws of the Company; or any law, order, rule
or regulation, writ, injunction or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over
the Company or its business or properties known to counsel.
(xii) To the best of the knowledge of such counsel, there are no
material actions, suits or proceedings at law or in equity of a material
nature pending or to such counsel's knowledge threatened against the
Company which are not adequately covered by insurance and there are no
proceedings pending, or to the knowledge of such counsel threatened,
against the Company before or by any Federal or State Commission,
regulatory body, or administrative agency or other governmental body,
wherein an unfavorable ruling, decision or finding would materially
adversely affect the business, business prospects, franchise, licenses,
permits, operation or financial condition or income of the Company, which
are not disclosed in the Prospectus.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative certificates of
the President of the Company, dated as of the Closing Date, and Additional
Closing Date(s), to the effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof is true and correct in all material respects
at and as of such Closing Date, and the Company has performed or complied
with all of its agreements, covenants and undertakings contained in this
Agreement and has performed or satisfied all the conditions contained in
this Agreement on its part to be performed or satisfied at the Closing
Date;
(ii) The Registration Statement has become effective and no order
suspending the effectiveness of the Registration Statement has been issued,
and, to the best of the knowledge of the respective signers, no proceeding
for that purpose has been initiated or is threatened by the Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and
supplements thereto, and to the best of their knowledge the Registration
Statement and the Prospectus
19
and any amendments and supplements thereto and all statements contained
therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth except changes which the Registration Statement and Prospectus
indicate might occur.
(iv) Except as set forth or contemplated in the Registration Statement
and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus
and prior to the date of such certificate (A) there has not been any
material adverse change, financial or otherwise, in the business, business
prospects, earnings, general affairs or condition (financial or otherwise),
of the Company (in each case whether or not arising in the ordinary course
of business), and (B) the Company has not incurred any material
liabilities, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business other than
as referred to in the Registration Statement or Prospectus and except
changes which the Registration Statement and Prospectus indicate might
occur.
(i) The Company shall have furnished to the Representative on the Closing
Date, such other certificates of executive officers of the Company additional to
those specifically mentioned herein, as the Representative may have reasonably
requested, as to: the accuracy and completeness of any statement in the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto; the representations and warranties of the Company herein; the
performance by the Company of its obligations hereunder; or the fulfillment of
the conditions concurrent and precedent to the obligations of the Underwriters
hereunder, which are required to be performed or fulfilled on or prior to the
Closing Date.
(j) At the time this Agreement is executed, and on each Closing Date you
shall have received a letter from Xxxxxxxxx, Rich, Baker, Xxxxxx & Company
addressed to the Representative, as Representative of the Underwriters, and
dated, respectively, as of the date of this Agreement and as of each Closing
Date in form and substance reasonably satisfactory to the Representative, to the
effect that:
(i) They are independent public accountants within the meaning of the
Act and the applicable published Rules and Regulations of the Commission;
(ii) In their opinion, the financial statements and related schedules
of the Company included in the Registration Statement and Prospectus and
covered by their reports comply as to form in all material respects with
the applicable accounting requirements of the Act and the published Rules
and Regulations of the Commission issued thereunder;
20
(iii) On the basis of limited procedures in accordance with standards
established by the American Institute of Certified Public Accountants,
including (1) a reading of the latest available financial statements of the
Company (a copy of which shall be attached to such letter), (2) a reading
of the latest available minutes of the meetings of the stockholders and the
Board of Directors of the Company as set forth in the minute books of the
Company, officials of the Company having advised you and them that the
minutes of all such meetings through that date were set forth therein, (3)
consultations with officials of the Company responsible for financial and
accounting matters of the Company, which procedures do not constitute an
examination in accordance with generally accepted accounting standards, and
would not necessarily reveal material adverse changes in the financial
position or results of operations or inconsistencies in the application of
generally accepted accounting principles, nothing has come to their
attention which in their judgment would lead them to believe that (a) the
unaudited financial statements and related schedules of the Company
included in the Registration Statement and Prospectus do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the published Rules and Regulations of the Commission issued
thereunder, or were not prepared in accordance with generally accepted
accounting principles and practices consistent in all material respects
with those followed in the preparation of the comparable financial
statements and schedules covered by their reports included in the
Registration Statement and Prospectus, or would require any material
adjustments for a fair presentation of the information purported to be
shown thereby or (b) during the period from the date of the Capitalization
table included in the Prospectus to a specified date not more than four
business days prior to the date of such letter, there has been any material
change in the capital stock or debt of the Company, or (c) during the
period from the date of the latest balance sheet and related statements of
operations, changes in stockholders' equity and changes in financial
position included in the Prospectus and covered by their reports contained
therein to the date of the letter, there has been any material adverse
change in the financial condition, or results of operations, of the
Company; and
(iv) In addition to the examination referred to in their reports
included in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus
under the captions "Capitalization", "Management's Discussion and Analysis
of Financial Condition and Results of Operations", "Executive
Compensation", "Certain Transactions", "Selected Financial Data,"
"Dilution," and "Risk Factors," as well as such other financial information
as may be specified by the Representative, and that they have compared such
amounts, percentages and financial information with the accounting records
of the Company and have found them to be in agreement.
All the opinions, letters, certificates and evidence mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions
21
hereof only if they are in form and substance reasonably satisfactory to
counsel to the Underwriters, whose approval shall not be unreasonably
withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
and all obligations of the Underwriters hereunder may be terminated and canceled
by the Representative by notifying the Company of such termination and
cancellation in writing or by telegram at any time prior to, or on, the Closing
Date and any such termination and cancellation shall be without liability of any
party hereto to any other party, except with respect to the provisions of
Sections 7 and 8 hereof. The Representative may, of course, waive, in writing,
any conditions which have not been fulfilled or extend the time for their
fulfillment.
SECTION 12. Termination.
(a) This Agreement may be terminated by the Representative by written or
telegraphic notice to the Company at any time before it becomes effective
pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by written or
telegraphic notice to the Company, at any time after it becomes effective, in
the event that the Company, after notice from the Representative and an
opportunity to cure, shall have failed or been unable to comply with any of the
terms, conditions or provisions of this Agreement on the part of the Company to
be performed, complied with or fulfilled within the respective times herein
provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either inabilities
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any action, suit or proceeding, threatened or pending, at law or equity against
the Company, or by any Federal, State or other commission, board or agency
wherein any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by written or
telegraphic notice to the Company at any time after it becomes effective, if the
offering of, or the sale of, or the payment for, or the delivery of, the Units
is rendered impracticable or inadvisable because (i) additional material
governmental restriction, not in force and effect on the date hereof, shall have
been imposed upon trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock Exchange or trading
in securities generally on such exchange shall have been suspended or a general
banking moratorium shall have been established by Federal or New York State
authorities or (ii) a war or other national calamity shall have occurred
involving the
22
United States or (iii) the condition of the market for securities in general
shall have materially and adversely changed, or (iv) the condition of any matter
materially affecting the Company or its business or business prospects, is such
that it would be undesirable, impractical or inadvisable to proceed with, or
consummate, this Agreement or the public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section 12 shall be
without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party hereto,
except that the Company shall remain obligated to pay the costs and expenses
provided to be paid by it specified in Sections 6, 7 and 8, to the extent
therein provided. In addition, the Underwriter shall account to the Company for
any advance and shall reimburse the Company for any portion of the advance not
expended for actual out-of-pocket expenses. In the event that the Representative
terminates this agreement pursuant to the provisions of Section 12(b), the
Representative shall be entitled to reimbursement of expenses on an accountable
basis.
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their obligations to
purchase and pay for Units hereunder and if the aggregate amount of such Units
which all Underwriters so defaulting have agreed to purchase does not exceed 10%
of the aggregate number of Units constituting the Units, the non-defaulting
Underwriters shall have the right and shall be obligated severally to purchase
and pay for (in addition to the Units set forth opposite their names in Schedule
I) the full amount of the Units agreed to be purchased by all such defaulting
Underwriters and not so purchased, in proportion to their respective commitments
hereunder. In such event the Representative, for the accounts of the several
non-defaulting Underwriters, may take up and pay for all or any part of such
additional Units to be purchased by each such Underwriter under this subsection
(a), and may postpone the Closing Date to a time not exceeding seven full
business days; or
(b) If one or more Underwriters (other than the Representative) default in
its or their obligations to purchase and pay for the Units hereunder and if the
aggregate amount of such Units which all Underwriters so defaulting shall have
agreed to purchase shall exceed 10% of the aggregate number of Units, or if one
or more Underwriters for any reason permitted hereunder cancel its or their
obligations to purchase and pay for Units
23
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Units in such proportion as may be agreed among them, at the
Closing Date. If the Remaining Underwriters do not purchase and pay for such
Units at such Closing Date, the Closing Date shall be postponed for one business
day and the remaining Underwriters shall have the right to purchase such Units,
or to substitute another person or persons to purchase the same or both, at such
postponed Closing Date. If purchasers shall not have been found for such Units
by such postponed Closing Date, the Closing Date shall be postponed for a
further two business days and the Company shall have the right to substitute
another person or persons, satisfactory to you to purchase such Units at such
second postponed Closing Date. If the Company shall not have found such
purchasers for such Units by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Section 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters for damages
occasioned by its default hereunder (and such damages shall be deemed to
include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
SECTION 15. Registration of the Underwriters' Unit Warrants and
Underwriters' Class A Warrants. The Company agrees that it will, upon request by
the Representative or the holders of a majority of the Underwriters' Unit
Warrants and Underlying Securities (i.e. Underwriters' Class A Warrants and
shares of Common Stock issuable upon exercise thereof) within the period
commencing one year after the Effective Date, and for a period of five years
from the Effective Date, on one occasion only at the Company's sole expense,
cause the Underwriters' Unit Warrants and/or the Underlying Securities issuable
upon exercise of the Underwriters' Unit Warrants, to be the subject of a
post-effective amendment, a new Registration Statement, if appropriate
(hereinafter referred to as the "demand Registration Statement"), so as to
enable the Representative and/or its assigns to offer publicly the Underwriters'
Unit Warrants and/or the Underlying Securities. The Company agrees to register
such securities expeditiously and, where possible, within forty-five (45)
business days after receipt of such requests. The Company agrees to use its
"best efforts" to cause the post-effective amendment, new Registration Statement
to become effective and for a period of nine (9) months thereafter to reflect in
the post-effective amendment, new Registration Statement, financial statements
which are prepared in accordance with Section 10(a)(3) of the Act and any facts
or events arising which, individually or in the aggregate, represent a
fundamental and/or material change in the information set forth in such
post-effective amendment or new Registration Statement. The holders of the
Underwriters' Unit Warrants may demand registration without exercising such
Warrants and, in fact, are never required to exercise same.
24
The Company understands and will agree that if, at any time within the
period commencing one year after the Effective Date and ending seven years after
the Effective Date of the Company's Registration Statement, it should file a
Registration Statement with the Commission pursuant to the Securities Act,
regardless of whether some of the holders of the Underwriters' Unit Warrants and
Underlying Securities shall have theretofore availed themselves of the right
provided above, the Company, at its own expense, will offer to said holders the
opportunity to register the Underwriters' Unit Warrants and Underlying
Securities. This paragraph is not applicable to a Registration Statement filed
by the Commission with the Commission on Form S-8 or any other inappropriate
form.
In addition to the rights above provided, the Company will cooperate with
the then holders of the Underwriters' Unit Warrants and Underlying Securities in
preparing and signing a Registration Statement, on one occasion only in addition
to the Registration Statements discussed above, required in order to sell or
transfer the aforesaid Underwriters' Unit Warrants and Underlying Securities and
will supply all information required therefor, but such additional Registration
Statement shall be at the then Holders' cost and expense unless the Company
elects to register additional shares of the Company's Common Stock in which case
the cost and expense of such Registration Statement will be prorated between the
Company and the Holders of the Underwriters' Unit Warrants and Underlying
Securities according to the aggregate sales price of the securities being
issued. The Holders of the Underwriters' Unit Warrants may include such Warrants
in any such filing without exercising the Underwriters' Unit Warrants, and in
fact, are never required to exercise same. The Company can, at any time for any
reason, withdraw any such registration except in connection with a Registration
Statement filed pursuant to the Company's demand Registration Statement.
SECTION 16. Other Agreements.
(a) On the Effective Date, the Company will enter into an agreement
retaining the Representative as a financial consultant pursuant to which the
Representative shall receive a consulting fee in an amount equal to $35,000 per
year or a total of $70,000 for services for two (2) year from the Effective
Date, payable in full in advance on the Closing Date, which shall include, but
not be limited to, advising the Company in connection with possible acquisition
opportunities, advising the Company regarding shareholder relations including
the preparation of the annual report and other releases, assisting in long-term
financial planning, advice in connection with corporate reorganizations and
expansion and capital structure, and other financial assistance.
(b) The Company agrees to file with the NASD all post-effective amendments
or prospectus supplements disclosing actual price and selling terms by the
selling security holders at the same time they are filed with the Commission and
in the event a portion of the securities being registered on behalf of selling
security holders become underwritten, that prior to commencement of the
distribution (i) copies of all underwriting documents proposed for use will be
submitted to the NASD for review and (ii)
25
the maximum compensation to be paid will be approved by the Department. To the
extent the Company receives notification from a related shareholder, the Company
will notify the Representative and the NASD if subsequent to the filing of this
offering any 5% or greater shareholder of the Company is or becomes an affiliate
or associated person of an NASD member participating in the distribution in this
offering.
(c) If the Company shall within five (5) years from the Effective Date,
enter into any agreement or understanding with any person or entity introduced
by the Representative involving (i) the sale of all or substantially all of the
assets and properties of the Company, (ii) the merger or consolidation of the
Company (other than a merger or consolidation effected for the purpose of
changing the Company's domicile) or (iii) the acquisition by the Company of the
assets or stock of another business entity, which agreement or understanding is
thereafter consummated, whether or not during such five (5) year period, the
Company, upon such consummation, shall pay to the Representative an amount equal
to the following percentages of the consideration paid by the Company in
connection with such transaction:
5% of the first $4,000,000 or portion thereof, of such consideration;
4% of the next $1,000,000 or portion thereof, of such consideration;
3% of the next $1,000,00 or portion thereof, of such consideration; and
2% of such consideration in excess of the first $6,000,000 of such
consideration.
The fee payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any such
transactions.
(d) Commencing twelve months after the Effective Date, the Company will pay
the Representative as its Warrant solicitation agent an amount equal to four
percent (4%) of the aggregate exercise price of each Class A Warrant exercised
provided: (1) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (2) exercise
of the Warrant was solicited by a member of the NASD and the NASD member is
designated in writing by the Warrant holder; (3) the Warrant was not held in a
discretionary account or prior specific written approval was obtained from the
related customer ; (4) disclosure of compensation arrangements was made both at
the time of the offering and at the time of exercise of the Warrant; (5) the
solicitation of the exercise of the Warrant was not in violation of Regulation M
promulgated under the Securities Exchange Act of 1934; and (6) solicitation is
in compliance with NASD Notice to Members 81-38. The Company agrees to pay over
to the Representative any fees due it within five business days after receipt by
the Company of Warrant proceeds. Within ten (10) days of the last day of each
month commencing one year from the Effective Date, the Company will instruct the
Warrant Agent to notify the Representative of each Warrant certificate which has
been properly completed and delivered for exercise by holders of Warrants during
each such month. The Company will instruct the Transfer Agent that the
Representative may at any time during business hours upon reasonable advance
written notice, at its expense, examine the
26
records of the Company and the Warrant Agent which relate to the exercise of the
Warrants.
SECTION 17. Notice. Except as otherwise expressly provided in this
Agreement, (a) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at the address set forth herein on
the first page, copy to Xxxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, Attention Xxxxxx Xxxxxxxxx, Esq.; and (b) whenever notice is
required by the provisions hereof to be given to the Underwriters, such notice
shall be in writing addressed to the Representative at IAR, at the address set
forth herein on the first page copy to Xxxxxx Xxxxx, Esq., Xxxxxx Xxxxx P.C.,
Suite 420, 000 Xxxxx Xxxx Xxxx, Xxxxx Xxxx, XX 00000. Any party may change the
address for notices to be sent by giving written notice to the other persons.
SECTION 18. Representations and Agreements to Survive Delivery. Except as
the context otherwise requires, all representations, warranties, covenants, and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants, and agreements as at the date hereof and as at the
Closing Date and the Additional Closing Date(s), and all representations,
warranties, covenants, and agreements of the several Underwriters and the
Company, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any of the Underwriters or any of their
controlling persons, and shall survive any termination of this Agreement
(whensoever made) and/or delivery of the Units to the several Underwriters.
SECTION 19. Miscellaneous. This Agreement is made solely for the benefit of
the Underwriters and the Company and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchaser, as such, of any of the Units.
This Agreement shall not be assignable by any party without the other party's
prior written consent. This Agreement shall be binding upon, and shall inure to
the benefit of, our respective successors and permitted assigns. The foregoing
represents the sole and entire agreement between us with respect to the subject
matter hereof and supersedes any prior agreements between us with respect
thereto. This Agreement may not be modified, amended or waived except by a
written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one
and the same instrument. If a party signs this Agreement and transmits an
electronic facsimile of the signature page to the other party, the party who
receives the transmission may rely upon the electronic facsimile as a signed
original of this Agreement.
27
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between the Company
and the Underwriters in accordance with its terms.
Very truly yours,
CONOLOG CORPORATION
By:_____________________________________
(authorized officer)
CONFIRMED AND ACCEPTED, as of the
date first above written:
IAR SECURITIES CORP.
By:_____________________________________
For itself and as the Representative
of the other Underwriters named in
Schedule I hereto.
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SCHEDULE I
Underwriters Number of Units to be
------------ Purchased
---------------------
IAR Securities Corp.
---------
Total 700,000
=======
29
