Decor Group, Inc.
320 Washington Street
Mt. Vernon, New York 10553
UNDERWRITING AGREEMENT
VTR Capital Inc. __________, 1996
99 Wall Street
New York, NY 10005
Gentlemen:
Decor Group, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to VTR Capital Inc. ("VTR" 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 250,000 Units
(the "Company Units"), each Unit consisting of two shares of Common Stock, par
value $.0001 ("Common Stock"), and one Redeemable Class A Common Stock Purchase
Warrant (the "Warrants") of the Company at a public offering price of $10.00 per
Unit. In addition, 25,000 Units (the "Selling Security Holder Units") will be
sold to the Underwriters named in Schedule I by Gordon Brothers Capital
Corporations (the "Selling Security Holder") also at a public offering price of
$10.00 per Unit.
Each Warrant shall entitle the holder to purchase one share of Common Stock
for a four year period commencing one year from the Effective Date (hereinafter
defined) at a price of $4.00 per share. The Unit Warrants will be immediately
detachable from the Common Stock on the Effective Date. The Warrants may be
called by the Company commencing one year from the Effective Date upon at least
thirty days prior written notice at a price of $.05 per Warrant at any time
provided the closing bid for the Common Stock is at least $12.00 during each day
of the twenty (20) trading day period ending on the fifth day preceding the date
of the written notice. The Warrant Agreement will provide that no such notice
will be given until there is a current Registration Statement and Prospectus on
file with the Securities and Exchange Commission at the time such notice is
given to Warrant Holders and that the notice may not be mailed to Warrant
Holders during the aforesaid one-year period from the Effective Date. The
Company Units and the Selling Security Holder Units are hereinafter sometimes
referred to as the "Firm
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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 37,500 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 VTR 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.
The Company and the Selling Security Holder understand 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 and the Selling Security Holder
hereby confirm their 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 and the Selling
Security Holder. 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.
333- ) 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.
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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 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.
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(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) To the best of the Company's knowledge, Mortenson & Associates, P.C.,
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
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is in material violation of, or causes the Company to violate any laws,
ordinances and regulations applicable thereto, the violation of which 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 Series A Convertible
Preferred Stock are duly authorized and validly issued and outstanding, fully
paid, and non-assessable, and are free of preemptive rights. The Series B
Non-Convertible Preferred Stock which is issuable upon exercise of options to
purchase 20,000,000 share held by Interiors, Inc., will upon payment and
issuance be deemed validly issued and outstanding, fully-paid and non-assessable
and free of pre-emptive rights. (The Series A Convertible Preferred Stock and
Series B Non-Convertible Preferred Stock are hereinafter collectively referred
to as the "Preferred Stock.") The Common Stock and the shares of Common Stock
issuable upon exercise of the Warrants, when paid for, issued and delivered in
accordance with this Agreement and the Warrant Agreement between the Company and
American Stock Transfer & Trust Company, dated as of _______________, will be
duly authorized, validly issued, fully paid and non-assessable and will not be
issued in violation of any preemptive rights. The Underwriters will receive good
and marketable title to the Units purchased by them from the Company, free and
clear of all liens, encumbrances,
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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
securities 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.
(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) 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
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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'
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 aside
the shares of its Common Stock issuable upon exercise of the Underwriters'
Warrants, and such stock, when issued and paid for upon exercise of the
Underwriters' 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.
The Selling Security Holder, represents and warrants to and agrees with the
several Underwriters that:
(i) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any court or
beneficiary, public body or board pending, threatened, or in prospect (or any
basis therefor known to the Selling Stockholder) with respect to the Selling
Stockholder. The Selling Stockholder is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree;
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nor is the Selling Stockholder required to take any action in order to avoid
such violation or default.
(ii) The Selling Stockholder has all requisite power and authority to
execute, deliver, and perform this Agreement. This Agreement has been duly
executed and delivered by or on behalf of the Selling Stockholder, is the legal,
valid and binding obligation of the Selling Stockholder, and is enforceable as
to the Selling Stockholder in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by the Selling Stockholder
for the execution, delivery or performance of this Agreement (except filings
under the Act which have been made before the applicable Closing Date and such
consents consisting only of consent under "blue sky" or securities laws which
have been obtained at or prior to the date of this Agreement) by the Selling
Stockholder. No consent of any party to any contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note, arrangement or
understanding to which the Selling Stockholder is a party, or to which any of
the Selling Stockholder's properties or assets are subject, is required for the
execution, delivery or performance of this Agreement; and the execution,
delivery and performance of this Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice of the passage of
time or both) entitle any party to terminate or call a default under such
contract, agreement, instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment or decree binding on
the Selling Stockholder.
(iii) The Selling Stockholder has good title to the Selling Stockholder
Units to be sold by the Selling Stockholder pursuant to this Agreement, free and
clear or all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts.
(iv) Neither the Selling Stockholder nor any of the Selling Stockholder's
affiliates (as defined in the Regulations) has taken or will take, directly or
indirectly, prior to the termination of the underwriting syndicate contemplated
by this Agreement, any action designed to stabilize or manipulate the price of
any security of the Company, or which has caused or resulted in, or which might
in the future reasonably be expected to cause or result
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in, stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of any of the Selling Stockholder Units.
(v) All information furnished or to be furnished to the Company by or on
behalf of the Selling Stockholder for use in connection with the preparation of
the Registration Statement and the Prospectus is true in all respects and does
not and will not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(vi) Except as may be set forth in the Prospectus, the Selling Stockholder
has not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(vii) The Selling Stockholder has no knowledge that, and does not believe
that, any representation or warranty of the Company in Section 2 is incorrect.
(viii) The Selling Stockholder has not, directly or indirectly: used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment.
(ix) The Selling Stockholder Units to be sold by the Selling Stockholder
pursuant to this Agreement are duly and validly authorized and issued, fully
paid and non-assessable, and have not been issued and are not owned or held in
violation of any preemptive right of stockholders, optionholders, warrantholders
or other persons.
(x) No transaction has occurred between such person and the Company that is
required to be described in the Registration Statement or the Prospectus.
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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 and sell the Company
Units and the Selling Security Holder agrees to sell the Selling Security Holder
Units 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 $9.00 per Unit ($10.00 per Unit less a ten percent discount equal to
$1.00 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 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 30 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 Company Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company and the Selling Security Holder as the case may be, 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
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Company Units, the Representative may first deduct all 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 fifth business day after the
Effective Date which may be extended by the Representative to not later than the
seventh business day or tenth calendar day, whichever last occurs, 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 30-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,
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Warrants to purchase 25,000 Units for an aggregate purchase price of $25
(hereinafter referred to as the "Underwriters' Warrants"). The 25,000 Units
underlying the Underwriters' Warrants shall be identical to the Units sold to
the public. Each Underwriters' Warrant shall entitle the owner thereof to
purchase one Unit of the Company at an exercise price of $12.00 per Unit. Such
Underwriters' 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.
The Underwriters' 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 Securities
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 $10.00
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.
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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 and the Selling Security Holder authorize 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 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 provisions of the Act and the applicable Rules
and Regulations and applicable State Securities Laws.
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SECTION 6. Covenants of the Company and the Selling Security Holder. 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
VTR) 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 Lester Morse 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
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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 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
15
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 represents that with respect to the Warrants and the shares
of Common Stock, it will prepare and file a Registration Statement with the
Commission pursuant to Section 12 of the 1934 Act, prior to the Effective Date
with a request that such Registration Statement will become effective on the
Effective Date. The Company understands that, to register, it must prepare and
file with the Securities and Exchange Commission a General Form of Registration
of Securities (Form 8-A or Form 10). In addition, the Company agrees to qualify
its Units, Common Stock and the Warrants for listing on the NASDAQ system and on
the ___________ Exchange on the Effective Date and will take all reasonable and
necessary and appropriate action so that the securities continue to be listed
for trading in the NASDAQ system and the __________ Exchange for at least ten
years from the Effective Date provided the Company otherwise complies with the
prevailing maintenance requirements. In addition, at such time as the Company
qualifies for listing its securities on the National Market System of NASDAQ,
the Company will use its best efforts to have the Company's Units and components
thereof listed on the National Market System of NASDAQ in lieu of both listing
as Small-Cap Issues on NASDAQ and on the _________ Exchange. For so long as the
Company is a reporting company under the 1934 Act, the Company shall comply with
all periodic reporting and proxy solicitation requirements imposed by the
Commission pursuant to the 1934 Act.
(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 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 ten (10) years from the Closing Date. The Company
16
will request accelerated treatment in the Daily News Supplement of Standard and
Poor's Corporation Records.
(j) The Company shall cause the Board of Directors to meet, at least
quarterly, upon proper notice; and, the Representative shall receive notice of
any regular or special meetings of the Company's Board of Directors concurrently
with the sending of such notice to the Company's directors and shall have the
right to have a representative attend such meeting as an observer, but this
right shall be suspended (i) three years after the Effective Date or (ii) at any
time a designee of the Underwriter is a member of or advisor to the Company's
Board of Directors as more fully set forth in Section 17 below.
(k) 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 Rules and Regulations. The
Company shall appoint American Stock Transfer & Trust Co., New York, New York as
transfer agent for the Common Stock (the "Transfer Agent") and as warrant agent
for the Warrants.
(l) Prior to the Effective Date, the Company will enter into an employment
contract with Donald Feldman satisfactory to the Representative.
(m) Within ninety (90) days subsequent to the Effective Date, the Company
will furnish "Key Man" Life Insurance in the amount of $1,000,000 on the life of
Donald Feldman with the Company as the beneficiary thereof and the Company shall
pay the annual premiums, therefore, for a period of not less than five years
from the Effective Date.
(n) The Company will for a period of five years:
(i) Furnish to the Representative and to the Company's shareholders
annual audited financial statements contained in an annual report and unaudited
financial statements
17
contained in quarterly reports for each of the Company's first three quarters.
(ii) Designate an Audit Committee (the members of which shall be
subject to our reasonable approval) which will generally supervise the financial
affairs of the Company.
(iii) At its expense, shall cause its regularly engaged independent
certified public accountants to examine (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
Form 10-Q or 10-QSB quarterly report and the mailing of quarterly financial
information to security holders.
(o) Until such time as the securities of the Company are listed on the New
York Stock Exchange, the American Stock Exchange or NASDAQ/NMS, the Company
shall cause its legal counsel to provide the Representative with a survey, to be
updated at least annually, 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. At closing, the first such survey shall
be delivered by the Company's legal counsel, Bernstein & Wasserman, LLP.
(p) As soon as practicable after the Closing Date, the Company will deliver
to the Representative and its counsel a total of three bound volumes of copies
of all documents relating to the public offering which is the subject of this
Agreement.
(q) The Company, for a period of at least three years following the public
offering, shall retain the services of a financial public relations firm(s)
satisfactory to the Representative, said agreement(s) to commence no later than
30 days after the Closing of the public offering.
(r) Stock certificates and Warrant certificates shall be first submitted to
the Representative for approval prior to printing. The Company shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Units, shares and Unit Warrants and
have each of the securities eligible for closing through Depository Trust
Company.
18
(s) The Company will not issue and sell any of its securities not
contemplated by the Registration Statement for a period of time to be mutually
agreed upon by the Company and the Representative.
The Selling Security Holder covenants and agrees with each Underwriter that
it will pay all of its costs and expenses incident to the performance of its
obligations under this Agreement and the sale of the Selling Security Holder
Units except for those expenses payable by the Company as set forth in Section 7
herein.
SECTION 7. Expenses of the Company.
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 Offering Documents and
amendments thereto, including NASD, SEC, NASDAQ and __________ Exchange filing
and/or application fees, preliminary and final Prospectus and the printing of
the Underwriting Agreement, the Agreement Among Underwriters and the Selected
Dealers' Agreement, a Blue Sky Memorandum, material to be circulated to the
Underwriters by us and other incidental material; (ii) the issuance and delivery
of certificates representing the shares and Unit 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 the Representative relating thereto in the
sum of Thirty ($30,000) Dollars ($10,000 of which has been paid prior to the
Effective Date), together with appropriate state filing fees) plus disbursements
relating to, but not limited to, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services; (iv) the fees
and disbursements of counsel for the Company and the accountants for the
Company; and (v) any other costs of qualifying the Units and components thereof
for listing on NASDAQ and the __________ Exchange. The $30,000 payment shall not
include fees of special counsel if same is required to be incurred in a merit
review state which may require local counsel.
The Company shall, upon receipt of an invoice from the Representative,
reimburse the Representative for any costs of otherwise unreimbursed postage and
including mailing of preliminary and final prospectuses incurred by or on behalf
of the Representative and the Underwriters in preparation for, or in
19
connection with the offering and sale and distribution of the Units on an
accountable basis. After closing of the public offering, the Company shall bear
the costs of tombstone announcements not to exceed $10,000.
SECTION 8. Payment of Underwriters' Expenses.
(a) On the Closing Date and Additional Closing Date(s) (if any) the Company
will pay to VTR an expense allowance equal to three (3%) percent of the total
gross proceeds derived from the sale of the Units and Optional Units, 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 VTR shall not be obligated to account to
the Company for such disbursements and expenses. In the event, however, that the
Representative terminates this Agreement pursuant to the provisions of Section
12 hereof, the Representative shall be obligated to account for expenditures of
any advance payment to VTR and to refund to the Company any portion of the
advance not expended. 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.
(b) On the Effective Date, the Company will enter into an agreement
retaining VTR, as a management and financial consultant for a two-year period,
commencing as of the Effective Date at a fee equal to $100,000 payable in full
in advance on the Closing Date.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are
20
based upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged omission to
state therein such fact required to be stated therein or necessary to make such
statements therein not misleading. The Selling Stockholder agrees to indemnify
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any and all losses, claims, damages and liabilities, joint or several (including
any reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities, joint or
several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact with respect to the Selling Stockholder
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto (which amendments or
supplements are furnished to the Selling Stockholder), or which arise out of or
are based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements therein not
misleading, but only with reference to information relating to the Selling
Stockholder furnished in writing to the Company by or on behalf of the Selling
Stockholder expressly for use in connection with the preparation of
21
the Registration Statement and Prospectus or any amendment thereof or supplement
thereto (which amendments or supplements are furnished to the Selling
Stockholder), or which arise out of or are based upon any omission or alleged
omission to state therein such fact required to be stated therein or necessary
to make such statements therein not misleading, but only with reference to
information relating to the Selling Stockholder furnished in writing to the
Company by or on behalf of the Selling Stockholder expressly for use in
connection with the preparation of the Registration Statement and Prospectus or
any amendment thereof or supplement thereto. Such indemnity shall not inure to
the benefit of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale of
the Units to any person by such Underwriter if such untrue statement or alleged
untrue statement or omission was made in such preliminary prospectus, the
Registration Statement or the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with information furnished in writing to the
Company by the Representatives on behalf of any Underwriter specifically for use
therein. The obligations of the Selling Stockholder, pursuant to this Section
9(a) shall be limited to an amount not exceeding the product of the Per Unit
Price to Public of the Units as set forth on the cover page of the Prospectus
and the number of Units being sold by each of them. In no event shall the
indemnification agreement contained in this Section 9(a) inure to the benefit of
any Underwriter on account of any losses, claims, damages, liabilities or
actions arising from the sale of the Units upon the public offering to any
person by such Underwriter if such losses, claims, damages, liabilities or
actions arise out of, or are based upon, a statement or omission or alleged
omission in a preliminary prospectus and if, in respect to such statement,
omission or alleged omission, the Prospectus differs in a material respect from
such preliminary prospectus and a copy of the Prospectus has not been sent or
given to such person at or prior to the confirmation of such sale to such
person. This indemnity agreement will be in addition to any liability which the
Company and the Selling Stockholder may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company, and each officer of the Company who signs the
Registration Statement and the Selling Stockholder, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholder to each
Underwriter, but only insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which were made in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter for specific use
22
therein; provided, however, that the obligation of each Underwriter to indemnify
the Company (including any controlling person, director or officer thereof) and
the Selling Stockholder shall be limited to the net proceeds received by the
Company and the Selling Stockholder, respectively, from such Underwriter. For
all purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for inclusion
in any Preliminary Prospectus, any Rule 430A Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto.
(c) Any party that proposes to assert the right to be indemnified under
this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 9(a) or 9(b) shall be available to any party who shall fail to give
notice as provided in this Section 9(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, 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 and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by
23
the indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party, or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the reasonable fees and expenses of counsel shall be at
the expense of the indemnifying parties. An indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claim effected
without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 9(a) and (b)
is due in accordance with its terms but for any reason is held to be unavailable
from the Company, the Selling Stockholder or the Underwriters, the Company, the
Selling Stockholder and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as the Selling Stockholder, persons who control the company
within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may also be liable for
contribution) to which the Company and the Selling Stockholder and one or more
of the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the offering
of the Units or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided herein in such proportion as is appropriate
to reflect not only the relative benefits referred to above but also the
relative fault of the Company and the Selling Stockholder on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as
24
any other relevant omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling Stockholder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the Offering (net of underwriting discounts but before deducting
expenses) received by the Company or the Selling Stockholder from the sale of
the Units, as set forth in the table on the cover page of the Prospectus (but
not taking into account the use of the proceeds of such sale of Units by the
Company), bear to (y) the underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus. The relative fault
of the Company, the Selling Stockholder and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company, the
Selling Stockholder or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable consideration referred to above.
Notwithstanding the provisions of this Section 9, (i) in no case shall any
Underwriter (except as may be provided in the Agreement Among Underwriters) be
liable or responsible for any amount in excess of the underwriting discount
applicable to the Units purchased by such Underwriter hereunder, (ii) in no case
shall the Selling Stockholder be liable or responsible for any amount in excess
of the product of the Per Unit Price to Public of the Units as set forth on the
cover page of the Prospectus and the number of Units being sold by each of them
subject to the limitation expressed in Section 9(a), and (iii) the Company shall
be liable and responsible for any amount in excess of the underwriting discount
and the amount referred to in clause (ii) provided, however (i) 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. For purposes of this Section 9, each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act shall have
25
the same rights to contribution as such Underwriter, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i), (ii)
and (iii) in the immediately preceding sentence of this Section 9. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Section, notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise than
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its written consent. The
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to their respective underwriting commitments and not joint.
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 Dates, of all of the representations
and warranties of the Company and the Selling Security Holder contained in this
Agreement; the Company's compliance with, or
26
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 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 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
27
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.
(g) The Company shall have furnished to the Representative the opinions,
dated the Closing Date, and Additional Closing Date(s), addressed to you, of
Bernstein & Wasserman, LLP, counsel for the Company, 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 the ownership or leasing of its
properties requires such qualification or license, except where failure to be so
qualified or licensed would have no material adverse effect on the business of
the Company.
(ii) The Company has an authorized, issued and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus. All of
the outstanding shares of Common Stock and Preferred Stock are duly authorized,
validly issued, fully paid, and non-assessable, and do not have any preemptive
rights. The Company will have duly authorized, reserved
28
and set aside shares of Common Stock issuable upon exercise of the Warrants and
any other outstanding options, warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriters' Warrant conform
to descriptions thereof under "Description of Securities" contained in the
Prospectus.
(iv) The Underwriters will receive good and marketable title to the
Units purchased by them from the Company and the Selling Security Holder in
accordance with the terms and provisions of this Agreement, to the best of such
counsel's knowledge, free and clear of all liens, encumbrances, claims, security
interests, restrictions, stockholders' agreements and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there are no outstanding
options, warrants, or other rights, providing for the issuance of, and, to the
best of the knowledge of such counsel, 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 is in effect and no proceedings for
that purpose have been instituted or are pending before or threatened by, the
Commission;
(viii) To the best of such counsel's knowledge and based upon the
investigation described below, the Registration Statement and Prospectus, and
each amendment thereof and supplement thereto, comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations (except that no opinion need be expressed as to financial
statements, notes thereto, and financial data contained in the
29
Registration Statement or Prospectus). Such counsel has participated in
conferences with officers and representatives of the Company and with its
certified public accountants in the preparation of the Registration Statement
and the Prospectus. At such conferences counsel has made inquiries of such
officers, representatives and accountants, and discussed the contents of the
Registration Statement and the Prospectus. Such counsel has not independently
verified, and, accordingly, does not assume any responsibility for, the
accuracy, completeness or fairness of the information contained in the
Registration Statement or the Prospectus, other than as set forth the Prospectus
insofar as such statements relate to the contents of particular documents
therein described. On the basis of the foregoing, nothing has come to the
attention of such counsel to cause such counsel to believe that the Registration
Statement, the Prospectus or any amendment or supplement thereto contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make statements therein, in light of the circumstances under which
they were made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial and
statistical data and schedules contained therein, as to which such counsel need
express no opinion); 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 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 so disclosed therein.
(ix) The statements in the Registration Statement under the caption
"Business" have been reviewed by such counsel and insofar as they refer to
descriptions of agreements, statutes, licenses, certifications, rules or
regulations or legal conclusions, are correct in all material respects.
(x) This Agreement has been duly authorized and executed by the
Company and the Selling Security Holder and is a valid and binding agreement of
the Company and the Selling Security Holder enforceable in accordance with its
terms subject to bankruptcy, insolvency, reorganization, moratorium and other
laws
30
affecting creditors rights generally and except that no opinion need be given
with regard to the enforceability of Section 9 hereof or the availability of
equitable relief.
(xi) To the best knowledge of such counsel: (a) 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 the Selling Security Holder, of any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company or the Selling Security Holder is a party or by which it or
its business or its properties may be bound or affected, except where such
default would not have a material adverse effect on the business of the Company
and except as disclosed in the Prospectus; (b) the Selling Security Holder has
full power and legal authority to sell the Selling Security Holder Units to the
Underwriters free and clear of all liens and encumbrances; (c) 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; (d) 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, clearance with the
NASD and such other consent, approval, authorization or order as has been
obtained and is in full force and effect; and (e) 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 material indenture, mortgage, deed of trust, note or any other
agreement or instrument to which the Company and the Selling Security Holder 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 the Selling Security Holder, or any order, rule or
regulation, writ, injunction or decree of any government, governmental
instrumentality, or court, domestic or foreign, having jurisdiction over the
Company or the Selling Security Holder or its business or properties.
(xi) Except as disclosed in the Registration Statement and Prospectus,
to the best 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 or the Selling Security
Holder which are not adequately covered by insurance and there are
31
no proceedings pending or, to the knowledge of such counsel, threatened against
the Company or the Selling Security Holder 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 and
adversely affect the business, operation or condition (financial or otherwise)
of the Company or the Selling Security Holder, which are not disclosed in the
Prospectus.
(xii) The Underwriters' Warrants to be issued to the Representative
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
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws pertaining 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 such stock, when issued and paid
for upon exercise of the Underwriters' Warrants in accordance with the
provisions thereof, will be duly and validly issued, fully-paid and
non-assessable.
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 and a Vice-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
32
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 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
33
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 Mortenson & Associates, P.C., 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;
(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
34
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.
(k) The Representative shall have received on each Closing Date from
counsel to the Selling Stockholder, an opinion addressed to the Representative
and dated such Closing Date, to the effect that:
(i) The Selling Stockholder has all requisite power and authority to
execute, deliver and perform this Agreement and to issue and sell the Selling
Security Holder Units. This Agreement has been duly authorized, executed and
delivered by the Selling Stockholder, is the legal, valid and binding obligation
of the Selling Stockholder and (subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of
35
creditors' rights generally) is enforceable as to the Selling Stockholder in
accordance with its terms. No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any federal
state, local or other governmental authority or any court or other tribunal is
required by the Selling Stockholder, for the execution, delivery or performance
by the Selling Stockholder of this Agreement (except filings under the Act which
have been made prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws). To the knowledge of such counsel,
no consent of any party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or understanding to which
the Selling Stockholder is a party, or to which any of their respective
properties or assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and performance of
this Agreement will not violate, result in a breach of, conflict with, or (with
or without the giving of notice of the passage of time or both) entitle any
party to terminate or call a default under such contract, agreement, instrument,
lease, license, indenture, mortgage, deed of trust, note, arrangement or
understanding, in each case known to such counsel, or violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on the Selling Stockholder.
(ii) Such opinion delivered at each of the Closing Dates shall state that
each Selling Security Holder Unit, as the case may be, to be delivered on that
date is duly and validly issued, fully paid and the shares of Common Stock
included in the Selling Security Holder Units are non-assessable with no
personal liability attaching to the ownership thereof, and is not issued in
violation of any preemptive rights of stockholders, and the Underwriters have
received good title to the Selling Security Holder Units purchased by them,
respectively, from the Selling Stockholder, as applicable, for the consideration
contemplated herein and in good faith and without notice of any adverse claim
within the meaning of the Uniform Commercial Code, free and clear of any liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
voting trusts and other claims.
All the opinions, letters, certificates and evidence mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel to the
36
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
cancelled 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 or the Selling Security Holder, 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 or the Selling Security Holder 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 or the Selling Security Holder's 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 the Selling Security Holder, or by any Federal,
State or other commission, board or agency wherein any
37
unfavorable result or decision could materially adversely affect the business,
property, or financial condition of the Company or the Selling Security Holder
which was not disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by written or
telegraphic notice to the Company or the Selling Security Holder 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 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 the Selling Security
Holder 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, the Selling Security Holders 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
38
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 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
39
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 Paragraph 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 Warrants and/or securities underlying the
Underwriters' Warrants. The Company agrees that it will, upon request by the
Representative or the holders of a majority of the Underwriters' Warrants and
Underlying Securities 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' Warrants and/or the
Underlying Securities issuable upon exercise of the Underwriters' 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' 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' Warrants may demand registration without exercising such Warrants
and, in fact, are never required to exercise same.
40
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 Securities and Exchange Commission pursuant to
the Securities Act, regardless of whether some of the holders of the
Underwriters' 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' Warrants and
Underlying Securities. This paragraph is not applicable to a Registration
Statement filed by the Company with the SEC 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' 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' 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' Warrants and underlying securities
according to the aggregate sales price of the securities being issued. The
holders of the Underwriters' Warrants may include such Warrants in any such
filing without exercising the Underwriters' 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. Warrant Exercise Fee Agreement. Commencing twelve months after
the Effective Date, the Company will pay VTR an amount equal to four (4%)
percent of the aggregate exercise price of each Warrant exercised of which a
portion may be allowed to the dealer who solicited the exercise (which may also
be VTR); 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; (3) the
Warrant was not held in a discretionary account; (4) disclosure of compensation
arrangements was made both
41
at the time of the offering and at the time of exercise of the Warrant; and (5)
the solicitation of the exercise of the Warrant was not in violation of Rule
10b-6 promulgated under the Securities Exchange Act of 1934. The Warrant
Exercise Fee shall be paid in accordance with the provisions of this paragraph
and the Warrant Exercise Fee Agreement filed as an exhibit to the Registration
Statement (the "Warrant Exercise Fee Agreement"). The Company also agrees to
execute and deliver the Warrant Exercise Fee Agreement to VTR on the Closing
Date.
SECTION 17. Designation of a Director or Non-voting Advisor to the Board:
Unless waived by us, we shall have the right to designate a director or a
non-voting advisor to the Board for a period of five years after the Effective
Date. Said designee, shall attend meetings of the Board and receive no more or
less compensation than is paid to other non-management directors of the Company
and shall be entitled to receive reimbursement for all reasonable costs incurred
in attending such meetings, including but not limited to, food, lodging and
transportation. Moreover,to the extent permitted by law, the Company will agree
to indemnify the Representative and its designee for the actions of such
designee as director or as an advisor of the Company. In the event the
Underwriter designates a director, then the Company will utilize its best
efforts to obtain officer and director liability insurance of at least
$1,000,000 dollars prior to such person serving as a director and if obtained,
to maintain such policy in effect until five years from the Effective Date. To
the extent permitted under the policy, it will also include each of the
Representative and its designee as an insured under such policy.
SECTION 18. Finder's Fee: 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:
42
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 $1,000,000 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 and payable at the same time as that paid by or to the Company, as
the case may be, in any such transactions.
SECTION 19. Restriction on Securities All officers and directors, Laurie
Munn, Matt Harriton and Interiors, Inc. as of the Effective Date, have agreed
not to sell, transfer, hypothecate or convey any capital stock or derivative
securities by registration or otherwise for a "Lock-Up" period of two years from
the Effective Date without the prior written consent of the Representative
(except that, subject to compliance with applicable securities laws, any such
officer, director or stockholder may transfer his or her stock to a member of
his family or in the event of death, by will or operation of law, provided that
any such transferee shall agree, as a condition to such transfer, to be bound by
the restrictions set forth herein. An appropriate legend shall be marked on the
face of stock certificates representing all of such securities.
SECTION 20. Other Agreements The Alternate Prospectus included in the
Registration Statement covers the sale of 2,002,000 shares of Common Stock,
3,000,000 Class A Warrants and 3,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants. The aforesaid securities are not underwritten
by the Underwriters and are not covered by this Underwriting Agreement except
for lock-up letters executed by Matt Harriton and Laurie Munn in accordance with
Section 19 contained herein.
SECTION 21. 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 320 Washington Street, Mt.
Vernon, NY 10553, copy to Hartley T. Bernstein, Esq., Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, NY 10022, telecopier (212) 371- 4730; and (B)
whenever notice is required by the provisions hereof
43
to be given to the Underwriters, such notice shall be in writing addressed to
the Representative at 99 Wall Street, New York, NY 10005, copy to Steven Morse,
Esq., Lester Morse P.C., 111 Great Neck Road, Suite 420, Great Neck, New York
11021, telecopier (516) 487-1452. Any party may change the address for notices
to be sent by giving written notice to the other persons.
SECTION 22. 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, the Selling
Security Holder 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 the Company or any of their respective controlling persons, and
shall survive any termination of this Agreement (whensoever made) and/or
delivery of the Firm Units and the Optional Units to the several Underwriters.
SECTION 23. Miscellaneous. This Agreement is made solely for the benefit of
the Underwriters, the Selling Security Holder 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.
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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.
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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,
the Selling Security Holder and the Underwriters in accordance with its terms.
Very truly yours,
DECOR GROUP, INC.
By: __________________________________
Donald Feldman, President
GORDON BROTHERS CAPITAL CORPORATIONS
By: __________________________________
Authorized Officer
CONFIRMED AND ACCEPTED, as of the
date first above written:
VTR CAPITAL, INC.
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
---------------------
VTR Capital Inc.
-------
Total 275,000
=======
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