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EXHIBIT 1.1
DRAFT
[Proposed Form of Underwriting
Agreement -- Subject to
Additional Internal Review]
BEVERAGE WORKS, INC.
1,000,000 Units consisting of 1,000,000 shares
of Common Stock, no par value per share
and 1,000,000 Class A Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
_______, 1996
State Capital Markets Corp.
1 World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Beverage Works, Inc., a California corporation (the "Company"),
confirms its agreement with State Capital Markets Corp. (the "Underwriter"),
with respect to the proposed sale by the Company and the purchase by the
Underwriter, of the respective number of units consisting of shares of the
Company's common stock, no par value per share ("Common Stock") and Class A
Redeemable Common Stock purchase warrants (the "Redeemable Warrants"), each of
which entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $8.25 per share, pursuant to a warrant agreement between the
Company and Continental Stock Transfer & Trust Company, as the warrant agent
(the "Warrant Agreement"), and with respect to the grant by the Company to the
Underwriter of the option described in Section 3(b) hereof to purchase all or
any part of 150,000 units for the purpose of covering over-allotments, if any.
The aforesaid 1,000,000 units (the "Units") sold by the Company (the "Firm
Securities") and all or any part of the Units subject to the option described in
Section 3(b) hereof (the "Option Securities") are hereinafter collectively
referred to as the "Securities." The Company also proposes to issue and sell to
the Underwriter warrants (the "Underwriter's Warrants") pursuant to the
Underwriter's
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Warrant Agreement (the "Underwriter's Warrant Agreement") for the purchase of an
aggregate of an additional 100,000 Units. The shares of Common Stock issuable
upon exercise of the Underwriter's Warrants and the Redeemable Warrants
underlying the Underwriter's Warrants are hereinafter sometimes referred to as
the "Warrant Shares." The Units, the Redeemable Warrants, the Underwriter's
Warrants, and the Warrant Shares are more fully described in the Registration
Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Underwriter as of the date
hereof, and as of the Closing Date and the Option Closing Date (as defined in
Subsection 3(c) hereof, if any, as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333- ), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriter and will not, before the
registration statement becomes effective (the "Effective Date"), file any other
amendment thereto unless the Underwriter shall have consented thereto after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and all information deemed
to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of
the Regulations), is hereinafter called the "Registration Statement" and the
form of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Exchange Act, as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or part thereof and no
proceedings for a stop order have been instituted or are pending or, to the best
knowledge of the Company, threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed in
all material respects with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus the Registration Statement
or Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply
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to statements made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of the
Underwriter expressly for use in such Preliminary Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing Date
(as defined in Subsection 3(c) hereof, if any, and during such longer period as
the Prospectus may be required to be delivered in connection with sales by the
Underwriter or a dealer, the Registration Statement and the Prospectus will
contain all material statements which are required to be stated therein in
compliance with the Act and the Rules and Regulations, and will in all material
respects conform to the requirements of the Act and the Rules and Regulations;
neither the Registration Statement or the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided, however, that this representation and warranty
does not apply to statements made or statements omitted in reliance upon and in
conformity with information supplied to the Company in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or Prospectus
or any amendment thereof or supplement thereto.
(d) The Company and its subsidiaries are validly existing as
corporations in good standing under the laws of their states of incorporation or
jurisdictions, foreign or domestic, as applicable. The Company and its
subsidiaries are duly qualified and licensed and in good standing as a foreign
corporations in each jurisdiction in which their ownership or leasing of
properties or the character of its operations require such qualification or
licensing. The Company and its subsidiaries have all requisite power and
authority (corporate and other), and have obtained any and all necessary
applications, approvals, orders, licenses, certificates, franchises and permits
of and from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease their properties and conduct their business as
described in the Prospectus; the Company and its subsidiaries have been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations; neither the Company nor its subsidiaries
have received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operation of the Company or its subsidiaries. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's and its subsidiaries
businesses as currently conducted and as contemplated are correct in all
respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
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(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization", and will
have the adjusted capitalization set forth therein on the Closing Date based
upon the assumptions set forth therein, and the Company and its subsidiaries are
not a party to or bound by any instrument, agreement or other arrangement
providing for the Company and its subsidiaries to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement and as
described in the Prospectus. The Units, the Underwriters Warrants, and the
Warrant Shares and all other securities issued or issuable by the Company or its
subsidiaries, conform or, when issued and paid for will conform in all respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company and its
subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or its subsidiaries, or
similar contractual rights granted by the Company or its subsidiaries. The
Units, Underwriter's Warrants and Redeemable Warrants to be issued and sold by
the Company hereunder and the Warrant Shares issuable upon exercise of the
Underwriter's Warrants and Redeemable Warrants and payment therefor; and none of
such securities were issued in violation of the preemptive rights of any holders
of any security of the Company, or similar contractual rights granted by the
Company have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and will conform in all respects to the description thereof
contained in the Prospectus; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Underwriter's Warrants, and
the Warrant Shares has been duly and validly taken; and the certificates
representing the Securities, the Underwriter's Warrants, and the Warrant Shares
will be in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Securities to be sold by the Company hereunder, the
Underwriter will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company and its
subsidiaries, together with the related notes and schedules thereto, included in
the Registration Statement, the Preliminary Prospectus and the Prospectus fairly
present the financial position and the results of operations of the Company and
its subsidiaries 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 and the Rules and Regulations,
consistently applied throughout the periods involved. There has been no material
adverse change or development involving a prospective change in the condition,
financial or otherwise, or in the earnings, business affairs, position,
prospects, value, operation, properties, business, or results of operation of
the Company and its subsidiaries, whether or not arising in the ordinary course
of business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and
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its subsidiaries, conforms in all respects to the descriptions thereof contained
in the Registration Statement and in the Prospectus.
(g) The Company and its subsidiaries (i) have paid all
federal, state, local, and foreign taxes for which they are liable, including,
but not limited to, withholding taxes and taxes payable under Chapters 21
through 24 of the Internal Revenue Code of 1986 (the "Code"), (ii) have
furnished all information returns required to furnish pursuant to the Code, and
have established adequate reserves for such taxes which are not due and payable,
and (iii) do not have any tax deficiency or claims outstanding, proposed or
assessed against them.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company or (iii) the consummation by the Company of any of
its obligations under this Agreement.
(i) The Company maintains insurance of the types and in the
amounts which they reasonably believe to be adequate for their businesses, all
of which insurance is in full force and effect.
(j) Except as disclosed in the Prospectus, there is no action,
suit, proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of the Company which (i) questions the validity of the capital stock of
the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or in the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to
enter into this Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement (as defined in Section 7(n) hereof) and to consummate the
transactions provided for in such agreements; and this Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement,
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or delivery of
this Agreement, the Underwriter's Warrant
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Agreement and the Consulting Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (i) the articles of
incorporation or by-laws of the Company, (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which any of them is or may be bound or to which any of
their properties or assets (tangible or intangible) is or may be subject to any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this Agreement
and the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Underwriter's purchase and distribution of the
Securities to be sold by the Company hereunder.
(m) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company or its
subsidiary are a party or by which any of them may be bound or to which any of
their respective assets, properties or businesses may be subject have been duly
and validly authorized, executed and delivered by the Company and/or its
subsidiary, and constitute the legal, valid and binding agreements of the
Company and/or its subsidiary, as the case may be, enforceable against each of
them in accordance with their respective terms. The descriptions in the
Registration Statement of contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form SB-2
and there are no contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
Exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than
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in the ordinary course of business, or (iii) declared or paid any dividend or
made any other distribution on or in respect of its capital stock.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets (tangible or intangible)
of the Company is subject or affected.
(p) The Company and its subsidiary generally enjoys
satisfactory employer-employee relationships with their employees and both are
in compliance in all material respects with all federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company or any subsidiary, by the U.S. Department
of Labor, or any other governmental or foreign agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or any
subsidiary, pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company, or any predecessor entity, and none has ever occurred.
No representation question exists respecting the employees of the Company or its
subsidiary, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company or any subsidiary. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or of its subsidiary. No labor dispute with
the employees of the Company exists, or, to the best knowledge of the Company,
is imminent; and the Company is not aware (having made no independent
investigation for purposes of this statement) of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors which might be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(q) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(r) Neither the Company does not maintain, sponsor or
contribute to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan" or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37) respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintains or contributes, now or at any time previously, to
a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA
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or Section 4975 of the Code, which could subject the Company to any tax penalty
on prohibited transactions and which has not adequately been corrected. Each
ERISA Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has not ever completely or partially withdrawn from a "multiemployer
plan."
(s) The Company is not (nor the manner in which it conducts
its business or proposes to conduct its business) in violation of any domestic
or foreign laws ordinances or governmental rules or regulations to which it is
subject.
(t) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within eighteen (18) months of the date hereof or to require the Company to file
a registration statement under the Act during such eighteen (18) month period.
(u) None of the Company, nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise.
(v) None of the patents, patent applications, trademarks,
service marks, trade names, copyrights, know-how, technology or other intangible
asset and licenses and rights to the foregoing presently owned or held by the
Company or any subsidiary, are in dispute so far as known by the Company or are
in any conflict with the right of any other person or entity. To the best of the
Company's knowledge, the Company and its subsidiary (i) own or have the right to
use, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, all patents, trademarks, service marks, trade names and copyrights,
technology and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing, and (ii) except as set forth in the Prospectus, is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
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(w) The Company and its subsidiary own and have the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
properly") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the Company
or its subsidiary, free and clear of and without violating any right, lien, or
claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independently of the Company, as the case may be, or their
respective employees or agents, could have developed trade secrets or items of
technical information similar or identical to those of the Company or its
subsidiary. The Company and its subsidiary are not aware of any such development
of similar or identical trade secrets or technical information by others.
(x) The Company and its subsidiary have taken reasonable
security measures to protect the secrecy, confidentiality and value of all the
intellectual property.
(y) The Company and its subsidiary have good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus, to be owned or leased by it free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(z) Corbin & Wertz, independent certified public accounts,
whose report is filed with the Commission as a part of the Registration
Statement, are independent certified public accountants as required by the Act
and the Rules and Regulations.
(aa) On or before the Effective Date of the Registration
Statement, the Company shall cause to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and stockholders, or any person or entity deemed to be an affiliate of
the Company pursuant to the Rules and Regulations has agreed not to, directly or
indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber any of their shares of
Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein for a period of not
less than 24 months following such Effective Date without the prior written
consent of the Underwriter. The Company will cause the Transfer Agent, as
defined below, to mark an appropriate legend on the face of stock certificates
representing all of such shares of Common Stock and other securities owned by
such holders.
(bb) There are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the Company or
any of its officers, directors, employees or affiliates that may affect
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the Underwriter's compensation, as determined by the National Association of
Securities Dealers Inc. ("NASD").
(cc) The Securities have been approved for quotation on the
SmallCap Market of the Nasdaq Stock Market, subject to official notice of
issuance.
(dd) None of the Company, nor any of its respective officers,
employees agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject any of Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company,
or (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. Each of the Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(ee) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or the Company, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficiary interest in any contract or
agreement to which the Company is a party or by which any of them may be bound
or affected. Except as set forth in the Prospectus under "Certain Relationships
and Related Transactions," there are no existing material agreements,
arrangements, understandings or transactions, or proposed material agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director, or Principal Stockholder of the Company, or any affiliate
or associate of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriter's counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(gg) The Company has not entered into any employment
agreements, except as described in the Prospectus.
2. Purchase, Sale and Delivery of the Securities and Underwriter's
Warrants.
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(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter and the Underwriter
agrees to purchase from the Company the Firm Securities at the price per Unit as
set forth in subsection (c) below.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase up to an additional 100,000 Units at the price per Unit
set forth in subsection (c) below. The option granted hereby will expire 45 days
after the date of this Agreement, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Firm Securities upon
notice by the Underwriter to the Company setting forth the number of Option
Securities as to which the Underwriter is then exercising the option and the
time and date of payment and delivery for such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined by the
Underwriter, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to Closing Date, as hereinafter
defined, unless otherwise agreed to between the Underwriter and the Company. In
the event such option is exercised the Underwriter shall purchase the total
number of Option Securities then being purchased. Nothing herein contained shall
obligate the Underwriter to purchase any over-allotments. No Option Securities
shall be delivered unless the Firm Securities shall be simultaneously delivered
or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Underwriter at 1 World Trade Center, New York, New York 10048, or at such other
place as shall be agreed upon by the Underwriter and the Company. Such delivery
and payment shall be made at 10:00 a.m. (New York City time) on ___________,
1996 or at such other time and date as shall be agreed upon by the Underwriter
and the Company but not less than three (3) nor more than thirty (30) business
days after the Effective Date of the Registration Statement (such time and date
of payment and delivery being hereafter called "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriter, payment of the purchase price for, and delivery of certificates for
such Option Securities shall be made at the above mentioned office of the
Underwriter or at such other place as shall be agreed upon by the Underwriter
and the Company on each Option Closing Date as specified in the notice from the
Underwriter to the Company. Delivery of the certificates for the Firm Securities
and the Option Securities, if any, shall be made to the Underwriter against
payment of the purchase price for the Firm Securities and the Option Securities,
if any, to the order of the Company, by New York Clearing House funds,
certificates for the shares of Common Stock and Redeemable Warrants underlying
the Firm Securities and the Option Securities, if any, shall be in definitive,
fully registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriter may request in
writing at least two (2) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the shares of
Common Stock and Redeemable Warrants underlying the Firm
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Securities and the Option Securities, if any, shall be made available to the
Underwriter at such office or such other place as the Underwriter may designate
for inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to Closing Date or the relevant Option Closing Date, as the
case may be.
The purchase price per Unit to be paid by the Underwriter to
the Company for the Securities purchased hereunder will be the same for each
Unit. The Company shall not be obligated to sell any Securities hereunder unless
all Firm Securities to be sold by the Company are purchased hereunder. The
Company agrees to issue and sell 1,000,000 Units to the Underwriter.
(d) On Closing Date, the Company shall issue and sell to the
Underwriter Underwriter's Warrants at a purchase price of $10.00, which warrants
shall entitle the holders thereof to purchase an aggregate of 100,000 Units. The
Underwriter's Warrants shall be exercisable for a period of five (5) years
commencing on the Effective Date of the Registration Statement at an initial
exercise price equal to one hundred twenty percent (160%) of the initial public
offering price of the Securities. The Underwriter's Warrant Agreement and form
of Warrant Certificate shall be substantially in the form filed as Exhibit to
the Registration Statement. Payment for the Underwriter's Warrants shall be made
on the Closing Date.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the Underwriter
shall make a public offering of the Securities (other than to residents of or in
any jurisdiction in which qualification of the Securities is required and has
not become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Securities has been completed to
such extent as the Underwriter, in its sole discretion deems advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act before termination of the offering of the Securities by
the Underwriter of which the Underwriter shall not previously have been advised
and furnished with a copy, or to which the Underwriter shall have objected or
which is not in compliance with the Act, the Exchange Act or the Rules and
Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will
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be relied upon, when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution or proceeding for that purpose, (iii) of the
issuance by any state securities commission of any proceedings for the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriter pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the Effective Date of the
Registration Statement.
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriter in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Underwriter with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the Underwriter
or Lampert & Lampert ("Underwriter's Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may reasonably designate, and
shall make such applications, file such documents and furnish such information
as may be required for such purpose; provided, however, the Company shall not be
required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company will, unless the
Underwriter agrees that such action is not at the time necessary or advisable,
use all reasonable efforts to file and make such statements or reports at such
times as are or may reasonably be required by the laws of such jurisdiction to
continue such qualification.
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(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriter's Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be reasonably satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter a
reasonable number of copies of such amendment or supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the Effective Date of
the Registration Statement.
(h) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports (if requester by the Underwriter) of earnings, and
will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly
reports to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and certified by the
Company' s principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations, stockholders'
equity, and cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate thereon of independent public accountants;
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(iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(v) every press release and every material news item
or article of interest to the financial community in respect of the Company or
their affairs which is intended for release by the Company; and
(vi) any additional information of a public nature
concerning the Company, and any future subsidiaries or their respective
businesses which the Underwriter may reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the Effective Date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may reasonably
request.
(k) Except for the offering contemplated by this Agreement,
for a period of 24 months from the Effective Date of the Registration Statement
none of the Company, its officers or directors, or holders of the Company's
securities, including options, warrants and other like rights, prior to the
Effective Date, or any person or entity deemed to be an affiliate of the Company
pursuant to the Rules and Regulations, will, directly or indirectly, issue,
offer to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without the prior written consent of the Underwriter (the
"Lock-up"). On or before the Effective Date of the Registration Statement, the
Company shall cause to be duly executed legally binding and enforceable
agreements pursuant to which each of persons enumerated in the preceding
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sentence who are subject to the Lock-up, has agreed to be bound by the Lock-up.
During the 36 month period commencing with the Effective Date of the
Registration Statement, the Company shall issue no shares of capital stock,
except shares issuable upon the exercise of options or warrants referred to in
the Registration Statement, inclusive of up to an aggregate of 1,888,500 shares
pursuant to options which may be granted under the Company's 1996 Nonqualified
Stock Option Plan and 1996 Incentive Stock Option Plan, or in connection with
any acquisition from, or business combination with, an unaffiliated entity or
securities convertible into or exchangeable for shares of Common Stock or,
except in conformity and compliance with the terms of this Agreement, grant any
options or warrants.
(l) None of the Company, nor any of its respective officers or
directors, nor affiliates of any of them (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth under
"Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 7(j) hereof.
(p) The Company shall cause the Securities to be quoted on the
SmallCap Market of the Nasdaq Stock Market.
(q) For a period of three (3) years from the Closing Date, the
Company shall furnish to the Underwriter at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock; (ii) a list of
holders of Common Stock upon the Underwriter's reasonable requests; and (iii) a
weekly listing of the securities positions of participants in the Depository
Trust Company.
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(r) For a period of three (3) years the Company shall notify
the Underwriter of each meeting of the Board, which meetings shall be held at
least quarterly. An individual selected by the Underwriter shall be permitted to
attend all meetings of the Board and to receive all notices and other
correspondence and communications sent by the Company to members of the Board.
The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(s) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Warrant Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other appropriate
form) for the registration under the Act of the Warrant Shares.
(t) For a period of five (5) years from the date hereof, use
its best efforts to maintain its listing of its Common Stock on the Nasdaq Stock
Market.
(u) Grant to the Underwriter preferential right on the terms
and Subject to the conditions set forth in this paragraph, for a period of four
years from the Effective Date of the Registration Statement, to purchase for its
account, or to sell for the account of the Company or its present or future
affiliates or subsidiaries, any securities of the Company or any of its present
or future affiliates or subsidiaries, not including securities issuable under
the Company's stock option plan or other employee benefit plans, with respect to
which the Company or any of its present or future affiliates or subsidiaries may
seek a public or private sale of such securities. The Company, will consult, and
will cause such present or future affiliates or subsidiaries to consult with the
Underwriter with regard to any such offering or placement and will offer, or
cause any of its present or future affiliates or subsidiaries to offer, to the
Underwriter the opportunity, on terms not more favorable to the Company or such
present or future affiliate or subsidiary than they can secure elsewhere, to
purchase or sell any such securities. If the Underwriter fails to accept in
writing such proposal made by the Company or any of its present or future
affiliates or subsidiaries within ten (10) business days after receipt of a
notice containing such notice, then the Underwriter shall have no further claim
or right with respect to the proposal contained in such notice. If, thereafter,
such proposal is materially modified, the Company shall again consult, and cause
each present or future affiliate or subsidiary to consult, with the Underwriter
in connection with such modification and shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal.
(v) On or before the Effective Date of the Registration
Statement, retain or make arrangements to retain a financial public relations
firm reasonably satisfactory to the Underwriter which shall be continuously
engaged from such engagement date to a date twenty-four months from Closing
Date.
(w) As soon as practicable, but in no event more than 30
business days from the Effective Date of the Registration Statement, (i) file a
Form 8-A with the Commission providing
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for the registration under the Exchange Act of the Company's securities and (ii)
take all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Moody's OTC Manual and to continue such inclusion
for a period of not less than five (5) years.
(x) The Company shall furnish to the Underwriter, within
ninety (90) days following the Option Closing Date, three (3) bound volumes of
all papers and documents utilized in the offering.
(y) Following the Effective Date of the Registration
Statement, the Company shall, at its sole cost and expense, prepare and file
such blue sky trading applications with such jurisdictions as the Underwriter
may reasonably request after consultation with the Company.
(z) The Company shall not amend or alter any term of any
written employment agreement, if any, between the Company and any executive
officer or director, during the term thereof, in a manner more favorable to such
employee or director, without the express written consent of the Underwriter.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date
and the Option Closing Date (to the extent not paid at Closing Date) all
expenses and fees (other than fees of counsel to the Underwriter, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation, (i) the fees and
expenses of accountants and counsel for the Company, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing, filing,
delivery and mailing (including the payment of postage with respect thereto) of
the Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and disbursements and fees of counsel in
connection therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show", information
meetings and presentations, bound volumes and prospectus memorabilia, (vi) costs
and expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel or consultant retained, (vii)
fees and expenses of the transfer agent, (viii) applications for assignments of
a rating of the Securities by qualified rating agencies, (ix) the fees payable
to the NASD, and
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(x) the fees and expenses incurred in connection with the listing of the
Securities on the Nasdaq Stock Market and any other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 12(b) or Section 11, the
Company shall reimburse and indemnify the Underwriter for all of their
out-of-pocket expenses including the fees and disbursements of counsel for the
Underwriter.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Underwriter a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Firm
Securities, $50,000 of which has been paid to date to the Underwriter. The
Company will pay the remainder on the Closing Date by certified or bank
cashier's check or, at the election of the Underwriter, by deduction from the
proceeds of the offering contemplated herein. In the event the Underwriter
elects to exercise the over-allotment option described in Section 2(b) hereof,
the Company further agrees to pay to the Underwriter on the Option Closing Date
(by certified or bank cashier's check or, at the Underwriter's election, by
deduction from the proceeds of the offering) a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received by the Company from
the sale of the Option Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by each of the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its or his covenants and obligations hereunder
and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Underwriter, and, at
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Underwriter of such timely filing, or
a post-effective amendment providing such information shall have been promptly
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filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material or omits to
state a fact which, in the Underwriter's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received the favorable opinion of Hecht & Steckman, P.C., counsel to the
Company, addressed to the Underwriter and in form and substance reasonably
satisfactory to the Underwriter's Counsel, to the effect that:
(i) the Company and its subsidiaries (A) have been
duly organized and are validly existing as corporations in good standing under
the laws of their jurisdictions, (B) are duly qualified and licensed and in good
standing as foreign corporations in each jurisdiction in which their ownership
or leasing of any properties or the character of their operations requires such
qualification or licensing, except where the failure to so qualify would not
have a material adverse effect on the Company and/or its subsidiary, and (C)
have all requisite power and authority (corporate and other), and have obtained
any and all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease their properties and conduct
their business as described in the Prospectus; to the best of such counsel's
knowledge, the Company and its subsidiary have been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations; and to the best of such counsel's knowledge, neither the Company
nor its subsidiaries have received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singularly or in the aggregate, is the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, of the earnings,
business affairs, position, prospects, value, operation, properties, business or
results of operation of any of the Company or its subsidiary.
The disclosures in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on each of the
Company's businesses as currently conducted and as contemplated are correct in
all respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
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(ii) except as described in the Prospectus, to the best of
such counsel's knowledge, the Company owns, directly or indirectly no
Subsidiaries;
(iii) except as described in the Prospectus, to the best
knowledge of such counsel, the Company does not own an interest in any
corporation, partnership, joint venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and outstanding
20,000,000 shares of Common Stock, par value, of which 2,457,863 are issued and
outstanding and 5,000,000 shares of preferred stock, of which none are issued
and outstanding, as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization", and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement and as described in the Prospectus. The Securities, the Underwriter's
Warrants, the Warrant Shares and all other securities issued or issuable by the
Company conform in all respects to all statements with respect thereto contained
in the Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders, and none of such securities were issued in violation of the
preemptive rights of any insiders of any security of the Company, if any. The
Securities, the Underwriter's Warrants and the Warrant Shares to be sold by the
Company hereunder are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms thereof, are validly issued,
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities and securities underlying the
Securities and the Underwriter's Warrants are in due and proper form. The
Redeemable Warrants and the Underwriter's Warrants constitute valid and binding
obligations of the Company, to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for thereby.
Upon the issuance and delivery pursuant to the Agreement of the Securities to be
sold by the Company, the Underwriter will acquire good and marketable title to
such securities free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest or other restriction of any kind whatsoever.
(v) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
effectiveness of the Registration Statement has been issued and to the best of
such counsel's knowledge, no proceedings for that purpose have been instituted
or are pending or threatened or contemplated under the Act;
(vi) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto (other
than the financial statements and
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other financial and statistical data included therein, as to which no opinion
need be rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations. Such counsel shall state
that such counsel has participated in conferences with officers and other
representatives of the Company and representatives of the independent public
accountants for the Company, at which conferences such counsel made inquiries of
such officers, representatives and accountants and discussed the contents of the
Registration Statement, the Prospectus, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or the Preliminary
Prospectus or Prospectus or amendment or supplement thereto as of the date of
such opinion contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Preliminary Prospectus, the
Registration Statement or Prospectus).
(vii) to the best of such counsel's knowledge, (A) there are
no contracts or other documents required to be described in the Registration
Statement and the Prospectus and filed as exhibits to the Registration Statement
other than those described in the Registration Statement (or required to be
filed under the Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein) and the Prospectus and filed as exhibits
thereto, and the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (x) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), (y) questions the validity
of the capital stock of the Company or this Agreement or of any action taken or
to be taken by the Company pursuant to or in connection with this Agreement, or
(z) might materially and adversely affect the condition, financial or otherwise,
or the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operation of the Company; (D) no statute or
regulation or legal or governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no action, suit or
proceeding pending, or threatened, against or affecting, the Company before any
court or arbitrator or governmental body, agency
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or official (or any basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result in a material
adverse change in the assets, business, operations, financial condition or
prospects of the Company, which could materially, adversely affect the present
or prospective ability of the Company to perform its obligations under this
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement;
(viii) The Company has full legal right, power and authority
to enter into each of this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, and the Consulting Agreement, and to consummate the
transactions provided for therein; and each of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement has been
duly authorized, executed and delivered by the Company. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement, assuming due
authorization, execution and delivery by each other party thereto and further
assuming that they are valid and binding agreements of the Underwriter, so as
the case may be, constitutes legal, valid and binding agreements of the Company
enforceable as against the Company in accordance with their terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement and the Consulting Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or therein,
or the conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, to the best knowledge of
such counsel, conflicts with or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (A) the articles of
incorporation or by-laws of the Company, (B) any indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which any of them is or may be bound or to which any of their properties
or assets (tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities or properties.
(ix) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, (other than such as may be required under Blue Sky laws, as
to which no opinion need be rendered) is required in connection with the
issuance of the Securities pursuant to the Prospectus and the Registration
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Statement, the performance of the Agreement, the Underwriter's Warrant, the
Warrant Agreement and the Consulting Agreement, and the transactions
contemplated thereby;
(x) To the best of such counsel's knowledge, the properties
and business of the Company and its subsidiary conform to the description
thereof contained in the Registration Statement and the Prospectus; and the
Company and its subsidiary have good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, in each case free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable;
(xi) To the best of such counsel's knowledge, neither the
Company nor its subsidiary is in breach of, or in default under, any term or
provision of any indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company or its
subsidiary is a party or by which the Company may be bound or to which any of
the property or assets (tangible or intangible) of the Company or its subsidiary
is subject or affected, except such as would not have a material adverse effect
on the Company or its subsidiary; and neither the Company nor its subsidiary is
in violation of any term or provision of their Articles of Incorporation or
By-Laws or in violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
(xii) the statements in the Prospectus under "BUSINESS,"
"MANAGEMENT," "PRINCIPAL SECURITY HOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION
OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects;
(xiii) the Securities have been accepted for quotation on the
SmallCap Market of the Nasdaq Stock Market;
(xiv) except as and to the extent set forth in the Prospectus,
the Company and its subsidiary, own or possess, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct their businesses (including, without limitation any such licenses or
rights described in the Prospectus as being owned or possessed by the Company),
and there is no claim or action by any person pertaining to, or proceeding,
pending, or threatened, which challenges the exclusive rights of the Company
and/or its subsidiary with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses used in
the conduct of the Company's and/or its subsidiary's businesses (including
without limitations any
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such licenses or rights described in the Prospectus as being owned or possessed
by the Company); the Company's and its subsidiary's current products, services
and processes do not and will not infringe on the patents currently held by
third parties;
(xv) to the best knowledge of such counsel, except as and to
the extent set forth in the Prospectus, neither the Company nor its subsidiary
are under any obligation to pay to any third-party royalties or fees of any kind
whatsoever with respect to any technology or intellectual properties developed,
employed or used;
(xvi) to the best of such counsel's knowledge, the persons
listed under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the
respective "beneficial owners" (as such phrase is defined in regulation 13d-3
under the Exchange Act) of the securities set forth opposite their respective
names thereunder as and to the extent set forth therein;
(xvii) to the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity has the right to include and/or register any
securities of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security in such
registration statement for eighteen months from the date hereof;
(xviii) to the best of such counsel's knowledge and except as
described in the Prospectus, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities hereunder or
financial consulting arrangement or any other arrangements, agreements
understandings, payments or issuances that may affect the Underwriter's
compensation, as determined by the NASD;
(xix) to the best of such counsel's knowledge, except as set
forth in the Prospectus under "Certain Transactions," there are no existing
material agreements, arrangements, understandings or transactions, or proposed
material agreements, arrangements, understandings or transactions between or
among the Company, its subsidiary and any officer, director, or Principal
Stockholder of the Company or its subsidiary, or any affiliate or associate of
any such person or entity;
(xx) to the best of such counsel's knowledge, the minute books
of the Company has been made available to Underwriter's Counsel and contain a
complete summary of all meetings and actions of the respective directors and
stockholders of the Company since the time of their respective incorporations
and reflect all transactions referred to in such minutes accurately in all
respects.
(xxi) the organization of the Company has been duly and
validly consummated in accordance and in compliance with applicable law and does
not violate the charter or by-laws or give rise to any claim or entitlement by
or to any stockholder.
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In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriter's
Counsel) of other counsel reasonably acceptable to Underwriter's Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates and written statements of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Hecht & Steckman, P.C., counsel to the
Company, dated the Option Closing Date, addressed to the Underwriter and in form
and substance satisfactory to Underwriter's Counsel confirming as of Option
Closing Date the statements made by Hecht & Steckman in their opinion delivered
on the Closing Date.
(d) Intentionally omitted.
(e) On or prior to each of the Closing Date and the Option
Closing Date, Underwriter's Counsel shall have been furnished such documents
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (b)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representation, warranties or conditions herein
contained.
(f) On or prior to each of the Closing Date and the Option
Closing Date, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to each of Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company does not, shall be in
default under
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any provision of any instrument relating to any outstanding indebtedness; (iv)
no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or
to its knowledge threatened against the Company, or affecting any of their
respective properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date,
if any, the Underwriter shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all statements
and information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall not have incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in the ordinary course of
its business, any material liabilities or obligations, direct or contingent; the
Company shall not have paid or declared any dividends or other distributions on
its capital stock; the Company shall not have entered into any transactions not
in the ordinary course of business;
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there shall not have been any change in the capital stock or long-term debt or
any increase in the short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of business) of the Company; the
Company does not have sustained any material loss or damage to its property or
assets, whether or not insured; there shall not be any litigation which is
pending or threatened against the Company which is required to be set forth in
an amended or supplemented Prospectus which has not been set forth; and there
shall not have occurred any event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement
(j) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Corbin & Wertz, independent
certified public accounts:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion, the financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of Corbin & Wertz, independent
certified public accounts with respect to the financial statements
and-supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and Regulations
or are not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration
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Statement, or (B) at a specified date not more than five (5) days prior to the
Effective Date of the Registration Statement, there has been any change in the
capital stock or long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the Company's balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from
__________, 199_ to a specified date not more than five (5) days prior to the
Effective Date of the Registration Statement, there was any decrease in net
revenues, net earnings or increase in net earnings per common share of the
Company, in each case as compared with the corresponding period beginning
_________, 199_ other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease;
(iv) setting forth, at a date not later than five (5)
days prior to the date of the Registration Statement, the amount of liabilities
of the Company (including a breakdown of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(vi) stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness", as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit, " in the Company' s internal controls; and
(vii) Intentionally omitted.
(viii) statements as to such other matters incident
to the transaction contemplated hereby as the Underwriter may reasonably
request.
(k) On the Closing Date, and each Option Closing Date, if any,
the Underwriter shall have received from Corbin & Wertz, independent certified
public accounts a letter, dated as of the Closing Date, and each Option Closing
Date, if any, to the effect that they reaffirm that statements made in the
letter furnished pursuant to Subsection (j) of this Section , except that the
specified date referred to shall be a date not more than five days prior to
Closing Date and each Option Closing Date, if any, and, if the Company has
elected to rely on Rule 430A of the Rules
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and Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection (i) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Underwriter and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(l) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter for the several
Underwriter's accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e)
of Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or to its knowledge or that of the Company shall be
contemplated.
(n) On or before the Closing Date the Company shall have (i)
executed and delivered to the Underwriter the consulting agreement,
substantially in the form filed as an Exhibit to the Registration Statement (the
"Consulting Agreement") and (ii) paid to the Underwriter $150,000 representing
the two year retainer fee pursuant to the Consulting Agreement.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company, agrees to indemnify and hold harmless the
Underwriter, and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which such Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, (except that the indemnification
contained in this paragraph with respect to any preliminary prospectus shall not
inure to the benefit of the Underwriter or to the benefit of any person
controlling the Underwriter) on account of any loss, claim, damage, liability or
expense arising from the sale of the Units by the Underwriter to any person if a
copy of the Prospectus, as amended or supplemented, shall not have been
delivered or sent to such person within the time required by the Act, and the
untrue statement or alleged untrue statement or omission or alleged omission of
a material fact contained in such Preliminary Prospectus was
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corrected in the Prospectus, as amended and supplemented, and such correction
would have eliminated the loss, claim, damage, liability or expense), the
Registration Statement or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of Common
Stock of the Company issued or issuable upon exercise of the Underwriter's
Warrants; or (iii) in any application or other document or written communication
(in this Section 7 collectively called "application") executed by the Company or
based upon written information furnished by the Company in any jurisdiction in
order to qualify the Common Stock under the securities laws thereof or filed
with the Commission, any state securities commission or agency, NASDAQ or any
other securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) The Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering;
provided, further, that the liability of each Underwriter to the Company shall
be limited to the product of the Underwriter's discount or commission and the
number of Shares sold by such Underwriter hereunder. The Company acknowledges
that the statements with respect to the public offering of the Securities set
forth under the heading "Underwriting" and the stabilization legend in the
Prospectus and the statement as to the anticipated date of delivery of the
certificates representing the Units have been furnished by the Underwriters
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the Prospectus.
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(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with one counsel
reasonably satisfactory to such indemnified party. Notwithstanding the foregoing
the indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnifying party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided however, that such consent was not
unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Units or (B) if the allocation provided by
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clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is a contributing party and the Underwriters are
the indemnified party the relative benefits received by the Company, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Units (before deducting expenses)
bear to the total underwriting discounts received by the Underwriters hereunder,
in each case as set forth in the table on the Cover Page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Units purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each person,
if any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations. warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling person,
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and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriter.
9. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time. on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for the sale to the public, provided, however that the provisions of Sections 5,
7 and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (d) of this Section 10, the
Underwriter shall have the right to terminate this Agreement, (i) if any
calamitous domestic or international event or act or occurrence has materially
disrupted, or in the Underwriter's opinion will in the immediate future
materially disrupt general securities markets in the United States; or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange, or in the
over-the-counter market shall have been suspended or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the Commission or any other government authority having jurisdiction; or
(iii) if the United States shall have become involved in a war or major
hostilities; or (iv) if a banking moratorium has been declared by a New York
State or federal authority; or (v) if a moratorium in foreign exchange trading
has been declared; or (vi) if the Company shall nave sustained a loss material
or substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (vii) if there
shall have been such material adverse change in the conditions or prospects of
the Company, or such material adverse general market conditions as in the
Underwriter's judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
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11. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriter may
at the Underwriter's option, by notice from the Underwriter to the Company,
terminate the Underwriter's several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5 and Section 7 hereof. No action taken
pursuant to this Section shall relieve the Company or any Seller from liability,
if any, in respect of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at State Capital Markets Corp., 1 World Trade Center, New York, New
York 10048, Attention: Syndicate Department, with a copy to Lampert & Lampert,
10 East 40th Street, New York, New York 10016, Attention: Mitchell Lampert, Esq.
Notices to the Company shall be directed to the Company at 9800 South Sepulveda
Blvd., Suite 720, Los Angeles, California 90045, Attention: Frederik G.M.
Rodenhuis, with a copy to Hecht & Steckman, P.C., 60 East 42nd Street, Suite
5101, New York, New York 10165-5101, attention:
Charles Hecht, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 8 hereof, their legal
representatives and assigns, and their respective heirs and legal
representatives and no other person shall have or be construed to have any legal
or equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
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BEVERAGE WORKS, INC.
By:
-------------------------------
Frederik G.M. Rodenhuis
President
Confirmed and accepted as of the date first above written.
STATE CAPITAL MARKETS CORP.
By:
----------------------------
Name:
Title:
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