EXHIBIT 1.1
February 5, 2003
Public Securities, Inc.
300 North Argonne Road
Suite 202
Spokane, Washington 99212
Gentlemen:
CapSource Financial, Inc., a Colorado corporation (the "Company"), with
principal offices located at 2305 Canyon Boulevard, Suite 103, Boulder,
Colorado, has an authorized capitalization of 100,000,000 shares of Common
Stock, $.01 par value. The Company proposes to issue and sell through Public
Securities, Inc., (the "Underwriter") a minimum of 300,000 Shares and a maximum
of 3,000,000 Shares at the offering price of $1.75 per share. The Shares are
being offered on a "best efforts, minimum or maximum" basis
The Company wishes to confirm as follows its agreements with you.
1. Certain Definitions
The following shall constitute the definitions of certain terms used in
this Agreement:
(a) "Underwriter" shall refer to Public Securities, Inc. and
members of a selling group (which group may include the
Underwriter) or such other associate underwriters as it may
deem necessary as long as such underwriters or members of the
selling group are members of the NASD.
(b) "Company" shall refer to CapSource Financial, Inc., its
affiliates, and subsidiaries.
(c) "Commission" shall refer to the Securities and Exchange
Commission.
(d) "Act" shall refer to the Securities Act of 1933 as amended.
(e) "Regulations" shall refer to the rules and regulations of the
Commission.
(f) "Share(s)" shall refer to the shares of the Company's Common
Stock, $0.01 par value being registered pursuant to the
Registration Statement. The Shares are being offered on a
"best efforts, minimum or maximum" basis.
(g) "Effective Date" shall be December 30, 2002, the first date
upon which the Registration Statement filed pursuant to this
Agreement was declared effective by the Commission, i.e., the
date when the Shares may be offered for sale to the public.
(h) "Registration Statement" shall refer to the Registration
Statement, Form SB-2
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(File No.333-100389) filed for the proposed sale of the
Shares, including any related preliminary prospectus, exhibits
and financial statements as finally amended and revised prior
to the Effective Date or as may be amended after the Effective
Date. 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, any
schedules, exhibits and all other documents and information
filed as a part thereof or that may be incorporated therein)
and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Rules and
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 Rules and
Regulations, is hereinafter called the "Prospectus.
(i) "NASD" shall refer to the National Association of Securities
Dealers, Inc.
(j) "Initial Closing Date" shall refer to such date that the
proceeds from the offering of the Shares sold by the
Underwriter and received by the Escrow Agent equals at least
$525,000, but not more than $5,250,000, and the Company and
the Underwriter have determined that funds should be released
from Escrow and the offering is not yet closed. "Final Closing
Date" shall refer to such date that the cumulative proceeds
from the offering of the Shares sold by the Underwriter and
received by the Escrow Agent does not exceed $5,250,000, and
the Company and the Underwriter have determined that the terms
and conditions of the offering have been completed and the
offering should be closed.
(k) "Material" shall refer to the definitions of "Material" under
Generally Accepted Accounting Principles, Regulation S-X of
the Securities Exchange Act of 1934, as well as judicial
interpretations of such term.
2. Underwriter's Compensation
(a) The Company hereby appoints the Underwriter as its exclusive
agent during the continuance of the authorization hereunder to
sell and obtain purchasers for 3,000,000 Shares at a public
offering price of $1.75 per Share and at an aggregate public
offering price of $5,250,000 on a "best efforts, minimum or
maximum basis." Unless 300,000 Shares are sold and payment
received by the Company therefore within 120 days from the
Effective Date, no Shares will be sold, and in that event the
Underwriter will not receive any of the commissions mentioned,
but will be entitled to all accountable out-of-pocket
expenses, not to exceed $52,500, unless otherwise mutually
agreed by the Company and the Underwriter. Such exclusive
agency shall be good and irrevocable unless and until
terminated as hereinafter set forth.
(1) If the sale of the Shares by the Underwriter is not
consummated for any reason not attributable to the
Underwriter, or if (i) the Company unilaterally
withdraws the Registration Statement or does not
proceed with
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the public offering for reasons other than the
Underwriter's failure to comply with or perform the
obligations required by its representations,
covenants or agreements hereunder , or (ii) the
representations in Section 3 hereof are not correct
or the covenants cannot be complied with, or (iii)
there has been a materially adverse change in the
condition, prospects or obligations of the Company or
a materially adverse change in stock market
conditions from current conditions, or (iv) the "road
show" presentation produced a negative affect on the
intended syndicate members, the Company will
reimburse the Underwriter for its accountable
expenses up to a maximum of $52,500, but any funds
remaining unused from a $10,000 advance to be paid
upon signing of this Agreement, will be returned to
the Company.
(b) Subject to the filing and the becoming effective of a
post-effective amendment to the Registration Statement and a
prospectus disclosing this Agreement in compliance with the
provisions of the Act and the availability for sale to the
public, pursuant to law, of the offered Shares and subject to
the fulfillment of all of the obligations of the Company and
compliance with all of the terms and conditions thereof by the
Company in all material respects and in reliance upon the
warranties, representations and covenants made by the Company
herein, the Underwriter accepts the foregoing exclusive agency
and agrees to use its best efforts during the term of the this
Agreement and the continuance of the authorization provided
herein to sell the offered Shares when and as issuable at the
public offering price set forth above; and to make such public
offering at such time as Underwriter so determines and after
the following have been completed:
(1) a post effective amendment to Registration Statement and
prospectus disclosing this Agreement has become effective.
(2) Approval of offering by NASD.
(3) Blue Sky clearance from the states required by Underwriter
and listed on Exhibit A attached to this Agreement.
(4) Shares and/or Certificates are available for public
offering.
(5) Company furnishes Underwriter with sufficient number of
prospectuses.
(c) As compensation for the services of the Underwriter herein,
the Company shall allow the Underwriter, subject to the sale
and receipt of funds for 300,000 Shares minimum and 3,000,000
Shares maximum to be offered herein, a sales commission of ten
percent (10%) of the public offering price on all offered
Shares actually sold hereunder. The Underwriter may organize a
selling group (which group may include the Underwriter) or
associate itself with such other Underwriters as it may deem
necessary as long as such underwriters or members of the
selling group are members of the NASD for the purpose of
distributing the
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offered Shares and in such event, the Underwriter may allow to
members of such selling group, or such other underwriters,
such part of the aforementioned commission or discount as it
may, in its sole discretion determine. Shares sold by members
of the selling group may only be sold at the price of $1.75
per Share. The Underwriter shall be paid a non-accountable
expense allowance of two percent (2%) of the public offering
price on all Shares sold (of which $10,000 will be pre-paid by
the Company to the Underwriter as of the date of this letter)
and granted warrants to purchase up to 300,000 shares of
Common Stock for $100, having an exercise price equal to 140%
of the Public Offering price, at the rate of one Underwriter's
warrant for every ten Shares sold in this offering (the
"Underwriter's Common Stock Purchase Warrant") subject to the
sale of the minimum number of Shares as set forth in Section
2(a) hereof.
(1) Underwriter's Common Stock Purchase Warrant: At the
Final Closing Date, the Company will sell to the
Underwriter for a purchase price of $100, warrants to
purchase shares at 140% of the offering price of the
Shares (the "Underwriter's Common Stock Purchase
Warrant" or "Underwriter's Warrants") in the form
attached as Exhibit B. The total number of shares
which may be purchased on the exercise of the
Underwriter's Warrants will be 10% of the Shares sold
in the offering. The Underwriter's Warrants shall be
non-exercisable and nontransferable for a period of
twelve (12) months after the effective date of
post-effective amendment to the Registration
Statement disclosing this Agreement.
The Company and the Underwriter agree that, prior to
the effective date of post-effective amendment to the
Registration Statement disclosing this Agreement, the
Underwriter may designate that the Underwriter's
Warrants be issued in varying amounts directly to its
officers and not to the Underwriter, and to other
Underwriters and their designees, provided that such
designation will only be made by the Underwriter if
it determines that such issuances would not violate
the interpretation of the Board of Governors of the
NASD. The Underwriter has disclosed to the Company,
and the Company has agreed, that the Underwriter may
transfer, after twelve (12) months from the date of
the Underwriter's Warrants, a portion or all of the
Underwriter's Warrants to certain persons, including,
but not limited to, the Underwriter's officers,
directors, shareholders, employees, or registered
representatives. The Underwriter and the Company
agree that such transfers will only be made if they
do not violate the registration provisions of the Act
and the Underwriter will deliver an opinion of
counsel to that effect to the Company.
The Company agrees that if, at any time during the
term of the Underwriter's Warrants: (A) it should
file a Registration Statement with the Commission
pursuant to the Act (or file a Notification on Form
l-A) under the Act for a public offering of equity
securities for cash, either for the account of the
Company or Selling Shareholders, or (B) in the event
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that: (i) counsel satisfactory to the Underwriter is
of the opinion that the Net Issuance Exercise of this
Warrant by the Underwriter as provided in Section
7(G.1) is not permissible; (ii) the Company is
eligible to file a registration statement on Form S-3
under the Securities Act of 1933, (iii) Company
Counsel is unable to furnish the opinion letter under
section 7(b)(i)(L), and (iv) the Company has received
or will receive the payment of $50,000 of the
Exercise Price of the Common Stock Purchase Warrant
in cash , then upon the demand of the Underwriter,
the Company will at its own expense, except
commissions, offer to the then holder(s) of
Underwriter's Warrants the opportunity to register
the resale of the shares underlying the Underwriter's
Warrants for public offering in accordance with the
provisions of Sections 8 and 9 of the Common Stock
Purchase Warrant, respectively. This paragraph is not
applicable to a Registration Statement filed with the
Commission on Forms S-4 or S-8.
In addition to the rights above provided, the Company
will cooperate with the then holder(s) of the
Underwriter's Warrants and shares issued upon the
exercise of the Underwriter's Warrants in preparing
and signing any Registration Statement or
Notification, in addition to the Registration
Statement and Notifications discussed above, required
in order to sell or transfer the aforesaid
Underwriter's Warrants and/or underlying shares and
will use its best efforts to supply all information
required therefore, but the preparation and filing of
such additional Registration Statement or
Notification shall be at the then holder(s) cost and
expense.
3. Representations and Warranties of the Company. As material inducements
to the Underwriter to enter into this Agreement, the Company hereby
represents and warrants to, and agrees with the Underwriter which
representations, warranties and agreements shall survive the Initial
and Final Closings, as follows:
(a) The Company has prepared and filed with the Commission a
registration statement, and an amendment or amendments
thereto, on Form SB-2 (No. 333-100389), including any related
preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Shares, under the Act, which registration
statement and amendment or amendments have been prepared by
the Company in conformity in all material respects with the
requirements of the Act, and the Rules and Regulations, a copy
of which has been delivered to the Underwriter. The Company
will promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriter
and will not file any other amendment thereto to which the
Underwriter shall have objected verbally or in writing after
having been furnished with a copy thereof.
Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any
Prospectus or the Registration Statement and no proceeding for
an order suspending the effectiveness of the Registration
Statement or any of the Company's Shares has been instituted
or is pending or
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threatened. Each such Prospectus and/or any supplement thereto
has conformed in all material respects with the requirements
of the Act and the Rules and Regulations and on its date did
not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein
not misleading, in light of the circumstances under which they
were made ; provided, however, that no representations,
warranties or agreements are made hereunder as to information
contained in or omitted from the Prospectus in reliance upon,
and in conformity with, the written information furnished to
the Company by you as set forth in Section 2(c) above.
(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state
of its incorporation, with full power and authority (corporate
and other) to own its properties and conduct its businesses as
described in the Prospectus and is duly qualified to do
business as a foreign corporation in good standing in all
other jurisdictions in which the nature of its business or the
character or location of its properties requires such
qualification, except where the failure to so qualify would
not have a material adverse effect on the business, properties
or operations of the Company and the subsidiaries as a whole.
(d) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Shares, to enter into
this Agreement, to grant the Underwriter's Common Stock
Purchase Warrant dated as of the Final Closing Date to be
exercised and delivered by the Company to the Underwriter (the
"Underwriter's Common Stock Purchase Warrant Agreement"), and
to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and
properly authorized, and on the Final Closing Date will be
duly and properly executed and delivered by the Company. This
Agreement constitutes and on the Final Closing Date the
Underwriter's Common Stock Purchase Warrant will then
constitute valid and binding agreements, enforceable in
accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy or other
similar laws affecting the rights of creditors generally or by
general equitable principles and except as the enforcement of
indemnification or contribution provisions may be limited by
federal or state securities laws or principles of public
policy).
(e) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of
incorporation or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or
other evidence of indebtedness or in any material contract,
indenture, mortgage, loan agreement, lease, joint venture,
partnership or other agreement or instrument to which the
Company is a party or by which it may be bound or is not in
material violation of any law, order, rule, regulation, writ,
injunction or decree of any governmental instrumentality or
court, domestic or foreign; and the execution and delivery of
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this Agreement, the Underwriter's Common Stock Purchase
Warrant and the consummation of the transactions contemplated
therein and in the Prospectus and compliance with the terms of
each such agreement will not conflict with, or result in a
material breach of any of the terms, conditions or provisions
of, or constitute a material default under, or result in the
imposition of any material lien, charge or encumbrance upon
any of the property or assets of the Company pursuant to, any
material bond, debenture, note or other evidence of
indebtedness or any material contract, indenture, mortgage,
loan agreement, lease, joint venture, partnership or other
agreement or instrument to which the Company is a party nor
will such action result in the material violation by the
Company of any of the provisions of its respective certificate
or articles of incorporation or bylaws or any law, order,
rule, regulation, writ, injunction, decree of any government,
governmental instrumentality or court, domestic or foreign,
except where such violation will not have a material adverse
effect on the financial condition of the Company.
(f) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus and the Company will
have the adjusted capitalization set forth therein on the
Initial and Final Closing Date; all of the shares of issued
and outstanding capital stock of the Company set forth therein
have been duly authorized, validly issued and are fully paid
and nonassessable; the holders thereof do not have any rights
of rescission and are not subject to personal liability for
any obligations of the Company by reason of being stockholders
under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is
subject to or was issued in violation of any preemptive or
similar rights of any stockholder of the Company; and such
capital stock (or derivative securities thereof) conforms in
all material respects to all statements relating thereto
contained in the Prospectus.
(g) 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 shares,
except for this Agreement or as described in the Prospectus.
The Shares, and the shares issuable upon exercise of the
Underwriter's Common Stock Purchase Warrant 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 hereof,
will be validly issued, fully paid and non-assessable and will
conform in all material respects to the respective
descriptions thereof contained in the Prospectus; except for
payment of the applicable purchase price paid upon exercise of
the options or warrants, as the case may be, 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 Shares and the shares
issuable upon exercise of the Underwriter's Common Stock
Purchase Warrant has been duly and validly taken; and the
certificates representing the Shares and shares issuable upon
exercise of the the Underwriter's Common Stock Purchase
Warrant will be in due and proper form. Upon the issuance and
delivery pursuant to the terms hereof of the shares issuable
upon exercise of the Underwriter's Common Stock Purchase
Warrant to be
Page -7-
granted by the Company hereunder, the Underwriter will acquire
good and marketable title to such shares free and clear of any
lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction of any kind whatsoever other than
restrictions as may be imposed under applicable securities
laws.
(h) The Company has good and marketable title to all properties
and assets described in the Prospectus as owned by it, free
and clear of all liens, charges, encumbrances or restrictions,
except such as are described or referred to in the Prospectus
or which are not materially significant or important in
relation to its business or which have been incurred in the
ordinary course of business; except as described in the
Prospectus all of the leases and subleases under which the
Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and
the Company is not in material default in respect of any of
the terms or provisions of any of such leases or subleases,
and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above or
affecting or questioning the Company's right to the continued
possession of the leased or subleased premises or assets under
any such lease or sublease; and the Company owns or leases all
such properties as are necessary to its operations as now
conducted and as contemplated to be conducted, except as
otherwise stated in the Prospectus.
(i) The financial statements, together with related notes, set
forth in the Prospectus in all material respects fairly
present the financial position and results of operations of
the Company at the respective dates and for the respective
periods to which they apply. Said statements and related notes
have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis which is
consistent in all material respects during the periods
involved. Any "stub" period has not been audited by an
independent accounting firm, but was prepared in accordance
with GAAP. There has been no material adverse change or
material development involving a prospective change in the
condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of
the Company whether or not arising in the ordinary course of
business considered as a whole, since the date of the
financial statements included in the Registration Statement
and the Prospectus.
(j) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented,
and except as described in the Prospectus, the Company has
not, directly or indirectly, incurred any liabilities or
obligations, direct or contingent, not in the ordinary course
of business or entered into any transactions not in the
ordinary course of business, which are material to the
business of the Company as a whole and there has not been any
change in the capital stock of, or any incurrence of long term
debts by, the Company or any issuance of options, warrants or
rights to purchase the capital stock of the
Page -8-
Company or declaration or payment of any dividend on the
capital stock of the Company or any material adverse change in
the condition (financial or other), net worth or results of
operations of the Company as a whole.
(k) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is
a party before or by any court or governmental agency or body,
which might result in any material adverse change in the
condition (financial or other), business or prospects of the
Company as a whole or might materially and adversely affect
the properties or assets of the Company as a whole nor are
there any actions, suits or proceedings against the Company
related to environmental matters or related to discrimination
on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the
business, property, operations, financial condition or
earnings of the Company as a whole; and no labor disturbance
by the employees of the Company individually exists or is, to
the knowledge of the Company, imminent which might be expected
to materially and adversely affect the conduct of the
business, property, operations, financial condition or
earnings of the Company as a whole.
(l) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state,
local and foreign income and franchise tax returns, or if not
filed, has obtained all necessary extensions, has paid all
taxes shown as due thereon, has established adequate reserves
for such taxes which are not yet due and payable, and does not
have any material tax deficiency or claims outstanding,
proposed or assessed against it.
(m) The Company has sufficient licenses, permits, right to use
trade or service marks and other governmental authorizations
currently required for the conduct of its business as now
being conducted and as contemplated to be conducted and the
Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any
such licenses, permits, or other governmental authorizations
would not materially affect the Company's operations. To its
knowledge, none of the activities or businesses of the Company
are in material violation of, or cause the Company to
materially violate any law, rule, regulations, or order of the
United States, any state, county or locality, or of any agency
or body of the United States or of any state, county or
locality.
(n) The Company has not in the last five years (i) made any
contributions to any candidate for political office in
violation of law, or failed to disclose fully any such
contribution, or (ii) made any payment to any state, federal
or foreign governmental officer or official, or other person
charged with similar public or quasi public duties, other than
payments required or allowed by applicable law.
(o) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a
finder's fee, brokerage fee or otherwise with respect to this
financing for which the Company or the Underwriter may be
responsible or which to the knowledge of the Company, may
affect the
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Underwriter's compensation.
(p) The Company has its property adequately insured against loss
or damage by fire and maintains such other insurance as is
customarily maintained by companies in the same or similar
business.
(q) The Underwriter's Warrants herein described are duly and
validly authorized and upon delivery to the Underwriter in
accordance herewith will be duly issued and legal, valid and
binding obligations of the Company, except as the
enforceability thereof may be limited by bankruptcy or other
similar laws affecting the rights of creditors generally or by
equitable principles, and except as the enforcement of
indemnification provisions may be limited by federal or state
securities laws. The Underwriter's securities issuable upon
exercise of any of the Underwriter's Common Stock Purchase
Warrant have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly
issued, fully paid and nonassessable.
(r) Except as set forth in the Prospectus, no default exists in
the due performance and observance of any term, covenant or
condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, note, loan or
credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other material agreement or instrument to which the Company is
a party or by which the Company may be bound or to which the
property or assets (tangible or intangible) of the Company is
subject or affected.
(s) To the best of the Company's knowledge it has generally
enjoyed a satisfactory employer-employee relationship with its
employees and, to the best of its knowledge, is in substantial
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. To the best of the Company's knowledge,
there are no pending investigations involving the Company, by
the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local,
or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or
complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or threatened against or
to its knowledge involving the Company, or any predecessor
entity, and none has ever occurred. To the best of the
Company's knowledge, no representation question is pending
respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently
being negotiated by the Company. To the best of the Company's
knowledge, no grievance or arbitration proceeding is pending
or to its knowledge threatened under any expired or existing
collective bargaining agreements of the Company. No labor
dispute with the employees of the Company is pending, or, to
its knowledge is imminent; and the Company is
Page -10-
not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or
contractors which may 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.
(t) Except as may be set forth in the Registration Statement, 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(l) and
3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute, 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 or Section 4975 of the
Internal Revenue Code (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 never completely or partially
withdrawn from a "multiemployer plan."
(u) None of the Company, or any of its 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 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 Shares, Underwriter's Common Stock
Purchase Warrant, or otherwise.
(v) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the
foregoing presently owned or held by the Company, are in
dispute or, to the best knowledge of the Company's management
or Counsel are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the
Prospectus, has received no notice with respect to any patent,
trademark, service mark, trade name, copyright, technology
that it owns or has the right to use, and that are used in the
conduct of its business as now conducted or proposed to be
conducted, infringes upon or is adverse 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 or otherwise disclosed to the
Underwriter in writing, to the best knowledge of the Company's
management is not obligated or under any liability whatsoever
to make any material payments by way of royalties, fees or
otherwise
Page -11-
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. There is no suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or, to the best of the Company's
knowledge, threatened (or circumstances that may give rise to
the same) against the Company which challenges the rights of
the Company with respect to any trademarks, trade names,
service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in
the conduct of its business.
(w) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's
management all trade secrets, patent, trademark, service mark,
trade name, copyright ,"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 property") 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, free
and clear of and without violating any right, lien or claim of
others, including without limitation, former employers of its
employees. The Company is not aware of any such development of
similar or identical trade secrets or technical information by
others the existence of which would cause a material adverse
affect to the Company's business taken as a whole. The Company
has valid and binding employment agreements with all of its
officers (subject to the equitable powers of any court), which
agreements have remaining terms of at least two years from the
effective date of the Registration Statement except where the
failure to have such agreements would not materially and
adversely effect the Company's business taken as a whole.
(x) KPMG, LLP , whose independent auditor report was 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.
(y) The Company has agreed to cause to be duly executed,
agreements pursuant to which each of the Company's officers,
directors, consultants, and holders of more than 5% of the
outstanding Common Stock calculated as of the date immediately
preceding the commencement of the public offering, and any
person or entity deemed to be an affiliate of the Company
pursuant to SEC Rules and Regulations, has agreed not to,
directly or indirectly, sell, assign, transfer, or otherwise
dispose of any shares of Common Stock or securities
convertible into, exercisable 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) for a period commencing on the
effective date until after 180 days from the Final Closing
date of the offering, unless the price of the Common Stock,
adjusted for any splits, trades at 175% of the public offering
price for 20
Page -12-
consecutive days. Any shares of common stock released from the
foregoing restrictions will remain restricted Shares subject
however to the resale provisions of Rule 144, insider trading
rules, and insider reporting rules.
Shares issued upon the exercise of any options held by the
Company's officers, directors or holders of 5% or more of the
Company's Common Stock, shall be locked up in accordance with
the terms of the preceding paragraph.
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 and to place
"stop transfer" orders on the Company's stock ledgers. The
Company president or CEO, and the Underwriter will have their
signatures on the lock-up agreements. The Company also agrees
that it will not release any shares subject to this Agreement
without the signatures of all parties referred to.
(z) The Company shall cooperate with the Underwriter to effect
such additional and further actions necessary to have the
Shares approved for listing on NASDAQ or the Bulletin Board
Exchange
(aa) Except as set forth in the Prospectus or disclosed in writing
to the Underwriter (which writing specifically refers to this
Section), no officer or director of the Company, holder of 5%
or more of Shares of the Company or any "affiliate" or
"associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the
foregoing persons or entities 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 it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions" or
disclosed in writing to the Underwriter (which writing
specifically refers to this Section) there are no existing
agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer,
director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing
persons or entities.
(bb) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel
(as defined herein) shall be deemed a representation and
warranty by the Company to the Underwriter as to the matters
covered thereby.
(cc) Each of the minute books of the Company has been made
available to the Underwriter and contains a complete summary
of all meetings and actions of the directors and stockholders
of the Company, since the time of its incorporation and
reflect all transactions referred to in such minutes
accurately in all respects.
Page -13-
(dd) Except as described or referenced in the Prospectus or
disclosed in writing to the Underwriter (which writing
specifically refers to this Section), no holders of any shares
of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the
right to include any shares issued by the Company in the
Registration Statement or any registration statement to be
filed by the Company or to require the Company to file a
registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any shares of
the Company. Except as disclosed in the Prospectus, all rights
so described or disclosed have been waived or have not been
triggered with respect to the transactions contemplated by
this Agreement and the Underwriter's Common Stock Purchase
Warrant (including the securities issuable thereunder).
(ee) The Company has not entered into any employment agreements
with its executive officers, except as disclosed in the
Prospectus.
(ff) 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
Registered Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Underwriter's
Common Stock Purchase Warrant, the performance of this
Agreement, and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the
Shares, and the Underwriter's Common Stock Purchase Warrant,
except such as have been or may be obtained under the Act,
otherwise or may be required under state securities or "blue
sky" laws in connection with the Underwriter's purchase and
distribution of the Shares and the Underwriter's Common Stock
Purchase Warrant to be sold by the Company hereunder or may be
required by the Rules of the National Association of Shares
Dealer, Inc. ("NASD").
(gg) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents
filed as exhibits to the Registration Statement to which the
Company is a party or by which it may be bound or to which its
assets, properties or businesses may be subject have been duly
and validly authorized, executed and delivered by the Company
and constitute the legal, valid and binding agreements of the
Company, enforceable against the Company, in accordance with
their respective terms. The descriptions in the Registration
Statement of agreements, 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.
Page -14-
(ii) Within the past five (5) years, none of the Company's
independent public accountants has brought to the attention of
the Company's management any "material weakness" as defined in
the Statement of Auditing Standard No. 60 in any of the
Company's internal controls.
(jj) Except as otherwise may be indicated herein or disclosed to
the Underwriter in writing, from the date hereof to a date as
of the post-effective date of the Registration Statement, the
Company will not: (1) issue any securities or incur any
liability or obligation direct or contingent, for borrowed
money, or (2) enter into any material transactions not in the
ordinary course of business, or (3) declare or pay any
dividend on its stock.
4. Escrow Account.
(a) Notwithstanding anything contained herein to the contrary,
unless the Underwriter shall sell 300,000 Shares, none of the
Shares will be distributed to the public. The Underwriter
agrees to open an appropriate interest-bearing Impound Account
maintained at Vectra Bank, NA, Denver, Colorado for all monies
received from the sale of these Shares. Such monies shall be
deposited in full without any deductions for commissions
and/or expenses. In the event that less than 300,000 Shares
are sold and paid for within 120 days from the date the
Underwriter commences the sale of said Shares, the proposed
offering herein will be withdrawn and the sums paid will be
returned in full to each such purchaser, plus interest,
without deduction therefrom.
(b) Appropriate arrangements will be made by the Underwriter to
provide for the receipt of funds from the subscribers of the
Shares and to provide for the disposition thereof in
accordance with the provisions of this Agreement.
(c) Unless the Underwriter shall have sold 300,000 Shares, it
shall not be entitled to receive any commission (except
accountable out-of-pocket expenses as stated hereinafter).
(d) The Underwriter shall comply in all respects with the
requirements of Rule 15c2-4 of the rules and regulations made
by the Commission under the Securities Exchange Act of 1934,
as amended. The Underwriter shall deposit, by 12:00 noon the
following business day, the proceeds of the sale of the
offered Shares in an Escrow bank account, as agent for the
Company, and the same shall be held in such bank account by
the bank until the Initial Closing Date, and upon such Initial
Closing Date, the said funds (less the commissions, expenses
and fees due to the Underwriter) shall be promptly transmitted
to the Company, who shall
Page -15-
at said time provide such documents, certificates, receipts
and any and all other papers or instruments as counsel for the
Underwriter may reasonably deem necessary or appropriate under
the circumstances. The Escrow shall continue until the Final
Closing Date, at which time said funds (less the commissions,
expenses and fees due to the Underwriter) shall be promptly
transmitted to the Company, who shall at said time provide
such documents, certificates, receipts and any and all other
papers or instruments as counsel for the Underwriter may
reasonably deem necessary or appropriate under the
circumstances, and the Escrow shall terminate.
5. Sale of the Shares - Selected Dealers
(a) In offering the Shares for sale, the Underwriter shall offer
it solely as agent for the Company and such offer shall be
made upon the terms and subject to the conditions set forth in
the Registration Statement and Prospectus. The Underwriter
shall commence making such offer as agent for the Company)
after all conditions of this Agreement have been satisfied.
(b) The Underwriter may offer and sell the Shares for the
Company's account through registered dealers selected by it,
except that only members of the NASD may be included in the
selling group pursuant to a form of Selling Agreement pursuant
to which it may allow such concession (out of its underwriting
commission) as it may determine, within the limits set forth
in the Registration Statement and prospectus, but all such
sales through selected dealers shall be made by the Company
acting through the Underwriter as agent, and not by the
Underwriter for its own account. All sales through selected
dealers shall be as agents for the accounts of their
customers, and the Underwriter shall not have authority to
employ such dealers as agents for the Company.
(c) On each sale by the Underwriter of any of the Shares to
selected dealers, the Underwriter shall require the selected
dealer purchasing any such Shares to agree to reoffer the same
on the terms and conditions of offering set forth in the
prospectus and to comply with all Commission requirements that
the Underwriter is required to comply with and not to offer or
sell the offered Shares to the Public or to any broker/dealer
not a member of the NASD, including foreign broker/dealer
registered pursuant to the Securities Act of 1934, at a price
of less than $1.75 per Share.
(d) With respect to residents of California, the Underwriter
agrees that the subscription documents used to evidence the
sale of any Shares to a California resident will specifically
contain the following suitability standards: "I am a
California resident and I have 1) a minimum net worth of at
least $75,000 and minimum gross income of not less than
$50,000 or 2) a liquid net worth of $150,000 in both instances
exclusive of my home, home furnishings and automobile. My
investment in these securities will not exceed ten percent
(10%) of my net worth. In lieu of the foregoing, please
consider me a "small investor" who, including the instant
offering, has not purchased more than $2,500 worth of the
Company's securities in the past twelve (12) months."
6. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
Page -16-
(a) It will cooperate in all respects in making the Prospectus
effective and will not at any time, whether before or after
the effective date, file any amendment to or supplement to the
Prospectus of which Underwriter shall not previously have been
advised and furnished with a copy or to which Underwriter or
Underwriter's counsel shall have reasonably objected or which
is not in material compliance with the Act and the Rules and
Regulations or applicable state law.
(i) As soon as the Company is advised thereof, the
Company will advise Underwriter, and confirm the
advice in writing, of the receipt of any comments of
the Commission or any state securities department,
when the Registration Statement becomes effective if
the provisions of Rule 430A promulgated under the Act
will be relied upon, when the Prospectus has been
filed in accordance with said Rule 430A, of the
effectiveness of any post-effective amendment to the
Registration Statement or Prospectus, or the filing
of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission or
any state securities department for amendment of the
Prospectus or for supplementing of the Prospectus or
for additional information with respect thereto, of
the issuance of any stop order suspending the
effectiveness of the Prospectus or any order
preventing or suspending the use of any Prospectus or
any order suspending trading in the Common Stock of
the Company, or of the suspension of the
qualification of the Shares, or of the institution of
any proceedings for any such purposes, and will use
its best efforts to prevent the issuance of any such
order and, if issued, to obtain as soon as possible
the lifting or dismissal thereof.
(ii) The Company will or has caused to be delivered to the
Underwriter copies of such Prospectus, and the
Company has consented and hereby consents to the use
of such copies for the purposes permitted by law. The
Company authorizes the Underwriter and the dealers to
use the Prospectus and such copies of the Prospectus
in connection with the sale of the Shares for such
period as in the opinion of Underwriter's counsel and
the Company's counsel the use thereof is required to
comply with the applicable provisions of the Act and
the Rules and Regulations. The Company will prepare
and file with the states, promptly upon the
Underwriter's request, any such amendments or
supplements to the Prospectus, and take any other
action, as, in the opinion of Underwriter's counsel,
may be necessary or advisable in connection with the
initial sale of the Shares and will use its best
efforts to cause the same to become effective as
promptly as possible.
(iii) 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 pursuant to Rule
424(b)(3) not later than the Commission's close of
business on the earlier of (i) the second business
day following
Page -17-
the execution and delivery of this Agreement, and
(ii) the fifth business day after the effective date
of the Registration Statement.
(iv) In case of the happening, at any time within such
period as a Prospectus is required under the Act to
be delivered in connection with the initial sale of
the Shares of any event of which the Company has
knowledge and which materially affects the Company,
or the securities thereof, and which should be set
forth in an amendment of or a supplement to the
Prospectus in order to make the statements therein
not then misleading, in light of the circumstances
existing at the time the Prospectus is required under
the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to
comply with the Act, the Rules and Regulations or any
other law, the Company will forthwith prepare and
furnish to the Underwriter copies of such amended
Prospectus or of such supplement to be attached to
the Prospectus, in such quantities as Underwriter may
reasonably request, in order that the Prospectus, as
so amended or supplemented, will not 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 not
misleading in light of the circumstances under which
they are made. The preparation and furnishing of any
such amendment or supplement to the Prospectus or
supplement to be attached to the Prospectus shall be
without expense to the Underwriter.
(v) The Company will to the best of its ability, comply
with the Act, the Exchange Act and applicable state
securities laws so as to permit the initial offer and
sales of the Shares, under the Act, the Rules and
Regulations, and applicable state securities laws.
(b) It will cooperate to qualify the Shares for initial sale under
the securities laws of such jurisdictions as designated by the
Underwriter and the Company and listed on Exhibit A and will
make such applications and furnish such information as may be
required for that purpose, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to
continue such qualification in effect for so long as the
Underwriter may reasonably request.
(c) So long as any of the Shares remain outstanding in the hands
of the public, the Company, at its expense, will annually
furnish to its shareholders a report of its operations to
include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as
practicable after the end of each fiscal year, a balance sheet
of the Company as at the end of such fiscal year, together
with statements of operations, shareholders' equity, and
changes in cash flow of the Company for such fiscal year, all
in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent public
accountants.
Page -18-
(d) It will deliver to the Underwriter at or before the Initial
Closing Date three signed copies of the signature pages to the
Registration Statement, as well as any amendments thereto. The
Company will deliver to the Underwriter, from time to time
until the effective date of the Prospectus, as many copies of
the Prospectus and Registration Statement (including all
financial statements and exhibits filed therewith, whether or
not incorporated by reference ) as well as any amendments
thereto as the Underwriter may reasonably request. The Company
will deliver to the Underwriter on the effective date of the
Prospectus and thereafter for so long as a Prospectus is
required to be delivered under the Act and the Rules and
Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as the Underwriter
may from time to time reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Shares substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall
be used, directly or indirectly, to acquire any securities
issued by the Company, without the prior written consent of
the Underwriter.
(f) As soon as it is practicable, but in any event not later than
the first (lst) day of the fifteenth (15th) full calendar
month following the effective date of the Registration
Statement, the Company will make available to its security
holders and the Underwriter an earnings statement (which need
not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the
Registration Statement, which shall satisfy the requirements
of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
7. Conditions of Underwriter's Obligations. The Underwriter's obligation
to act as agent of the Company hereunder and to find purchasers for the
Shares and to make payment to the Company on the Initial and Final
Closing Dates is subject to the accuracy of and compliance with the
representations and warranties an the part of the Company herein as of
the date hereof and as of the Initial and Final Closing Dates, to the
performance by the Company of its obligations and covenants hereunder,
to the accuracy of certificates of the Company and officers of the
Company to be delivered pursuant to this Agreement, all as at the Final
Closing Date, and to the following further conditions:
(a) The Registration Statement shall have become effective as and
when cleared by the Commission, and the Underwriter shall have
received notice thereof, on or prior to any closing date no
stop order suspending the effectiveness of the Prospectus
shall have been issued and no proceedings for that or similar
purpose shall have been instituted or shall be pending, or, to
your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied
with to the reasonable satisfaction of counsel to the
Underwriter; and qualification, under the securities laws of
such states as the Underwriter may
Page -19-
designate, of the issue and sale of the Securities upon the
terms and conditions herein set forth or contemplated and
containing no provision unacceptable to the Underwriter shall
have been secured, and no stop order shall be in effect
denying or suspending effectiveness of such qualification nor
shall any stop order proceedings with respect thereto be
instituted or pending or threatened under such law.
(b) On the Final Closing Date and, with respect to the letter
referred to in subparagraph (iii), as of the date hereof, the
Underwriter shall have received:
(i) the opinion, together with such number of signed or
facsimile copies of such opinion as the Underwriter
may reasonably request, addressed to the Underwriter
by Rider Bennett Egan & Arundel, LLP counsel for the
Company, (who may rely on the opinion of other
counsel for certain legal matters), in form and
substance reasonably satisfactory to the Underwriter
and Charles A. Cleveland, P.S., counsel to the
Underwriter, dated each such closing date, to the
effect that:
(A) The Company has been duly incorporated and
is a validly existing corporation in good
standing under the laws of the jurisdiction
in which it is incorporated and has all
necessary corporate power and authority to
carry on its business as described in the
Prospectus.
(B) The Company is qualified to do business in
each jurisdiction in which conducting its
business requires such qualification, except
where the failure to be so qualified would
not have a material adverse effect on the
Company's business or assets.
(C) The Company has the full corporate power and
authority to enter into this Agreement, the
Underwriter's Common Stock Purchase Warrant
and to consummate the transactions provided
for therein and each such Agreement has been
duly and validly authorized, executed and
delivered by the Company. Each of this
Agreement and the Underwriter's Common Stock
Purchase Warrant, assuming due
authorization, execution and delivery by
each other party thereto, constitutes a
legal, valid and binding agreement of the
Company enforceable against the Company in
accordance with its terms, subject to
bankruptcy, insolvency or similar laws
governing the rights of creditors and to
general equitable principles, and provided
that no opinion need be given as to the
enforceability of any indemnification or
contribution provisions, and to counsel's
knowledge none of the Company's execution or
delivery of this Agreement, or the
Underwriter's Common Stock Purchase Warrant,
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
Page -20-
Statement, the Prospectus, and any
amendments or supplements thereto, conflicts
with or will conflict with or results or
will result in any material breach or
violation of any of the terms or provisions
of, or constitutes or will constitute a
material default under, or result in the
creation or imposition of any material 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)
to the knowledge of such counsel, any
material 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 it is or may be
bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree,
order, rule or regulation applicable to the
Company, whether domestic or foreign.
(D) The Company has authorized and outstanding
capital stock as set forth in the Prospectus
under the heading "Capitalization" as of the
date set forth therein, and based on
counsel's review of the Company's
certificate of incorporation and bylaws,
minutes, consents, and upon representations
of the Company's officers, all of such
issued and outstanding shares of capital
stock have been duly and validly authorized
and issued, and to the knowledge of such
counsel are fully paid and nonassessable,
and to the knowledge of such counsel no
stockholder of the Company is entitled to
any preemptive rights to subscribe for, or
purchase shares of the capital stock and to
the knowledge of such counsel none of such
securities were issued in violation of the
preemptive rights of any holders of any
securities of the Company.
(E) To the knowledge of such counsel, 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, the
Underwriter's Common Stock Purchase Warrant,
and except as described in the Prospectus.
The Shares, underlying Securities, and the
Underwriter's Common Stock Purchase Warrant
each conform in all material respects to the
respective descriptions thereof contained in
the Prospectus. The outstanding shares,
shares of Common Stock and the Underwriter's
Common Stock Purchase Warrant and the
underlying securities, upon issuance and
delivery and payment therefore in the manner
described herein, the Underwriter's Warrant
will be, duly authorized, validly issued,
fully paid and nonassessable. Except as set
forth in the Prospectus,
Page -21-
there are no preemptive or other rights to
subscribe for or to purchase, or any
restrictions upon the voting or transfer of,
any shares of Common Stock pursuant to the
Company's articles of incorporation,
by-laws, other governing documents or any
agreement or other instrument known to such
counsel to which the Company is a party or
by which it is bound.
(F) The certificates representing the Shares are
in due and proper form and the Underwriter's
Common Stock Purchase Warrant has been duly
authorized and reserved for issuance and to
the extent the shares issuable upon the
proper exercise of the Underwriter's Common
Stock Purchase Warrant are issued and
delivered in accordance with the respective
terms of the Underwriter's Common Stock
Purchase Warrant, such shares will be duly
and validly issued, fully paid and
nonassessable.
(G) To the knowledge of such counsel, there are
no claims, suits or other legal proceedings
pending or threatened against the Company in
any court or before or by any governmental
body which would materially affect the
business of the Company or the financial
condition of the Company as a whole, except
as set forth in or contemplated by the
Prospectus.
Based on oral and/or written advice from the
staff of the Commission, the Registration
Statement has become effective and, to the
knowledge of such counsel, no stop order
suspending the effectiveness of the
Prospectus is in effect and no proceedings
for that purpose are pending before, or
threatened by, federal or by a state
securities administrator.
(H) To the knowledge of such counsel, there are
no legal or governmental proceedings,
actions, arbitrations, investigations,
inquiries or the like pending or threatened
against the Company of a character required
to be disclosed in the Prospectus which have
not been so disclosed, questioning the
validity of the capital stock of the Company
or this Agreement or the Underwriter's
Common Stock Purchase Warrant or which might
adversely affect the condition, financial or
otherwise, or the prospects of the Company
or which could materially adversely affect
the Company's ability to perform any of its
obligations under this Agreement, or the
Underwriter's Common Stock Purchase Warrant.
(I) To such counsel's knowledge, there are no
material agreements, contracts or other
documents known to such counsel required by
the Act to be described in the Registration
Statement and the Prospectus not filed as
exhibits to the Registration Statement and
Page -22-
the Prospectus, and to such counsel's
knowledge (A) 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 in all
material respects and fairly represent the
information required to be shown by Form
SB-2.
(J) No consent, approval, order or authorization
from any regulatory board, agency or
instrumentality having jurisdiction over the
Company, or its properties (other than
registration under the Act or qualification
under state or foreign securities law or
approval by the NASD) is required for the
valid authorization, issuance, sale and
delivery of the Shares or the Underwriter's
Common Stock Purchase Warrant.
(K) The statements in the Prospectus under "Risk
Factors" "Description of the 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.
In addition, such counsel shall state that
such counsel has participated in conferences
with officials and other representatives of
the Company, the Underwriter, Underwriters'
Counsel and the independent certified public
accountants of the Company, at which such
conferences the contents of the Registration
Statement and Prospectus and related matters
were discussed, and although they have not
certified the accuracy or completeness of
the statements contained in the Registration
Statement or the Prospectus, nothing has
come to the attention of such counsel which
leads them to believe that, at the time the
Registration Statement became effective and
at all times subsequent thereto up to and on
the Final Closing Date, the Registration
Statement and any amendment or supplement,
when such documents became effective or were
filed with the Commission (other than the
financial statements including the notes
thereto and supporting schedules and other
financial and statistical information
derived therefrom, as to which such counsel
need express no comment) 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,
Page -23-
or up to and at the Final Closing Date , the
Prospectus and any amendment or supplement
thereto (other than the financial statements
including the notes thereto and other
financial and statistical information
derived therefrom, as to which such counsel
need express no comment) contained any
untrue statement of a material fact or
omitted to state a material fact necessary
to make the statements therein, in the light
of the circumstances under which they were
made, not misleading.
(L) As of the date of the opinion, with respect
to common stock of the Company issuable upon
exercise of the Underwriter's Common Stock
Purchase Warrant (the "Warrant Securities")
that have not theretofore been subject to an
effective registration statement pursuant to
Sections 8 or 9 of the Underwriter's Common
Stock Purchase Warrant, the opinion will
provide that to the extent Warrant
Securities were acquired through the Net
Issuance Exercise of the Underwriter's
Common Stock Purchase Warrant as provided in
Section 7(G.1) thereof without the payment
of any cash, the holder's date of
acquisition of such Warrant Securities will
be the date of acquisition of the
Underwriter's Common Stock Purchase Warrant.
The issuance of any opinion relating to the
transferability of any Warrant Securities
will be conditioned upon the Holder
providing evidence satisfactory to such
counsel of the proper acquisition and
exercise of the Underwriter's Common Stock
Purchase Warrant, the completion and filing
of all forms or other documents required to
comply with federal and state securities
laws and the continued applicability of the
current interpretation of Rule 144(d)(3)(ii)
as expressed in items 4, 61 and 64 of the
Division of Corporation Finance Manual of
Publicly Available Telephone
Interpretations. Such opinion will be issued
in a professional and timely manner. Any
costs or legal fees attendant to the opinion
letters, shall be borne by the Company. Such
opinion shall also cover such other matters
incident to the transactions contemplated
hereby and the offering Prospectus as the
Underwriter or counsel to the Underwriter
shall reasonably request. In rendering such
opinion, to the extent deemed reasonable by
them, such counsel may rely upon
certificates of any officer of the Company
or public officials as to matters of fact of
which the maker of such certificate has
knowledge.
(ii) a certificate, signed by the Chief Executive Officer
and the Principal Financial or Accounting Officer of
the Company dated the Final Closing Date, to the
effect that with regard to the Company, each of the
conditions set forth in Section 7 have been
satisfied; as well as a representation that the
Company will have caused to be issued at its sole
cost and expense, such opinion of Counsel for the
Company, with respect to the resale of the
Page -24-
Underwriter's Common Stock Purchase Warrant and/or
underlying securities, including any opinions under
Rule 144. Such opinion shall be subject to all the
conditions and limitations specified in Section
7(b)(i))L) above and shall specifically represent
that the Underwriter's date of acquisition or
beneficial ownership date of the underlying
securities shall be the date of acquisition of the
Common Stock Purchase Warrant. In the event that: (i)
counsel satisfactory to the Underwriter is of the
opinion that the Net Issuance Exercise of this
Warrant by the Underwriter as provided in Section
7(G.1) is not permissible; (ii) the Company is
eligible to file a registration statement on Form S-3
under the Securities Act of 1933, (iii) Company
Counsel is unable to furnish the opinion letter under
section 7(b)(i)(L), and (iv) the Company has received
or will receive the payment of $50,000 of the
Exercise Price of the Common Stock Purchase Warrant
in cash, then upon the demand of the Underwriter, the
Company will register the Common Stock in accordance
with the provisions of Sections 8 and 9 of the Common
Stock Purchase Warrant, respectively. . The Company
represents and warrants, it will not hinder, delay or
impede in any fashion, the assignment and/or exercise
of the Underwriter's Common Stock Purchase Warrant,
the issuance of any underlying securities, and/or the
resale of such underlying securities. To effect such
transaction, the Company shall cause to be issued any
legal opinions within seven (7) days demand by the
Underwriter.
(iii) a letter, addressed to the Underwriter and in form
and substance satisfactory to the Underwriter in all
respects (including the nonmaterial nature of the
changes or decreases, if any, referred to in clause
(D) below), from KPMG LLP dated, respectively, as of
the effective date of the Registration Statement and
as of the Final Closing Date, as the case may be:
(A) Confirming that they are independent public
accountants with respect to the Company and
its consolidated subsidiaries, if any,
within the meaning of the Act and the
applicable published Rules and Regulations.
(B) Stating that, in their opinion, the
financial statements, related notes and
schedules of the Company and its
consolidated subsidiaries, if any, included
in the Registration Statement examined by
them comply as to form in all material
respects with the applicable accounting
requirements of the Act and the published
Rules and Regulations thereunder.
(C) Stating that, with respect to the period
from December 31, 2001 to a specified date
(the "specified date") not earlier than five
(5) business days prior to the date of such
letter, they have read the
Page -25-
minutes of meetings of the stockholders and
board of directors (and various committees
thereof) of the Company and its consolidated
subsidiaries, if any, for the period from
December 31, 2001 through the specified
date, and made inquiries of officers of the
Company and its consolidated subsidiaries,
if any, responsible for financial and
accounting matters and, especially as to
whether there was any decrease in sales,
income before extraordinary items or net
income as compared with the corresponding
period in the preceding year; or any change
in the capital stock of the Company or any
change in the long term debt or any increase
in the short-term bank borrowings or any
decrease in net current assets or net assets
of the Company or of any of its consolidated
subsidiaries, if any, and further stating
that while such procedures and inquiries do
not constitute an examination made in
accordance with generally accepted auditing
standards, nothing came to their attention
which caused them to believe that during the
period from December 31, 2001, through the
specified date there were any decreases as
compared with the corresponding period in
the preceding year in sales, income before
extraordinary items or net income; or any
change in the capital stock of the Company
or consolidated subsidiary, if any, or any
change in the long term debt or any increase
in the short-term bank borrowings (other
than any increase in short-term bank
borrowings in the ordinary course of
business) of the Company or any consolidated
subsidiary, if any, or any decrease in the
net current assets or net assets of the
Company or any consolidated subsidiary, if
any; and
(D) Stating that they have carried out certain
specified procedures (specifically set forth
in such letter or letters) as specified by
the Underwriter (after consultations with
KPMG LLP, CPA's relating to such
procedures), not constituting an audit, with
respect to certain tables, statistics and
other financial data in the Prospectus
specified by the Underwriter and such
financial data not included in the
Prospectus but from which information in the
Prospectus is derived, and which have been
obtained from the general accounting records
of the Company or consolidated subsidiaries,
if any, or from such accounting records by
analysis or computation, and having compared
such financial data with the accounting
records of the Company or the consolidated
subsidiaries, if any, stating that they have
found such financial data to agree with the
accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Prospectus and other related matters shall
be satisfactory to or approved by counsel to the Underwriter
and the Underwriter shall have received from Rider Bennett
Egan & Arundel, LLP a signed opinion dated as of each closing
date,
Page -26-
with respect to the incorporation of the Company, the validity
of the Shares, the form of the Prospectus, (other than the
financial statements together with related notes and other
financial and statistical data contained in the Prospectus or
omitted therefrom, as to which such counsel need express no
opinion), the execution of this Agreement and other related
matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties
of the Company contained in this Agreement shall be true and
correct in all material respects with the same effect as if
made on and as of such closing date; (ii) the Prospectus and
any amendments or supplements thereto shall contain all
statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and in
all material respects conform to the requirements thereof, and
neither the Prospectus nor any amendment or supplement thereto
shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary, in light of the circumstances under which they were
made, in order to make the statements therein not misleading;
(iii) there shall have been since the respective dates as of
which information is given no material adverse change in the
business, properties or condition (financial or otherwise),
results of operations, capital stock, long term debt or
general affairs of the Company from that set forth in the
Prospectus, except changes which the Prospectus indicates
might occur after the effective date of the Prospectus, and
the Company shall not have incurred any material liabilities
or material obligations, direct or contingent, or entered into
any material transaction, contract or agreement not in the
ordinary course of business other than as referred to in the
Prospectus and which would be required to be set forth in the
Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be
required to be set forth in the Prospectus, and no proceedings
shall be pending or threatened against the Company or any
subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property,
condition (financial or otherwise), results of operations or
general affairs of the Company.
(e) On the Final Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Underwriter's Common
Stock Purchase Warrant substantially in the form filed as an
Exhibit to the Registration Statement in final form and
substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such
designees as shall have been provided to the Company.
(f) On or before Final Closing Date, the Shares shall have been
duly approved for listing on an exchange or on the
OTC-Electronic Bulletin Board Exchange.
Page -27-
On or before the Final Closing Date, there shall have been
delivered to the Underwriter all of the Lock-up Agreements
required to be delivered pursuant to Section 3(y) , in form
and substance satisfactory to the Underwriter and
Underwriter's counsel.
(g) The Underwriter shall have received, on the Final Closing
Date, a certificate dated as of the Final Closing Date, signed
by the President, Treasurer and Secretary of the company,
certifying that: (i) no order suspending the effectiveness of
the Registration Statement of the sale of the Shares is in
effect and no proceedings for such purpose are pending or are,
to their knowledge, threatened by the Commission; (ii) they do
not know of any litigation, instituted or threatened, against
the Company of a character required to be disclosed in the
Registration Statement which are not disclosed therein; they
do not know of any contracts which are required to be
summarized in the prospectus which are not so summarized; and
they do not know of any material contacts required to be
summarized in the prospectus which are not so summarized; and
they do not know of any material contracts required to be
filed as exhibits to the Registration Statement which are not
so filed; (iii) they have each carefully examined the
Registration Statement and the prospectus and, to the best of
their knowledge, neither the Registration Statement or the
prospectus, nor any amendment or supplement to either of the
foregoing, contains any untrue statement of any material fact
or omits to state any material fact required to be set forth
in an amended or supplemented prospectus which has not been so
set forth: (iv) the Shares have been registered and qualified
for sale in all states required by the Underwriter and as
listed on Exhibit A; (v) since the respective dates as of
which information is given in the Registration Statement and
the prospectus, there has not been any material adverse change
in the condition of the Company, financial or otherwise, or in
the results of its operation except as reflected in or
contemplated by the Registration Statement and the prospectus
and, except as so reflected or contemplated since such date,
there has not been any material transaction entered into by
the Company; (vi) the representations and warranties set forth
in this Agreement are true and correct and the Company has
complied with all of its agreements herein contained; (vii)
the Company is not delinquent in the filing of any federal
,state, county, and/or municipal taxes; they know of no
proposed redetermination or reassessment of taxes adverse to
the Company; and the Company has paid or provided by adequate
reserves, for all known tax liabilities; (viii) they know of
no material obligation or liability of the Company, contingent
or otherwise, not disclosed in the Registration Statement and
prospectus; (ix) this Agreement, the consummation of the
transaction herein contemplated, and the fulfillment of the
terms hereof, will not result in the breach by the Company of
any terms or, or constitute a default under its Certificate of
Incorporation or By-Laws, any indenture, mortgage, lease, deed
of trust, bank loan, line of credit, or credit agreement or
instrument to which the Company is now a party or pursuant to
which the Company has acquired any right and/or obligations by
succession or otherwise; and any existing agreement
substantially affecting the Company in any way has been filed
as an exhibit to the Registration
Page -28-
Statement; (x) the financial statements and schedules filed
with and as part of the Registration Statement present fairly
the financial position of the Company as of the dates thereof,
all in conformity with generally accepted accounting
principles of accounting applied on a consistent basis
throughout the period involved. Since the respective dates of
such financial statements, there has been no material adverse
change in the condition or general affairs of the Company
financial or otherwise, other than as referred to in the
prospectus; and (xi) subsequent to the respective dates as of
which the information is given in the Registration Statement
and the prospectus, except as may otherwise be indicated
therein, the Company has not, prior to the closing date,
either (A) issued any securities or incurred any liability or
obligation, direct or indirect, contingent or otherwise for
borrowed money, or (B) entered into any material transaction
other than in the ordinary course of business. The Company has
not declared, paid, or made any dividend or distribution of
any kind on its capital stock.
(h) Upon registration of the Company under the Securities Exchange
Act of 1934, the Company will comply with all relevant and
applicable provisions of Sarbanes-Oxley Act of 2002 ("SOA"),
as well as related SEC releases. To the extent the Company is
required or voluntarily chooses to establish an audit
committee, the Company agrees to furnish Underwriter copies of
all Audit Committee reports for a period not to exceed one
year from the Final Closing Date of the Offering.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Final Closing Date are 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.
8. Indemnification.
(a) The Company, its Board of Directors, will indemnify and hold
harmless the Underwriter, and each person who controls the
Underwriter or is affiliated with the Underwriter within the
meaning of the Securities and Exchange Act of 1933 ("Act") and
the Securities Exchange Act of 1934 ("Act") (including
officers, directors, employees, controlling persons,
affiliates, consultants, professional advisors, accountants,
attorneys, or agents, of the Underwriter or any broker,
underwriter, select dealer/selling agent connected with this
offering of Shares), from and against any and all losses,
claims, damages, expenses or liabilities, joint or several, to
which they or any of them may become subject under the Act or
under any other statutes or at common law or otherwise; and
will reimburse and indemnify the Underwriter and each such
person/entity specified above for any legal or other expenses
[including the cost of any investigation and preparation]
reasonably incurred by them or any of them in connection with
investigating or defending any litigation or claim, whether or
not resulting in any liability insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
post-effective amendment thereto,
Page -29-
any Blue Sky application, the prospectus as the case may be,
or any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or preliminary
prospectus (as amended or as supplemented thereof) or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; or any negligent misrepresentation of any officer,
director, agent, consultant, accountant, attorney or employee
of the Company; or any failure to perform any of the terms or
conditions of this Agreement incident to any of the foregoing,
or arising out of any act or occurrence related to or
connected to this offering of Shares. The defense of such
action shall be conducted by counsel of recognized standing
and reasonably satisfactory to the Underwriter or such other
person agreed to be indemnified by the Company. The
Underwriter, each controlling person of the Underwriter, or an
affiliate thereof, agree after their receipt of written notice
of the commencement of any action against them as aforesaid,
in respect of which indemnity may be sought from the Company,
its Directors on account of the indemnity agreement contained
in the subsection, to notify the Company promptly in writing
of the commencement thereof. The Company agrees to notify the
Underwriter promptly of the commencement of any litigation or
proceeding against it or against any of the officers or
directors of the Company of which it may be advised, in
connection with the issue, offer, and/or sale of any of its
securities.
(b) The Underwriter, will indemnify and hold harmless the Company,
the directors of the Company, the officers of the Company who
shall have signed the Registration Statement and each person,
if any, who controls the Company within the meaning of the
Securities and Exchange Act of 1933 ("Act") and the Securities
Exchange Act of 1934 ("Act"), from and against any and all
losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under
the Act or under any other statutes or at common law or
otherwise, and, except as hereinafter provided, will reimburse
the Company and such directors or controlling person
identified above for any legal or other expenses [including
the cost of any investigation and preparation] reasonably
incurred by them or any of them in connection with
investigating or defending any litigation or claims, whether
or not resulting in any liability, only insofar as such
losses, claims, damages, expenses, liabilities or actions
arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
Registration Statement, any post-effective amendment thereto,
any Blue Sky application, or arise out of or are based upon
the omission or alleged omission to state therein a
Page -30-
material fact required to be stated therein or necessary to
make the statement therein not misleading, all as of the date
when the Registration Statement or such post-effective
amendment, or the date the filing of any such Blue Sky
application, as the case may be, becomes effective, or any
untrue statement of alleged untrue statement of a material
fact contained in the Preliminary prospectus or the Prospectus
(as amended or as supplemented if the Company shall have filed
with the Commission any amendments thereof or supplements
thereto), or the omission or alleged omission to state therein
a material fact necessary in order to make the statements
therein, not misleading, or any negligent misrepresentation of
any officer, director, agent, consultant, accountant, attorney
or employee of the Underwriter, but only if insofar as such
statement or omission was made in reliance upon information
furnished in writing to the Company by the Underwriter
specifically for use in connection with the preparation of the
Registration Statement, the preliminary prospectus or the
Prospectus, or any such amendment thereafter supplement hereto
or Blue Sky application. The Underwriter shall not be liable
for amounts paid in settlement of any such litigation, if such
settlement was affected without the Underwriter and its
Counsel's consent. In case of the commencement of any action
in respect of which indemnity may be sought from the
Underwriter on account of its indemnity agreement contained in
this subsection the Company, and each person to be indemnified
by the Underwriter herein, shall have the same obligation to
notify such Underwriter and the underwriter shall have the
same right to participate in (and, to the extent that it shall
desire, to direct) as set forth in subsection (a) above, the
defense of such action at its own expense but such defense
shall be conducted by counsel of recognized standing and
reasonably satisfactory to the Company or such other person
agreed to be indemnified by the Underwriter, The Underwriter
agrees to notify the Company promptly of the commencement of
any such litigation or proceeding against it or against any
such controlling person of which it may be advised in
connection with the offer, and/or sale of any of securities of
the Company.
9. Termination. This Agreement may be terminated:
(a) in the event the Shares are not sold as provided in Paragraphs
2 and 5, at any time prior to the Closing Date by the
Underwriter by written notice to the Company if, in the sole
discretion of the Underwriter, it is impracticable to offer
for sale, the Shares by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason
of fire, flood, accident, loan foreclosure, borrowings,
litigation, or other calamity, which in the opinion of the
Underwriter substantially affects the value of the property of
the Company or materially interferes with the operation of the
business of the Company, (ii) trading in securities on the New
York Stock Exchange, Inc. or the American Stock Exchange, Inc.
or the National Association of Securities Dealers Automated
Quotation System, the Over-the-Counter Bulletin Board, or the
over-the-counter market, having been suspended or limited or
minimum prices having been established on such Exchange or
NASDAQ or Bulletin Board; (iii) a banking moratorium having
been declared by either federal or state authorities; (iv) an
outbreak of major hostilities or other national or
international calamity having occurred; (v) any action having
taken by any government in respect of its monetary affairs
which, in the opinion of the Underwriter, has a material
adverse effect on the securities markets of the United States;
(vi) the Underwriter believes no favorable public market
exists for the sale of Shares, or (vii) misstatement,
misrepresentations of the Company; (viii) failure by the
Company to perform any act required by this Agreement; (ix) or
the Shares are not listed on NASDAQ or the Electronic OTC
Bulletin Board or the
Page -31-
Over-the-Counter Bulletin Board Exchange.
If this Agreement shall be terminated pursuant to paragraph 7 or this
paragraph 9, or if the purchase provided for herein is not consummated
because any conditions to the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the
part of the Company to comply with any of the terms or to fulfill any
of the conditions of this Agreement, or if for any reason the Company
shall be unable to perform all of its obligations under this Agreement,
the Company shall not be liable to the Underwriter for damages on
account of loss of anticipated profits arising out of the transactions
covered by this Agreement, but the Company shall remain liable to the
extent provided in paragraphs 6,7, and 8 herein. Where termination
occurs pursuant to clauses (i) through (ix) of this paragraph, the
Company will pay all accountable out-of-pocket expenses not to exceed
$52,500 incurred by the Underwriter in contemplation of the performance
by it of its obligations hereunder, including fees and disbursements of
counsel for the Underwriter, and printing and traveling expenses of the
Underwriter, "due diligence investigation" costs of the Underwriter,
and any and all other expenses incurred by the Underwriter in
connection with its preparation of the proposed public offering of
Shares herein. Any notice under this paragraph 9 may be given by
telephone, telefacsimile transmission, electronic or digital format but
shall be subsequently confirmed by letter.
10. Miscellaneous.
(a) The Company and the Underwriter know of no claims for services
in the nature of a finder's fee or origination fee with
respect to this financing resulting from the respective acts
of their officers, directors, or employees, for which the
Underwriter and/or Company may be responsible except as
disclosed in the prospectus, and agree to indemnify and hold
each other harmless from any claims for any services of such
nature arising from any act of the Underwriter and the Company
and their officers, directors, and employees, unless otherwise
disclosed herein.
(b) The Underwriter represents and warrants that it is registered
as a broker/dealer pursuant to the provisions of the
Securities and Exchange Act of 1934 ,is a member in good
standing of the National Association of Securities Dealers,
Inc., and is duly registered as a broker/dealer in each state
listed on Exhibit A.
(c) The Underwriter covenants and agrees to conduct the offering
in a manner intended to be in compliance with the requirements
of the Act and the Securities and Exchange Act of 1934 and the
Rules and Regulations thereunder and to provide each offeree
with a copy of the Prospectus during the course of the
offering and prior to sale obtain acknowledgement or receipt
of the Prospectus.
Page -32-
(d) The Company agrees that immediately upon request of the
Underwriter, it will give instructions to its transfer agent
to issue the Shares in the names and denominations submitted
to it by the Underwriter at its own expense. The Underwriter
agrees, when funds in sufficient amount as required by this
Agreement are in liquid form, to submit within 5 days
thereafter, to the transfer Agent, a list of the names and
addresses of the subscribers and the dominations of the
certificates to be issued by them. The Transfer Agent shall be
required by the Company to issue said certificates within 5
days after receipt of the aforesaid list from the Underwriter
and the delivery of the certificates shall be made to the
Underwriter within 5 days thereafter against receipt of
payment as provided in this Agreement. Further, the Company
agrees to pay all expenses for and in connection with the
preparation and issuance of the stock certificates. The
Company agrees that immediately upon the exercise of the
Underwriter's Common Stock Purchase Warrant and the request of
the Holder, it will give instructions to its transfer agent to
issue the Common Stock underlying the Warrant and the Company
will pay all expenses for and in connection with the
preparation and issuance of common stock certificates.
11. Survival of Representations, Warranties and Agreements. The respective
indemnities, agreements, representations, warranties, and other
statements of the Company or the Underwriter or their respective
officers, and directors as set forth in or made pursuant to this
Agreement and the indemnity Agreements of the Company and the
Underwriter contained herein, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the
Company or the Underwriter or any controlling person and/or affiliate
thereof, and will survive termination of this Agreement and the
delivery of any payment for the Shares and the Closing Date.
12. Benefits. This Agreement has been made solely for the benefit of and
shall be binding upon the Underwriter, the Company, and the extent
expressed, any person controlling the Company or the Underwriter and
the officers, directors of the Company, and their respective legal
representative, successors and assigns, all as and to the extent
provided herein, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "legal representatives,
successors, and assigns" shall not include any purchaser of any of the
Shares from the Underwriter merely because of such purchase.
13. Washington Law/Arbitration. Any controversy arising out of, connected
to, or relating to any matters herein of the transactions between the
Company or the Underwriter (including for purposes of arbitration,
officers, directors, employees, controlling persons, affiliates,
consultants, professional advisors, accountants, attorneys, or agents,
of the Underwriter or Company, or any broker, underwriter, select
dealer, selling agent of the offering of Shares herein), on behalf of
the undersigned, or this Agreement, or the breach thereof, including,
but not limited to any claims of violations of Federal and/or State
Securities Acts, Banking Statutes, Consumer Protection Statutes,
Federal and/or State anti-Racketeering (e.g. RICO) claims as well as
any common law claims and any State Law claims of fraud, negligence,
negligent misrepresentations, and/ar conversion shall be
Page -33-
settled by arbitration; and in accordance with this paragraph and
judgment on the arbitrator's award may be entered in any court having
jurisdiction thereof in accordance with the provisions of Revised Code
of Washington, Chapter 7.04. In the event of such a dispute, each party
to the conflict shall select an arbitrator, both of whom shall select a
third arbitrator, which shall constitute the three person arbitration
board. The decision of a majority of the board of arbitrators, who
shall render their decision within thirty (30) days of appointment of
the final arbitrator, shall be binding upon the parties. Venue shall
lie in the County of Spokane, Spokane, Washington. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Washington.
14. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail postage prepaid,
addressed as follows:
If to the Company, its officers, directors, or shareholders to:
Fred Boethling, President
2305 Canyon Boulevard, Suite 103
Boulder, CO 80302
and to:
David Dean, Esq.
Rider Bennett Egan & Arundel, LLP
2000 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402
If to the Underwriter to:
William F. Ross
300 North Argonne Road
Suite 202
Spokane, Washington 99212
and to:
Charles A. Cleveland
Suite 304/ Rock Pointe Center
North 1212 Washington
Spokane, Washington 99201-2401
15. Waiver. By it's signature below, the Company agrees to immediately
provide to the Underwriter and its counsel, copies of any disclosures,
communications, or correspondence, by its Counsel or auditors for the
Company alleging any untrue statements of a material fact contained in
the Registration Statement, any post-effective
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amendment thereto, any Blue Sky application, the Prospectus, or any
filings with any State "Blue Sky" agency or the U.S. Securities and
Exchange Commission as the case may be, or any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus
or preliminary prospectus (as amended or as supplemented thereof) or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading; or
any negligent misrepresentations, or potential material violations of
accounting standards or State or Federal corporate governance
provisions. If the Sarbanes-Oxley Act and attendant releases are
applicable to the Company, it agrees to furnish you with copies of any
information supplied by an attorney pursuant to sections 307(1) or
307(2) of SOA.
16. Compliance With Miscellaneous Regulations. By it's signature below, to
the extent applicable to its business, the Company represents and
warrants that it has established appropriate and applicable programs,
practices, and guidelines in compliance with rules and regulations of
the Office of Foreign Assets Control, United States Treasury
Department, including prohibition against trading with certain
identified terrorist organizations.
If the foregoing correctly states and sets forth in full the agreement
between us, please indicate by signing this letter in the space provided below
for that purpose. The within Agreement may executed simultaneously in two or
more counterparts, each of which shall be deemed the original, but all of which
together shall constitute one and the some instrument and shall be valid and
binding between us,
Yours Truly,
CAPSOURCE FINANCIAL, INC.
By: ________________________
Its: ________________________
AGREED AND ACCEPTED:
PUBLIC SECURITIES, INC.
By:
_______________________________________
William F. Ross, President Dated:
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EXHIBIT A
Washington
Arizona
California
New York
Minnesota
New Jersey
District of Columbia
Nevada
Texas
Illinois
Massachusetts
Georgia
Colorado
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EXHIBIT"B"
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