5,000,000 Units
RODI POWER SYSTEMS, INC.
A Washington Corporation
Common Stock
UNDERWRITING AGREEMENT
Kent, Washington
September 8, 1997
Intrepid Securities, Inc.
21515 Hawthorne Boulevard
Suite 990
Torrance, California 90503
Gentlemen:
RODI Power Systems, Inc., a Washington Corporation (the "Company")
proposes to offer and sell a minimum of 800,000 units (the "Units")
consisting of one (1) share of the Company's $0.01 par value common stock
(the "Units") and one (1) warrant (the "Stockholder Warrants") to purchase an
additional share of the Company's Common Stock at $5.00 per share for five
(5) years, and up to a maximum of 5,000,000 units at $4.25 per Unit. The
offering of the Units is further described in the Registration Statement
filed on Form SB-2 with the United States Securities and Exchange Commission
("Commission"). In connection with the Offering, the company has requested
that you (herein sometimes referred to as the "Underwriter") use your best
efforts to form and manage a group of securities dealers for the purpose of
soliciting offers for the purchase of Units to be offered by the Company and
in this regard, you have agreed to act in such capacity on the terms and
conditions set forth in this Underwriting Agreement (the "Agreement").
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
enable the Underwriter to enter into this Agreement, and to further the
offering of the Units, the Company hereby represents and warrants as follows:
(a) The Company has filed a Registration Statement (No.333-30361) on
form SB-2 relating to the Units with the Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and the
Registration Statement was declared effective on _________________, 1997.
The Company has furnished to the Underwriter and its legal counsel two signed
copies of the Registration Statement together with all amendments and
exhibits. As used in this Agreement, the term "Registration Statement" means
the
Registration Statement, including the Prospectus, the exhibits and the
financial statements, and all amendments thereto, including any amendments
after the effective date of the Registration Statement. The term
"Prospectus" means the prospectus filed as a part of Part I of the
Registration Statement, including all pre-effective and post-effective
amendments and supplements thereto.
(b) The Registration Statement and all other documents previously filed
or filed after the date hereof with the Commission conform and will conform
with all of the requirements of the Act in all material respects. Neither
the Registration Statement, the Prospectus nor the other material filed or to
be filed with the Commission contains nor will contain any untrue statements
of material fact nor are there or will there be any omissions of material
facts required to be stated therein or that are necessary to make the
statements therein not misleading, except that this warranty does not apply
to any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by and with respect to you,
or any dealer through you, expressly for use in the Registration Statement or
Prospectus or any amendment or supplement thereto.
(c) The Company has obtained a CUSIP number for its common stock
("Common Stock") and the Shareholder Warrants and the Company has used its
best efforts to qualify the Units for offering in every state reasonably
designated by the Underwriter. The materials previously filed or filed after
the date hereof with any state do not and will not contain any untrue
statements of material fact nor are there or will there be any omissions of
material facts required to be stated therein or that are necessary to make
the statements therein not misleading.
(d) The Company has been legally incorporated and is now and always
during the period of the offering will be, a validly existing corporation
under the laws of the State of Washington, lawfully qualified to conduct the
business for which it was organized and which it proposes to conduct. The
Company will always during the period of the offering be qualified to conduct
business as a foreign corporation in each jurisdiction where the nature of
its business requires such qualification.
(e) The outstanding capital stock of the Company has been duly and
validly authorized, issued and is fully paid and nonassessable and conforms
to all statements made in the Registration Statement and Prospectus with
respect thereto. The Units, Stockholder Warrants and Underwriter Warrants
(as defined in Section 6 hereof) and Warrant Units (as defined in Section 6
hereof) have been duly and validly authorized and, when issued and delivered
against payment, will be validly issued, fully paid and nonassessable. The
Units, upon issuance, will not be subject to the preemptive rights of any
shareholders of the Company. The Underwriter Warrants, when sold and
delivered, will constitute valid and binding obligations of the Company
enforceable in accordance with their terms. A sufficient number of shares of
Common Stock have been reserved for issuance upon exercise of the Warrants.
The Shares, Warrants and Warrant Shares will conform to all statements in the
Registration Statement and Prospectus. Upon delivery of
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the payment for the Warrants to be sold by the Company as set forth in this
Agreement, the Underwriter and its designees will receive good and marketable
title thereto, free and clear of all liens, encumbrances, charges and claims
except those created by, through or under the Underwriter and except
restrictions on transfer arising under federal and state securities laws and
their rules and regulations. The Company will have on the Effective Date (as
defined in Section 1(h) hereof) of the Registration Statement and at the time
of delivery of such Warrants full legal right and power and all authorization
and approval required by law to sell, transfer and deliver such Warrants.
(f) The Company has an authorized capitalization of 30,000,000 shares of
Common Stock, $0.01 par value. If the maximum number of Units offered are
sold, the Shares will represent at least 28% of the Company's shares of
Common Stock outstanding after the public offering. Common Stock underlying
outstanding options and warrants, except options issued pursuant to the
Company's Incentive Stock Option Plan and Nonqualified Stock Option Plan
described in Section 1(g) and except the Stockholder and Underwriter
Warrants, will be deemed to be outstanding for purposes of determining the
number of Shares of Common Stock outstanding after the public offering.
There are no outstanding options, warrants or other rights to purchase
securities of the Company, however characterized, held in its treasury.
There are no outstanding options, warrants or other rights to purchase
securities of the Company, however characterized, except as described in the
Registration Statement. With respect to the sell, sale, offer to purchase or
purchase of any of its securities, the Company has not made any intentional
or reckless violations of the antifraud provisions of the federal securities
laws, rules or regulations promulgated thereunder or the laws, rules or
regulations of any jurisdiction wherein such securities transactions or
solicitation occurred.
(g) The Board of Directors of the Company and the shareholders of the
Company have adopted an Incentive Stock Option Plan designed to qualify under
Section 422A of the Internal Revenue Code (the "Code"). The Incentive Stock
Option relates to, in the aggregate, 6,000,000 shares of the Company's Common
Stock of which 280,750 options have been exercised to date under the
Incentive Stock Option.
(h) During the period of the offering of the Units and for one year from
the date the Commission declares the Registration Statement to be effective
("Effective Date"), the Company will not sell any securities (except options
issued pursuant to the Company's Incentive Stock Option Plan and except the
Warrants) without the Underwriter's prior written consent, which will not be
unreasonably withheld.
(i) The Company has caused each of its officers and directors to enter
into an agreement with the Underwriter pursuant to the terms of which each
such person has agreed not to sell any shares owned directly or indirectly by
such person for a period of one year from the effective date of the
Registration Statement subject to the separate "Lockup Agreement" attached as
Exhibit A without the Underwriter's prior written consent, which will not be
unreasonably withheld.
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(j) The audited financial statements, together with related schedules
and notes, included in the Registration Statement and Prospectus present
fairly the financial condition of the Company and are reported upon by
independent public accountants according to generally accepted accounting
principles and as required by the rules and regulations of the Commission.
(k) Except as disclosed in the Registration Statement and the
Prospectus, the Company does not have any contingent liabilities,
obligations, or claims nor has it received threats of claims or regulatory
action. Further, except as disclosed in the Registration Statement and
Prospectus, subsequent to the date information is given in the Registration
Statement and definitive Prospectus, and prior to the close of the offering:
(i) there shall not be any material adverse change in the management or
condition, financial or otherwise of the Company or in its business taken as
a whole; (ii) there shall not have been any material transaction entered into
by the Company other than transactions in the ordinary course of business;
(iii) the Company shall not have incurred any material obligations,
contingent or otherwise, which are not disclosed in the Registration
Statement and the Prospectus; (iv) there shall not have been nor will there
be any change in the capital or long term debt (except current payments) of
the Company and (v) the Company has not and will not have paid or declared
any dividends or other distributions on its shares of Common Stock.
(l) The Company's securities, however characterized, are not subject to
preemptive rights.
(m) The Company will have the legal right and authority to enter into
this Underwriting Agreement upon its execution, to effect the proposed sale
of the Units, to execute the Warrants and to effect all other transactions
contemplated by this Agreement.
(n) The Company is eligible to use Form SB-2 for the offering of the
Units.
(o) The Company and its affiliates are not currently offering any
securities nor has the Company or its affiliates offered or sold any
securities except as required to be described in the Registration Statement.
(p) The Company will not file any amendment or supplement to the
Registration Statement, Prospectus, or exhibits if the Underwriter and its
counsel have not been previously furnished a copy, or if the Underwriter or
its counsel have objected in writing to the filing of the amendment or
supplement.
(q) The Company possesses adequate certificates or permits issued by the
appropriate federal, state and local regulatory authorities necessary to
conduct its business and to retain possessions of its properties. The
Company has not received any notice of any proceeding relating to the
revocation or modification of any of these certificates or permits.
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(r) The Company has filed all tax returns required to be filed and is
not in default in the payment of any taxes which have become due pursuant to
any law or any assessment.
(s) The Company has marketable title to all properties including
intellectual properties described in the Registration Statement as owned by
it. The properties are free and clear of all liens, charges, encumbrances, or
restrictions, however characterized, except as described in the Registration
Statement. All of the contracts, leases, subleases, patents, copyrights,
licenses and agreements, however characterized, under which the Company holds
its properties as described in the Registration Statement are in full force
and effect. The Company is not in default under any of the material terms or
provisions of any contracts, leases, subleases, patents, copyrights, licenses
or agreements under which the Company holds its properties. There are no
known claims against the Company concerning the Company's rights under the
leases, subleases, patents, copyrights, licenses and agreements and
concerning its right to continued possession of its properties.
(t) All original documents and other information relating to the
Company's affairs has and will continue to be made available upon request to
the Underwriter and to its counsel at the Underwriter's office or at the
office of the Underwriter's counsel and copies of any such documents will be
furnished upon request to the Underwriter and to its counsel. Included
within the documents made available have been at least the Articles of
Incorporation and any amendments, minutes of all of the meetings of
Incorporators, Directors and Shareholders, all financial statements and
copies of all contracts, leases, patents, copyrights, licenses or agreements
to which the Company is a party or in which the Company has an interest.
(u) The Company has appointed U.S. Stock Transfer Corp. located at 1745
Gardena Avenue, Glendale, California 91204 as the Company's transfer agent.
The Company will continue to retain a transfer agent reasonably satisfactory
to the Underwriter for so long as the Company is subject to the reporting
requirements under Section 12(g) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Company will make
arrangements to have available at the office of the transfer agent sufficient
quantities of the Company's common stock and warrant certificates as may be
needed for the quick and efficient transfer of the securities.
(v) The Company will use the proceeds from the sale of the Units as set
forth in the Registration Statement and Prospectus.
(w) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(x) The Company is not in material default under any of the contracts,
leases, licenses or agreements to which it is a party. The proposed offering
of the Units will not cause the Company to become in material default under
any of its contracts, leases, subleases, patents, copyrights, licenses or
agreements nor will it create a conflict between
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the Company and any of the contracting parties to the contracts, leases and
other agreements. Further, the Company is not in material default in the
performance of any obligation, agreement or condition contained in any
debenture, note or other evidence of indebtedness or any indenture or loan
agreement of the Company. The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated and compliance with
the terms of this Agreement will not conflict with or result in a breach of
any of the material terms, conditions or provisions of, or constitute a
material default under, the Articles of Incorporation or Bylaws of the
Company, as amended, or any note, indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party or by which it
or any of its property is bound, or any existing law, order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality, agency or body, arbitration tribunal or court, domestic or
foreign, having jurisdiction over the Company or its property. The consent,
approval, authorization, or order of any court or governmental
instrumentality, agency or body is not required for the consummation of the
transactions herein contemplated except such as may be required under the
Act, under the Blue Sky or securities laws of any state or jurisdiction, or
the rules of the NASD (as defined in Section 2(a) hereof).
Each contract to which the Company is a party has been duly and validly
executed, is in full force and effect in all material respects in accordance
with its respective terms, and no contracts have been assigned by the
Company, except as disclosed in the Registration Statement and Prospectus by
the Company. The Company knows of no present situation, condition or fact
which would prevent compliance with the terms of such contracts. Except for
amendments or modifications of contracts in the ordinary course of business
and except as disclosed in the Registration Statement and Prospectus, the
Company has no intention of exercising any right which would cancel any of
its obligations under any contract, and has no knowledge that any other party
to any contract, in which the Company has an interest, has any intention not
to render full performance under such contract.
(y) The Company has not made any representation, whether oral or in
writing, to anyone, whether an existing shareholder or not, that any of the
Units will be reserved for or directed to them during the proposed public
offering.
(z) Except as disclosed in the Registration Statement and Prospectus,
there is and prior to the close of the offering of the Units to the public
there will be, no action, suit or proceeding before any court or governmental
agency, authority or body pending or to the knowledge of the Company
threatened which might result in judgments against the Company not adequately
covered by insurance or which collectively might result in any material
adverse change in the condition (financial or otherwise), the business or the
prospects of the Company, or would materially affect the properties or assets
of the Company.
All of the above representations and warranties shall survive the performance
or termination of this Agreement.
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SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The
Underwriter hereby represents and warrants to the Company and agrees as
follows:
(a) The Underwriter is a Corporation duly organized, validly existing
and in good standing under the laws of the State of California with all
requisite power and authority to enter into this Agreement and to carry out
its obligation hereunder.
(b) This Agreement has been duly and validly authorized, executed and
delivered by or on behalf of the Underwriter and constitutes a valid, binding
and enforceable agreement of the Underwriter except as limited by bankruptcy,
insolvency, liquidation, readjustment or debt or other laws relating to or
affecting the enforcement of creditors' rights, and by general principles of
equity which, among other things may limit the availability of specific
performance, injunction relief, and other equitable remedies.
(c) Neither the execution and delivery of this Agreement nor the
performance and consummation of the transactions contemplated in this
Agreement will result in any breach of any of the terms or conditions of, or
constitute a default under, the articles of incorporation or bylaws of the
Underwriter or any indenture, agreement or other instrument to which the
Underwriter is a party or violate any order directed to the Underwriter of
any court or any federal or state regulatory body or administrative agency
having jurisdiction over the Underwriter or its affiliates.
(d) The Underwriter is duly registered as a broker-dealer with the
Commission pursuant to the Exchange Act and is a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD"). The
Underwriter will use its best efforts to maintain such registrations,
qualifications and memberships through the term of the offering. The
Underwriter and all of its employees and representatives have all required
licenses and registrations necessary to act under this Agreement.
(e) Neither the Underwriter, its directors or officers (or any other
person serving in a similar capacity):
(1) Has been convicted within ten years prior hereto of any crime or
offense involving the purchase or sale of any security; involving
the making of a false statement with the Commission; or has been
convicted or charged with a crime or offense arising out of the
Underwriter engaging in the business of an underwriter, broker,
dealer, municipal securities dealer, or investment adviser.
(2) Is subject to any order, judgment or decree of any court of competent
jurisdiction temporarily or permanently enjoining or restraining
such person from engaging in or continuing any conduct or practice
in connection with the purchase or sale of any security; involving
the making of a false statement with the Commission; or has been
convicted or charged with a crime or offense arising out of such
person engaging in the business of an underwriter, broker, dealer,
municipal securities dealer, or investment adviser.
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(3) Is subject to an order of the Commission entered pursuant to Section
15(b), 15B(a), or 15B(c) of the Exchange Act; has been found by the
Commission to be a cause of any such order which is still in effect;
or is subject to an order of the Commission entered pursuant to
Section 203(e) or (f) of the Investment Advisers Act of 1940.
(4) Has been and is suspended or expelled from membership in a national or
regional securities dealers association or a national securities
exchange or a Canadian securities exchange for conduct inconsistent
with just and equitable principles of trade.
(5) Is subject to a United States Postal Service fraud order or is subject
to any restraining order or preliminary injunction entered under
Section 3007 of Title 39, United States Code, with respect to any
conduct alleged to constitute postal fraud.
(6) Has been an underwriter or named as an underwriter of any securities
covered by any registration statement which is the subject of any
proceeding or examination under Section 8 of the Securities Act, or is
the subject of any refusal order or stop order entered thereunder
within five (5) years prior to the date hereof.
(f) To the knowledge of the Underwriter, no action or proceeding is
pending against the Underwriter or any of its officers or directors
concerning the Underwriter's activities as a broker or dealer that would
affect the Company's offering of the Units.
(g) The Underwriter will offer the Units only in those states and in the
quantities that are identified in the Blue Sky Memorandum from the Company's
counsel to the Underwriter that the offering of the Units has been qualified
for sale under the applicable state statutes and regulations. The
Underwriter however, may offer the Units in other states if (i) the
transaction is exempt from the registration requirements in that state, (ii)
the Company's counsel has received notice ten days prior to the proposed
sale, and (iii) the Company's counsel does not object within said ten day
period.
(h) The Underwriter, in connection with the offer and sale of Units, and
in the performance of its duties and obligations under this Agreement, agrees
to use its best efforts to comply with all applicable federal laws; the laws
of states or other jurisdictions in which the Units are offered and sold; and
the Rules and Regulations of the NASD.
(i) The written information provided by the Underwriter for inclusion in
the Registration Statement and Prospectus consists of certain information set
forth under "Plan of Distribution" in the Prospectus.
(j) The Underwriter will not make any offer or sale of Units unless the
offer or sale is made in compliance with the Securities Act, the Rules of
Fair Practice of the NASD,
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and the applicable securities or Blue Sky laws of jurisdictions in which
offers or sales are made, and the rules and regulations thereunder. The
Underwriter agrees that it will not offer or sell Units to any subscriber
unless it has reasonable grounds to believe that the investment in Units is
suitable for the subscriber.
(k) The Underwriter in connection with the offer and sale of the Units
and in the performance of its duties and obligations under this Agreement,
agrees to use its best efforts to comply with all applicable federal laws;
the laws of the states or other jurisdictions in which Units are offered and
sold; and the Rules and Regulations of the NASD.
(l) The Underwriter will, reasonably promptly after the closing of the
offering of the Units, supply the Company with all information required from
the Underwriter for the completion of Form SR and such additional information
as the Company may reasonably request to be supplied to the securities
commission of such states in which the Units have been qualified for sale.
All of the representations and warranties made by the Underwriter hereunder
shall survive the performance or termination of this Agreement.
SECTION 3. EMPLOYMENT OF UNDERWRITER. In reliance upon the representations
and warranties set forth herein, and subject to the terms and conditions of
this Agreement:
(a) The Company employs the Underwriter as its exclusive agent to sell
for the Company's account the Units, on a cash basis only, at a price of
$4.25 per Share. The Underwriter agrees to use its best efforts, as agent
for the Company, to sell the Units subject to the terms and conditions set
forth in this Agreement. It is understood between the parties that there is
no firm commitment by the Underwriter to purchase any or all of the Units.
(b) The obligation of the Underwriter to offer the Units is subject to
receipt by it of written advice from the Commission that the Registration
Statement is effective, is subject to the Units being qualified for the
offering under applicable laws in the states as may be reasonably designated
by the Underwriting, is subject to the absence of any prohibitory action by
any governmental body, agency or official, and is subject to the terms and
conditions contained in this Agreement and in the Registration Statement
covering the offering to which this Agreement relates.
(c) The Company and the Underwriter agree that unless a minimum of
800,000 Units to be offered are sold within (90) days after the
commencement of the Offering (which period may be extended for an additional
period not to exceed (90) days by mutual agreement between the Company and
the Underwriter), the agency between the Company and the Underwriter will
terminate. If the agency between the Company and the Underwriter terminates,
the full proceeds which have been paid for the Units, shall be
9
returned to the purchasers thereof. Prior to the sale of the minimum number
of Units to be offered, all proceeds received from the sale of the Units will
be deposited into an Escrow Account entitled "RODI IPO Escrow" with First
Trust National Association, Seattle, WA ("FTNA").
(d) The Company, the Underwriter and FTNA, will, prior to the beginning
of the offering of the Units, enter into a fund escrow agreement in form
satisfactory to the parties. The parties mutually agree to faithfully
perform their obligations under the fund escrow agreement. The Underwriter
will promptly deliver the funds into the escrow account in accordance with
Rule 15(c)2-4 of the Exchange Act, but in any event not to exceed five
business days after receipt of such funds.
(e) The Underwriter shall have the right to associate with other
underwriters and dealers as it may determine and shall have the right to
grant to such persons such concessions out of the commissions to be received
by the Underwriter as the Underwriter may determine, under and pursuant to a
Participating Dealer Agreement in the form filed as an exhibit to the
Registration Statement.
(f) Subject to the sale of the minimum number of Units to be offered by
the Company, the Company agrees to pay to the Underwriter an underwriting
commission computed at the rate of $0.30 (7% of the public offering price)
for each of the Units sold by the Underwriter, or by any other underwriters
or broker-dealers which are associated with the Underwriter pursuant to the
terms of a Participating Dealer Agreement, at the public offering price of
$4.25 per Share. This commission shall be payable in certified funds upon
the release of the funds which have been deposited in the escrow account.
SECTION 4. EXPENSES OF THE UNDERWRITER.
(a) Subject to the sale of the minimum number of Units to be offered by
the Company, the Company shall reimburse the Underwriter for its expenses on
a nonaccountable basis in an amount computed based upon aggregate gross
dollar amount of Units sold by the Underwriter, or by any other underwriters
or broker-dealers which are associated with the Underwriter pursuant to the
terms of a Participating Dealer Agreement in a total amount not to exceed
$250,250. The unaccountable expense allowance will be computed at the rate of
3% on the aggregate gross proceeds until the maximum amount of $250,250 is
earned. Subject to the provisions of this Section, the nonaccountable expense
allowance shall be due on the release of the funds in the escrow account to
the Company.
(b) Except as stated elsewhere in this Agreement, the Underwriter agrees
that out of its nonaccountable expense allowance, the Underwriter will pay
all costs incurred or to be incurred by the Underwriter or by its personnel
in connection with the offering of the Units, except those to be paid by the
Company as described in Section 5 hereof.
SECTION 5. PAYMENT OF EXPENSES AND FEES. The Company agrees that it will
pay the following fees and expenses:
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(a) All fees and expenses of its legal counsel who will be engaged to
prepare certain information, documents and papers for filing with the
Commission, and with state or local securities authorities;
(b) All fees and expenses of its accountants incurred in connection with
the offering of the Units and preparation of all documents and filings made
as part of the offering;
(c) All costs in issuing and delivering the Units;
(d) All costs of printing and delivering to the Underwriter and dealers
associated with the Underwriter pursuant to a Participating Dealer Agreement,
as many copies of the Registration Statement and amendments thereto,
Preliminary Prospectuses and definitive Prospectuses as reasonably requested
by the Underwriter;
(e) All of the Company's mailing, telephone, travel, clerical and other
office costs incurred or to be incurred in connection with the offering of
the Units;
(f) All fees and costs which may be imposed by the Commission, the
various state or local securities authorities and the NASD for review of the
offering of the Units; and
(g) All other expenses incurred by the Company in performance of its
obligations under this Agreement.
SECTION 6. WARRANTS.
(a) Subject to the sale of the minimum number of Units to be offered by
the Company, the Company agrees to sell to the Underwriter warrants to
purchase common stock of the Company ("Underwriter Warrants") for a purchase
price of $250 entitling the Underwriter to purchase an amount of Stock equal
to two percent (2%) of the Units sold by the Underwriter, or by any other
underwriters or broker-dealers which are associated with the Underwriter
pursuant to the terms of a Participating Dealer Agreement.
(b) The Underwriter Warrants may not be exercised for a period of twelve
(12) months following the Effective Date. However, if the Company plans to
merge, reorganize or take any other action that would terminate the
Underwriter Warrants, the Underwriter Warrants will be exercisable
immediately prior to such action. The Company will provide the Underwriter
with notice of any tender offer being made for the Company's Units as soon as
practicable after the Company becomes aware of such tender offer. The
Underwriter Warrants will be exercisable for a period of four years, such
period to begin twelve (12) months after the Effective Date. If the Warrants
are not exercised during their term, they will by their terms automatically
expire. The purchase price of the Units underlying the Underwriter Warrants
will be $5.00 per share during the period that they are exercisable. The
Company will set aside and at all times have available a sufficient
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number of Units of its Common Stock to be issued upon the exercise of
Underwriter Warrants. The Shares underlying the Warrants are hereinafter
called "Warrant Shares" which term shall include all shares of Common Stock
that have been issued upon the exercise of Warrants and all unissued shares
of Common Stock underlying Warrants. The warrants may not be sold,
transferred, assigned, or hypothecated for a period of twelve (12) months
after the Effective Date except (i) to officers of the Underwriter, (ii) to
dealers associated with the Underwriter pursuant to a Participating Dealer
Agreement, and (iii) to successors to the Underwriter's business.
(c) The Underwriter Warrants will be evidenced by certificates issued by
the Company and delivered to the Underwriter, which shall contain such terms
and conditions as are required by the Underwriter, including anti-dilution
provisions reasonably acceptable to the Underwriter relating to stock splits,
stock dividends and other like matters. Any transfer of the Underwriter
Warrants by the Underwriter to any person must be made in compliance with the
Securities Act. The Warrants may be exercised totally or partially from time
to time during the exercise period.
(d) The Underwriter agrees that the Underwriter Warrants and any
certificates representing them will bear the following legend:
"The securities represented by this Certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act"), or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the
Company."
(e) Upon written request of the holder(s) of at least 51% of the
Underwriter Warrant Shares, whether issued or not, made at a time within the
period beginning one year and ending five (5) years after the Effective Date,
the Company will file, no more than once, a registration statement or
Regulation A Offering Statement under the Securities Act, registering or
qualifying the Underwriter Warrants and Warrant Shares. The Company will use
its best efforts to qualify or register the Underwriter Warrants and Warrant
Shares for sale in at least the same states as the Units were registered or
qualified. The Company must file a registration statement if all Underwriter
Warrants and Warrant Shares cannot be sold under a Regulation A Offering
Statement because of the limited exemption. If Warrants are registered or
qualified, the Company agrees to take whatever actions are necessary so that
during the next twelve months after the effective date of such registration
or qualification, a current registration statement or Regulation A Offering
Statement relating to the Warrant Shares will be effective with the
Commission. The Company agrees to use its best efforts to cause the
registration statement or Regulation A Offering Statement to become
effective. All expenses of such registration or qualification including, but
not limited to, legal, accounting, and printing fees, will be borne by the
Company.
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(f) The Company agrees that, if at any time within the period beginning
one year and ending five years after the Effective Date, it should file a
registration statement with the Commission pursuant to the Securities Act or
file a Regulation A Offering Statement under the Securities Act, regardless
of whether some of the holder(s) of the Underwriter Warrants and Warrant
Shares have availed itself (themselves) of the right provided in Section 6(e)
above, the Company, at its own expense, will offer the holder(s) the
opportunity to register or qualify the Underwriter Warrants and Warrant
Shares, limited in the case of a Regulation A offering to the amount of the
available exemption. The Company's obligations pursuant to this Section 6
(f) shall only be in effect if the holders of at least 20% of the Warrant
Shares accept the Company's offer. This Section is not applicable to a
registration statement filed by the Company with the Commission on Form S-4
or Form S-8, or any other inappropriate form.
In addition, the Company will cooperate, within the period beginning one
year and ending five years after the Effective Date, with the then holder(s)
of at least 20% of the Warrant Shares in preparing and signing any
registration statement or Regulation A Offering Statements discussed above,
required in order to sell or transfer the Underwriter Warrants or Warrant
Shares and will supply all information required, but such additional
registration statement or Offering Statement shall be at the then holder(s)'
cost and expense.
(g) The Company will not be required to pay any underwriting
commissions, discounts or similar expenses relating to the Warrants and/or
Warrant Shares that are registered or qualified pursuant to Section 6(e) or
6(f) of this Agreement.
SECTION 7. THREAT OF REGULATORY ACTION. The Company and the Underwriter
agree to advise each other immediately and confirm in writing the receipt of
any threat of or the initiation of any steps or procedures which would impair
or prevent the right to offer the Units or the issuance of any "suspension
orders" or other prohibitions preventing or impairing the proposed offering
of the Units. In the case of the happening of any such event neither the
Company nor the Underwriter will acquiesce in such steps, procedures or
suspension orders if such acquiescence would adversely affect the other
party, until each party has been duly notified.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) For a period of three (3) years from the Effective Date, the Company
and its officers and directors agree to consult with the Underwriter in
respect of any prospective or actual public or private offering of securities
of the Company for cash other than to employees prior to consulting any other
prospective underwriter.
For the purposes of this Section 8, the term, "securities of the company"
shall be deemed to include any debt or equity securities of the Company other
than debt securities sold by the Company only to commercial banks, insurance
companies, recognized finance companies or pension trusts. Also specifically
excluded are public offerings and/or private
13
offerings of the Company's Units in exchange for properties, assets or stock
of other individuals or corporations. The Company shall not be required to
consult with the Underwriter concerning any borrowings from banks and
institutional lenders or concerning financing under any equipment leasing or
similar arrangements.
(b) If the Company shall publicly offer additional equity or long-term
debt securities (hereinafter referred to as the "Covered Offering"), then,
subject to compliance by the Underwriter with the terms of this Agreement,
the Company and the Underwriter agree that for a period of three (3) years
from the Effective Date the Underwriter shall have a preferential right to
participate as a co-manager of the proposed Covered Offering. The Company
will consult with the Underwriter with regard to the Covered Offering prior
to consulting any other prospective underwriter. The Company shall notify
the Underwriter in writing of the proposed Covered Offering (including the
price to the Underwriter or other method of determining the underwriting
discount or fee) and conditions of the proposed offering. The Underwriter
shall then have 30 days from the date of receipt of such written notice to
decide whether it wishes to participate as co-manager in the proposed Covered
Offering. If the Underwriter determines that it does not wish to participate
in the proposed Covered Offering, then it shall so notify the appropriate
party of such decision in writing within such 30-day period. Failure to give
notice within said 30-day period shall be deemed an election not to
participate. The Company may, within a period of 30 days from the date of
receipt of such notice or from the expiration of the 30-day period without
receipt of any notice, then enter into a letter of intent for the sale of any
securities covered by this Section 8 through any other person, firm or
corporation on the same general terms and conditions as those which were
tendered to the Underwriter.
SECTION 9. FURTHER AGREEMENTS OF THE COMPANY. The Company further agrees
with the Underwriter as follows:
(a) The Company will advise the Underwriter as soon as the Company is
advised of any comments by the Commission, of any request made by the
Commission for an amendment to the Registration Statement or Prospectus or
for supplemental information, and of any order of the institution of any
adverse proceedings with respect to the offering of the Units. The Company
will immediately deliver to the Underwriter copies of any papers involved.
(b) The Underwriter will use its best efforts to qualify the sale of the
Units in such states as shall be reasonably designated by the Company. The
officers, directors, promoters and shareholders of the Company will comply
with applicable state escrow requirements, including those pertaining to the
escrow of Units provided that the period of escrow shall not exceed two years
from the Effective Date and provided that the period of escrow shall only be
based upon the passage of time.
(c) The Underwriter will provide the Company and its counsel with copies
of all applications for the registration of Units filed with the various
state authorities and will
14
provide the Company and its counsel with copies of all comments and orders
received from these authorities.
(d) The Company will deliver to the Underwriter and to other
broker-dealers as directed by the Underwriter as many copies of preliminary
Prospectuses as the Underwriter may reasonably request during the period
following the filing of Amendment No. 1 to the Registration Statement (unless
the Registration Statement is not reviewed by the Commission, in which event
such copies shall be made available by the Company as reasonably requested by
the Underwriter) and the Effective Date. The Company will deliver to the
Underwriter and to other broker-dealers as requested by the Underwriter as
many copies of the definitive Prospectus as the Underwriter may reasonably
request during the period of the offering and for 90 days after the Effective
Date.
(e) The Company will furnish the Underwriter for so long as the
Company's common stock is registered under the Exchange Act and for as long
as the Underwriter is involved in such common stock with:
(i) Within 90 days after the close of each fiscal year of the Company, a
financial report of the Company and its subsidiaries, if any, on a
consolidated basis, such report to include such information in such
form as the Company shall be required to include in reports for
that fiscal year to be filed with the Commission and such report to
be certified by independent public accountants;
(ii) Within 45 days after the end of each quarterly fiscal period of the
Company other than the last quarterly fiscal period in any fiscal
year, copies in printable form of the financial statements of the
Company and its subsidiaries, if any, on a consolidated basis, for
that period and as of the end of that period, which financial
statements shall include a narrative discussion of such financial
statements and of the business conducted by the Company and its
subsidiaries, if any, during such fiscal quarter and such
information in such form as the Company shall be required to
include in reports for that period to be filed with the Commission,
all subject to year-end adjustment, signed by the principal
financial or accounting officer of the Company;
(iii) As soon as is available, a copy of each report of the Company mailed
to shareholders or filed with the Commission;
(iv) Copies of all news, press or public information releases when made;
(v) Upon request in writing from the Underwriter, such other information
as may reasonably be requested concerning the properties, business
and affairs of the Company and its subsidiaries, if any.
(f) The Company agrees to notify the Underwriter immediately within the
90 day period after the Effective Date of any event that materially affects
the Company or its
15
securities and that should be set forth in an amendment or supplement to the
Prospectus in order to make the statements made therein not misleading.
Similarly, the Company agrees to as soon as possible thereafter prepare and
furnish to the Underwriter as many copies as the Underwriter may request of
an amended Prospectus or a supplement to the Prospectus in order that the
Prospectus as 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 that is necessary in order to make the statements made therein not
misleading.
(g) The Company will file with the Commission the required Reports on
Form SR and will file with the appropriate state securities commissioners any
sales and other reports required by the rules and regulations of such
agencies and will supply copies to the Underwriter.
(h) Within 30 days after successful termination of the offering of the
Units, the Company will make a filing under Section 12(g) of the Exchange
Act, on Form 8-A with respect to its common stock and will use its best
efforts to cause it to become effective. The Company agrees to deliver a
copy of the Form 8-A to the Underwriter and to its Counsel when filed.
(i) Except with the Underwriter's approval, the Company agrees that the
Company will not do the following until (a) the completion of the offering of
the Units, or (b) the termination of this Agreement, or (c) 90 days after the
Effective Date, whichever occurs later:
(i) Undertake or authorize any change in its capital structure or
authorize, issue or permit any public or private offering of
additional securities;
(ii) Authorize, create, issue or sell any funded obligations, notes or
other evidences or indebtedness, except in the ordinary course of
business and within 12 months of their creation;
(iii) Consolidate or merge with or into any other corporation; or
(iv) Create any mortgage or any lien upon any of its properties or assets
except in the ordinary course of its business.
(j) For so long as the Company's common stock is registered under the
Exchange Act, the Company will hold an annual meeting of shareholders for the
election of directors within 180 days after the end of each of the Company's
fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required
by Rule 14a-3 promulgated under the Exchange Act, and shall be included in an
annual report meeting the requirements of said Rule. Further, the Company
agrees to make available to the Underwriter and the Company's shareholders in
printable form within 60 days after the end of each fiscal quarter of the
Company (other than the last
16
fiscal quarter in any fiscal year) reasonably itemized financial statements
of the Company and its subsidiaries, if any, for the fiscal quarter just
ended and a narrative discussion of such financial statements and the
business conducted by the Company and its subsidiaries, if any, during such
quarter.
(k) As soon as practical, but in any event not later than 15 months
after the Effective Date, the Company will make generally available to its
securities holders, according to Section 11(a) of the Act, an earnings
statement of the Company in reasonable detail covering a period of at least
12 months beginning after the Effective Date and will advise the Underwriter
in writing that such statement has been made available.
(l) Within 30 days after the successful termination of the offering of
the Units, the Company agrees to submit information about the Company to be
included in various securities manuals, including Moody's, OVER-THE-COUNTER
MANUAL and Standard and Poor's, STANDARD CORPORATION RECORDS to facilitate
secondary trading in the Common Stock and Warrants.
(m) The Company will qualify the Common Stock and Warrants for secondary
trading in as many states as deemed appropriate by the Company and in such
states as shall be reasonably designated by the Underwriter as soon as
possible.
SECTION 10. COMPANY'S INDEMNIFICATION.
(a) The Company agrees to indemnify, defend and hold harmless the
Underwriter (including its directors, officers, employees and affiliates) and
its subsidiaries, successors, assigns and heirs from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable legal
or other expenses) incurred by the Underwriter in connection with defending
or investigating any such claims or liabilities, whether or not resulting in
any liability to the Underwriter, which the Underwriter may incur under the
federal or state securities laws and regulations thereunder, state statutes
or at common law or otherwise, but only to the extent that such losses,
claims, damages, liabilities and expenses shall arise out of or be based upon
a violation or alleged violation of the federal or state securities laws or
regulations promulgated thereunder, a state statute or the common law
resulting from any untrue statement of alleged or untrue statement of a
material fact contained in the Registration Statement or in any application
or other papers filed with the various state securities authorities
(hereinafter collectively called "Blue Sky Applications") or shall arise out
of or be based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that this indemnity
agreement shall not apply to any such losses, claims, damages, liabilities or
expenses arising out of or based upon any such violation based upon a
statement or omission made in reliance upon written information furnished for
use in the Registration Statement or in a Blue Sky Application by the
Underwriter.
17
(b) The foregoing indemnity of the Company in favor of the Underwriter
shall not be deemed to protect the Underwriter against any liability to which
the Underwriter would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Underwriter's duties,
or by reason of the Underwriter's reckless disregard of the Underwriter's
obligations and duties under the Act or this Agreement.
(c) The Underwriter agrees to give the Company an opportunity to
participate in the defense or preparation of the defense of any action
brought against the Underwriter to enforce any such claim or liability and
the Company shall have the right to participate. The agreement of the
Company under the foregoing indemnity is expressly conditioned upon notice of
any such action having been sent by the Underwriter to the Company, by letter
or telegram (addressed as provided in this Agreement), promptly after the
receipt of written notice of such action against the Underwriter, such notice
either being accompanied by copies of papers served or filed in connection
with such action or by a statement of the nature of the action to the extent
known to the Underwriter. Failure to notify the Company as herein provided
shall not relieve it from any liability which it may have to the Underwriter
other than on account of the indemnity agreement contained in this Section 10.
SECTION 11. UNDERWRITER'S INDEMNIFICATION.
(a) The Underwriter likewise agrees to indemnify, defend and hold
harmless the Company (including its directors, officers, employees and
affiliates) and its subsidiaries, successors, assigns and heirs against any
and all losses, claims, damages, expenses and liabilities to which the
Company may become subject, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or in any Blue Sky Application or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, resulting from the use of
written information furnished to the Company by the Underwriter for use in
the preparation of the Registration Statement or in any Blue Sky Application.
(b) The Company agrees to give the Underwriter an opportunity to
participate in the defense or preparation of the defense of any action
brought against the Company to enforce any such claim or liability and the
Underwriter shall have the right to so participate. The Underwriter's
liability under the foregoing indemnity is expressly conditioned upon notice
of any such action having been sent by the Company to the Underwriter by
letter of telegram (addressed as provided for in this Agreement), promptly
after the receipt by the Company of written notice of such action against the
Company, such notice either being accompanied by copies of papers served or
filed in connection with such action or by a statement of the nature of the
action to the extent known to the Company. Failure to notify the Underwriter
as herein provided shall not relieve the Underwriter from any liability which
the Underwriter may have to the Company other than on account of the
indemnity agreement contained in this Section 11.
18
(c) The provisions of Sections 10 and 11 of this Agreement shall not in
any way prejudice any right or rights which the Underwriter may have against
the Company or the Company may have against the Underwriter under any
statute, including the Securities Act, at common law or otherwise.
(d) The indemnity agreements contained in Sections 10 and 11 of this
Agreement shall survive the termination of this Agreement and shall inure to
the benefit of the Company, the Underwriter, their respective successors and
the persons specified in Section 17(d) below, and their respective heirs,
personal representatives and successors and shall be valid irrespective of
any investigation made by or on behalf of the Underwriter or the Company.
SECTION 12. CONTRIBUTION. If the indemnification provided for Sections 10
and 11 is unavailable to or insufficient to hold harmless an indemnified
party under Sections 10 and 11 in respect of any losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to therein,
then each indemnifying party shall in lieu of indemnifying such indemnified
party contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, expenses or liabilities (or action in
respect thereof) in such proportion as is appropriate to reflect not only (i)
the relative benefits received by the Company on the one hand and the
Underwriter on the other from the offering of the Units, but also (ii) the
relative fault of the Company and the Underwriter in connection with the
statements or omissions which resulted in such losses, claims, damages,
expenses or liabilities (or action in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriter on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Units (before deducting expenses other than the Underwriter) received by the
Company bear to the total underwriting commissions and expense allowance
received by the Underwriter in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by the Company
or the Underwriter and their parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 12 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 12.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this Section 12 shall be deemed to include any
legal or other expenses to which such indemnified party would be entitled if
Sections 10 and 11 were applied. Notwithstanding the provisions of this
Section 12, the Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price which the Units underwritten by
it and distributed to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to
19
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission plus the Underwriter's proportionate share of such legal or
other expenses; and any punitive or exemplary damages if the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by or
statements made by the Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 13. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE UNDERWRITER.
All obligations of the Underwriter under this Agreement are subject to the
following conditions precedent:
(a) Counsel for the Company shall have completed a review of the form
and content of the Registration Statement and Prospectus, of the organization
and present legal status of the Company and of the legality and validity of
the authorization and issuance of the issued and outstanding stock of the
Company and of the Units.
(b) The Company shall have performed all of its obligations under this
Agreement. All of the statements, representations and warranties contained
in this Agreement shall be complete and true.
(c) From the date of this Agreement until the completion of the
offering, no material adverse changes shall have occurred in the business,
properties and assets of the Company other than changes occurring in the
ordinary course of business.
(d) From the date of this Agreement until the completion of the
offering, no claims or litigation shall have been instituted or threatened
against the Company for substantial amounts or which would materially
adversely affect the Company, its business or its property and no reasonable
basis exists for such claims or threats. Further, no proceeding shall have
been instituted or threatened against the Company before any regulatory body
wherein an unfavorable ruling would have a material adverse effect on the
Company.
(e) From the date of this Agreement until the completion of the offering
of the Units, no material adverse change shall have occurred in the
operation, financial condition, management or credit of the Company or in any
conditions affecting the prospects of its business.
(f) From the date of this Agreement until the completion of the
offering, the Company shall not have sustained any loss on account of fire,
flood, accident or calamity of such character as materially adversely affects
its business or property, regardless of whether or not the loss has been
insured.
(g) The Underwriter shall have received from the independent public
accountants for the Company two letters addressed to the Underwriter, one
dated the Effective Date and
20
one dated the date of the release of the funds from the Escrow Account to the
Company, to the effect that:
(i) With respect to the Company they are independent public accountants
within the meaning of the Securities Act and the published rules and
regulations.
(ii) In their opinion, the financial statements and supporting schedules
and notes examined by them of the Company at all dates and for all
periods referred to in their opinion included in the definitive
Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
published rules and regulations.
(iii) Upon the basis of a reading of the related available interim
financial statements and the financial data and accounting
records of the Company, inquiries of the officers of the Company
responsible for financial and accounting matters, a reading of
the minute books of the Company and other specified procedures
and inquiries satisfactory to the Underwriter, if any, nothing
has come to their attention which causes them to believe that
during the period from the last audited balance sheet included in
the Registration Statement to a specified date not more than five
(5) days prior to the date of such letter (a) there has been any
change in the capital Units or other securities of the Company or
any payment or declaration of any dividend or other distribution
in respect thereof or exchange therefor from that shown in its
audited balance contemplated under "Capitalization" in the
Registration Statement or definitive Prospectus (other than as
set forth in or contemplated by the Registration Statement or
definitive Prospectus); (b) there have been any material
decreases in net current assets or net assets as compared with
amounts shown in the last audited balance sheet included in the
definitive Prospectus (other than in the ordinary course of
business), except in all instances the changes disclosed in or
contemplated by the Registration Statement and definitive
Prospectus; and (c) on the basis of their examinations referred
to in their opinion, report, and consent included in the
Registration Statement and definitive Prospectus and the
indicated procedures and discussions referred to above, nothing
has come to their attention which, in their judgment, would cause
them to believe or indicate that the financial statements and
schedules set forth in the Registration Statement and definitive
Prospectus do not present fairly the financial position and
results of operations of the Company, for the period indicated,
in conformity with generally accepted accounting principles
applied on a consistent basis, and are not in all material
respects a fair presentation of the information purported to be
shown.
(h) On the date of the release of the funds in the Escrow Account to the
Company, the Underwriter shall have received from the Chief Executive Officer
of the Company and the treasurer of the Company certificates dated as of such
date, in form satisfactory to the Underwriter to the effect that:
21
(i) The representations and warranties of the Company contained in Section
1 of this Agreement are complete and true.
(ii) All of the conditions precedent in Sections 13(b) - 13(f) of this
Agreement have been performed and the representations of these
conditions precedent are true.
(iii) No stop order or other proceedings have been instituted or
threatened by the Commission or any state authority which would
adversely affect the offering of the Units.
(iv) This Agreement and the Underwriter Warrants have been duly authorized
and executed and constitute valid agreements of the Company and with
respect to the Underwriter Warrants are binding agreements and are
enforceable according to their terms.
(v) The respective signers have each carefully examined the Registration
Statement and definitive Prospectus and any amendments and
supplements, and to the best of their knowledge the Registration
Statement and definitive Prospectus and any amendments and supplements
contain all statements required to be stated therein. All statements
contained therein are true and correct, neither the Registration
Statement, definitive Prospectus or any amendment, supplement or
sticker thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. Since the
Effective Date of the Registration Statement, there has occurred no
event required to be stated therein or necessary to make the
statements therein not misleading, and since the Effective Date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so
set forth.
(i) On the Effective Date and on the closing date, the Company shall
have received from the Underwriter's legal counsel a Blue Sky Memorandum
setting forth the states in which the Units may be sold and the number of
Units that may be sold in each such state.
(j) On the date the funds in the Escrow Account are released to the
Company, the Underwriter shall have received a written opinion from the
Company's counsel stating that:
(i) The Company has filed a Registration Statement on Form SB-2 relating
to the Units with the Commission pursuant to the Securities Act, the
Registration Statement has become effective under the Act and the
Registration Statement, Prospectus and all other documents filed with
the Commission comply as to form with all requirements of the Act in
all material respects (except for the financial statements and other
financial data included therein, as to which counsel need express no
opinion).
22
(ii) Counsel is unaware of any contracts or other documents required to be
described in the Registration Statement or in the Prospectus or to be
filed as exhibits to the Registration Statement which have not been
described or filed as required.
(iii) Counsel is unaware of any contracts or documents that have not
been disclosed in the Prospectus that are material to the
representations in the Prospectus and that would require
disclosure in order to make statements made not misleading.
(iv) To the best knowledge of counsel and after reasonable investigation,
the Company is not in default of any of the contracts, leases or
agreements to which it is a party and the proposed offering of Units
will not cause the Company to become in default of any of its
contracts, leases or agreements nor will it create a conflict between
the Company and any of the contracting parties to the contracts,
leases and other agreements.
(v) To the best knowledge of counsel and after reasonable investigation,
and except as described in the Registration Statement, the Company has
marketable title to all properties described in the Registration
Statement as owned by it; the properties are free and clear of all
liens, charges, encumbrances or restrictions; all of the leases,
subleases and other agreements under which the Company holds its
properties are in full force and effect; the Company is not in default
under any of the material terms or provisions of any of the leases,
subleases or other agreements; and there are no claims against the
Company concerning its rights under the leases, subleases and other
agreements and concerning its right to continued possession of its
properties.
(vi) This Agreement and the Warrants issued to the Underwriter or its
designates have been duly authorized and executed by the Company and
constitute valid agreements of the Company except that no opinion need
be expressed as to the validity of the indemnification provisions
insofar as they are or may be held to be violative of public policy
(under either state or federal law), the availability of specific
performance or other equitable remedies, the effects of bankruptcy,
insolvency, moratorium and all other similar laws and decisions
affecting the rights of creditors generally and as to whether or not
this Agreement may be an illusory contract.
(vii) To the best knowledge of counsel and after reasonable investigation,
no claim or litigation has been instituted or threatened against the
Company.
(viii) To the best knowledge of counsel and after reasonable investigation,
no stop order or other proceedings have been instituted or
threatened by the Commission or any state or local authority which
would adversely affect the offering of the Units.
23
(ix) To the best knowledge of counsel and after reasonable investigation,
all documents and contracts relating to the Company's affairs have
been furnished to the Underwriter's counsel.
(x) To the best knowledge of counsel and after reasonable investigation,
the Company possesses adequate licenses, certificates, authorizations
or permits issued by the appropriate federal, state and local
regulatory authorities necessary to conduct its business as described
in the Registration Statement and to retain possession of its
properties. Counsel is unaware of any notice of any proceeding
relating to the revocation or modification of any of these
certificates or permits having been received by the Company.
(xi) To the best knowledge of counsel and after reasonable investigation,
neither the Company nor its affiliates is currently offering any
securities for sale except as described in the Registration Statement.
(xii) No preemptive rights exist with respect to the Company's
securities.
(xiii) Counsel is aware of any subsidiaries of the Company.
(xiv) Counsel has participated in the preparation of the Registration
Statement and Prospectus and no facts have come to the attention
of such counsel to lead counsel to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto (except for the financial statements and other
financial data included therein, as to which such counsel need
express no opinion) contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(xv) The Company has an authorized capitalization of 30,000,000 Shares of
common stock, $0.01 par value. There are no outstanding options,
warrants or other rights to purchase shares of the Company's common
stock known to counsel other than as described in the Registration
Statement.
(xvi) The Company has been incorporated and is a validly existing
corporation under the laws of the state of Washington and has
full corporate power and authority under such laws to own its
properties and to conduct its business as described in the
Registration Statement. To the best of counsel's knowledge,
information and belief, the Company is qualified to conduct
business as a foreign corporation in each jurisdiction where the
nature of its business activities requires such qualification
except where failure to so qualify would not have a material
adverse effect upon the business or financial condition of the
Company.
(xvii) The Company's shares of Common Stock that are issued and outstanding
are fully paid and nonassessable and the Shares and Warrant Shares
when issued
24
and paid for in accordance with their terms will be fully paid and
nonassessable. The Units conform to the description thereof
contained in the Registration Statement. The Company has
authorized the issuance of the Shares, Warrants and Warrant Shares
and has full power and authority to issue and sell the Shares,
Warrants and Warrant Shares on the terms and conditions herein set
forth. A sufficient number of common shares have been duly
reserved for issuance upon exercise of the Warrants.
The foregoing opinion may be rendered in part by regular corporate counsel
and, in part, by securities counsel to the Company.
SECTION 14. TERMINATION.
(a) This Agreement may be terminated by the Underwriter by notice to the
Company in the event that the Company shall have failed or been unable to
comply with any of the terms, conditions or provisions of this Agreement on
the part of the Company to be performed, compiled with or fulfilled within
the respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Underwriter in writing.
(b) This Agreement may be terminated by the Underwriter by notice to the
Company if the Underwriter believes in its sole judgment that any adverse
changes have occurred in the management of the Company, that material adverse
changes have occurred in the financial condition or obligations of the
Company or if the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity of such a character as, in the sole judgment of
the Underwriter, may interfere materially with the conduct of the Company's
business and operations regardless of whether or not such loss shall have
been insured.
(c) This Agreement may be terminated by the Underwriter by notice to the
Company at any time if, in the sole judgment of the Underwriter, payment for
and delivery of the Units is rendered impracticable or inadvisable because
(i) additional material governmental restrictions not in force and effect on
the date hereof shall have been imposed upon the trading in securities
generally, or minimum or maximum prices shall have been generally established
on the New York or American Stock Exchange, or trading in securities
generally on either such Exchange shall have been suspended, or a general
moratorium shall have been established by federal or state authorities, or
(ii) a war or other national calamity shall have occurred, or (iii)
substantial and material changes in the condition of the market (either
generally or with reference to the sale of the Units to be offered hereby)
beyond normal fluctuations are such that it would be undesirable,
impracticable or inadvisable in the sole judgment of the Underwriter to
proceed with this Agreement or with the public offering or (iv) of any matter
materially adversely affecting the Company.
(d) In the event any action or proceeding shall be instituted or
threatened against the Underwriter, either in any court of competent
jurisdiction, before the Commission or any
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state securities commission concerning its activities as a broker or dealer
that would prevent the Underwriter from acting as such, at any time prior to
the effective date hereunder, or in any court pursuant to any federal, state,
local or municipal statute, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of the
Underwriter's assets or if the Underwriter makes an assignment for the
benefit of creditors, the Company shall have the right on three days' written
notice to the Underwriter to terminate this Agreement without any liability
to the Underwriter of any kind except for the payment of expenses as provided
in Section 4(a) and 5 herein.
SECTION 15. NOTICE AND AUTHORITY TO ACT. Except as otherwise expressly
provided in this Agreement:
(a) Whenever notice is required by the provisions of this Underwriting
Agreement to be given to the Company, such notice shall be in writing
addressed to the Company as follows:
RODI Power Systems, Inc.
P.O. Box 769
Maple Valley, WA 98038
Attention: Mr. Byron Spain
Chief Executive Officer
with a copy to: Prindle, Decker & Amaro LLP
310 Golden Shore, 4th Floor
Long Beach, CA 90801-5511
Attention: R. Joseph Decker, Partner
(b) Whenever notice is required by the provisions of this Agreement to
be given to the Underwriter, such notice shall be given in writing addressed
to the Underwriter at the address set out at the beginning of this Agreement.
SECTION 16. BINDING EFFECT. This agreement shall in;ure to the benefit of
and be binding upon the respective parties hereto and their successors and
assigns.
SECTION 17. MISCELLANEOUS PROVISIONS.
(a) Time shall be of the essence of this Agreement.
(b) This Agreement shall be construed according to the laws of the State
of California.
(c) The representations and warranties made in this Agreement shall
survive the termination of this Agreement and shall continue in full force
and effect regardless of any investigation made by the party relying upon any
such representation or warranty.
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(d) This Agreement is made solely for the benefit of the Company and its
officers, directors and controlling persons within the meaning of Section 15
of the Securities Act, and their respective successors, heirs and personal
representatives, and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successor" as used in this Agreement
shall not include any purchaser, as such, of the Units.
(e) The Underwriter will provide upon closing a list of all the names
and addresses of all participating dealers and shall provide the Company with
such changes of the address or name of such participating dealers as occur
and of which the Underwriter is notified. Further, the Underwriter shall use
its best efforts to maintain the current name and address of all
participating dealers during the terms of this Agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate hereof, whereupon it will
become a binding agreement in accordance with its terms.
Very truly yours,
RODI POWER SYSTEMS, INC.
By /s/ Byron R. Spain
----------------------------
Byron Spain
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written:
INTREPID SECURITIES, INC.
By
----------------------------
Stephen P. Kelly
President.
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