1,250,000 Shares of Common Stock
and
1,500,000 Class A Redeemable Common Stock Purchase Warrants
LIFTKING INDUSTRIES, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
____ __, 1997
Monroe Parker Securities, Inc.
2500 Westchester Avenue
Purchase, New York 10577
LiftKing Industries, Inc., a Canadian corporation (the "Company"), proposes
to issue and sell to you (the "Underwriter"), an aggregate of 1,250,000 shares
of Common Stock and 1,500,000 Class A Redeemable Common Stock Purchase Warrant
("Warrant"). The Common Stock and Warrants may be collectively referred to
hereinafter as the "Securities." Each Warrant entitles the registered holder
thereof to purchase one (1) share of Common Stock at an exercise price of $____
for a period of three (3) years, commencing _____ __, 1998 (one (1) year from
the Effective Date) through _______ __, 2001. The Warrants are subject to
redemption by the Company upon not less than thirty (30) days' notice at any
time after ________ __, 1998 (twelve (12) months from the Effective Date) with
the consent of the Underwriter, and eighteen (18) months after the Effective
date without the consent of the Underwriter, at $.10 per warrant, if the closing
sale price per share of Common Stock has equaled or exceeded 250% of the then
exercise price of the Warrants on all 10 of the trading days ending on the third
day prior to the written notice of redemption. In addition, the Company proposes
to grant to the Underwriter the option referred to in Section 2(b) to purchase
all or any part of an aggregate of 187,500 additional shares of Common Stock and
225,000 additional Warrants.
Unless the context otherwise requires, the aggregate of 1,250,000 shares of
Common Stock and 1,500,000 Warrants to be sold by the Company are herein called
the "Securities." The Common Stock to be outstanding are also called the
"Shares."
You have advised the Company that you desire to purchase the Securities.
The Company confirms the agreements made by it with respect to the purchase of
the Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with you that:
(a) A registration statement filed pursuant to Rule 429 (File No.
333-_______) and relating back to a Registration Statement (File No. 333-_____)
on Form SB-2 relating to the public offering of the Securities, including a form
of prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act and as have been
provided to and approved by you prior to the execution of this Agreement, or
(ii) if such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the Act
and included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein
2
not misleading; provided, however, that the Company makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and the identity of counsel to the Underwriter under the
heading "Legal Matters" constitute for purposes of this Section and Section 6(b)
the only information furnished in writing by or on behalf of the Underwriter for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction 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 will not materially adversely affect the Company's business,
properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the Company,
including the predecessors of the Company, is as set forth the Company's
financial statements contained in the Registration Statement; 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; except as
set forth in the Prospectus, no options, warrants, or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company; and the capital stock conforms to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Securities and the shares of Common Stock, when paid for, issued
and delivered pursuant to this Agreement, will have been duly authorized, issued
and delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
rights and preferences provided by the Certificate of Incorporation, which will
be in the form filed as an exhibit to the Registration Statement. The terms of
the Common Stock conform to the description thereof in the Registration
Statement and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable
3
upon exercise of the Warrants have been reserved for issuance upon the exercise
of the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized validly issued, fully
paid and non-assessable and free of preemptive rights. The Warrant Agreement has
been duly authorized and, when executed and delivered pursuant to this
Agreement, assuming due authorization, execution and delivery by the transfer
agent, will have been duly executed and delivered and will constitute the valid
and legally binding obligation of the Company enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally or by general equitable
principles. The Warrants and Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement), when
paid for, issued and delivered pursuant to this Agreement will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the Purchase Option, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for in
accordance with this Agreement, the Purchase Option and the Warrant Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company. The Company has full power and authority to authorize,
issue and sell the Securities to be sold by it hereunder on the terms and
conditions set forth herein, and no consent, approval, authorization or other
order of any governmental authority is required in connection with such
authorization, execution and delivery or in connection with the authorization,
issuance and sale of the Securities or the Purchase Option, except such as may
be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company (a "Material Adverse Effect"),
the Company is not in violation, breach or default of or under, and consummation
of the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company, pursuant to the terms of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject, nor will
such action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company, as amended, or any statute or any
order, rule or regulation applicable to the Company of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company.
4
(h) Subject to the qualifications stated in the Prospectus, 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 not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and, to
the best knowledge of the Company, no claim has been asserted by anyone adverse
to rights of the Company as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Schwartz Levitsky Feldman, which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved except as disclosed in the Prospectus and
Registration Statement.
(k) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus and except as otherwise disclosed
or contemplated therein, the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which would
have a Material Adverse Effect, and there has not been any change in the capital
stock of, or any incurrence of short-term or long-term debt by, the Company or
any issuance of options, warrants or other rights to purchase the capital stock
of the Company or any material adverse change or any development involving, so
far as the Company can now reasonably foresee a prospective adverse change in
the condition (financial or otherwise), net worth, results of operations,
business, key personnel or properties of it which would have a Material Adverse
Effect.
(l) Except as set forth in the Prospectus, there is not now pending or,
to the knowledge of the Company, threatened, any 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 financial
condition, business prospects, net worth, or properties of the
5
Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or to the knowledge of the Company, are threatened which might be expected
to have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns required
to be filed as of the date hereof and have paid all taxes shown as due thereon;
and there is no tax deficiency which has been, or to the knowledge of the party,
may be asserted against the Company.
(n) Except as disclosed in the Registration Statement or Prospectus, the
Company has sufficient licenses, permits and other governmental authorizations
currently necessary for the conduct of its business or the ownership of its
properties as described in the Prospectus and is in all material respects
complying therewith and owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights and licenses necessary for
the conduct of such business and has not received any notice of conflict with
the asserted rights of others in respect thereof. To the best knowledge of the
Company, none of the activities or business of the Company are in violation of,
or cause the Company to violate, any law, rule, regulation 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, the violation of which would
have a Material Adverse Effect.
(o) The Company has not, directly or indirectly, at any time (i) made
any contributions to any candidate for political office, or failed to disclose
fully any such contribution in violation of law 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 or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are, under
the Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the Company has
no Subsidiaries.
6
(s) Except as disclosed in the Registration Statement, the Company has
not entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from the Company for services as a finder
in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the Company to the
Underwriter or as disclosed in the Registration Statement, no officer, director
or stockholder of the Company has any National Association of Securities
Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to underwrite an
offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to issue and sell to the Underwriter and the Underwriter agrees
to buy from the Company at the place and time hereinafter specified, 1,250,000
shares of Common Stock at $4.00 per share and 1,500,000 Warrants at $.15 per
Warrant (the "First Securities").
Delivery of the First Securities against payment therefor shall take
place at the offices of Singer Zamansky LLP, 40 Exchange Place, New York, New
York 10005 (or at such other place as may be designated by agreement between the
Underwriter and the Company) at 10:00 a.m., New York time, on ________, 1997, or
at such later time and date as the Underwriter may designate in writing to the
Company at least two business days prior to such purchase, such time and date of
payment and delivery for the First Securities being herein called the "First
Closing Date."
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 187,500 shares of Common Stock and 225,000 Warrants to cover over
allotments at the same price as the Underwriter shall pay for the First
Securities being sold pursuant to the provisions of subsection (a) of this
Section 2 (such additional Securities being referred to herein as the "Option
Securities"). This option may be exercised within 45 days after the effective
date of the Registration Statement upon written notice by the Underwriter to the
Company advising as to the amount of Option Securities as to which the option is
being exercised, the names and denominations in which the certificates for such
Option Securities are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by the
Underwriter but shall not be earlier than four nor later than ten full business
days after the exercise of said option (but in no event more than 55 days after
the Effective Date), nor in any event prior to the First Closing Date, and such
time and date is referred to herein as the "Option Closing Date." Delivery of
the Option Securities against payment therefor shall take place at the offices
of Singer Zamansky LLP, 40 Exchange Place, New York, NY 10005 (or at such other
place as may be
7
designated by agreement between the Underwriter and the Company). The option
granted hereunder may be exercised only to cover over-allotments in the sale by
the Underwriter of First Securities referred to in subsection (a) above. No
Option Securities shall be delivered unless all First Securities shall have been
delivered to the Underwriter as provided herein.
(c) The Company will make the certificates for the Securities to be
purchased by the Underwriter hereunder available to you for checking at least
two full business days prior to the First Closing Date or the Option Closing
Date (which are collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may request, at
least three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the respective purchase
prices by the Underwriter, by wire transfer or certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made to or upon the order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the offices of
Singer Zamansky LLP, 40 Exchange Place, New York, N.Y. 10005, at the time and
date of delivery of such Securities as required by the provisions of subsection
(b) above, against receipt of the certificates for such Securities by you for
your account registered in such names and in such denominations as you may
reasonably request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the Prospectus
and any amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. Upon notification
from the Commission that the Registration Statement has become effective, the
Company will so advise you and will not at any time, whether before or after the
effective date, file any amendment to the Registration Statement or supplement
to the Prospectus of which you shall not previously have been advised and
furnished with a copy or to which you or your counsel shall have reasonably
objected in writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (A) the completion by the
Underwriter of the distribution of the Securities contemplated hereby (but in no
event more than nine
8
months after the date on which the Registration Statement shall have become or
been declared effective) and (B) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of counsel to the Company and the Underwriter, may be reasonably
necessary or advisable in connection with the distribution of the Securities.
As soon as the Company is advised thereof, the Company will advise you,
and provide you copies of any written advice, of the receipt of any comments of
the Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or any
amended Prospectus, of any request made by the Commission for an amendment of
the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop order or other order or threat
thereof suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of 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 thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the
Underwriter and dealers to use the Prospectus in connection with the sale of the
Securities for such period as in the opinion of counsel to the Underwriter and
the Company the use thereof is required to comply with the applicable provisions
of the Act and the Rules and Regulations. 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 sales by the Underwriter or dealer of any event of which the
Company has knowledge and which materially affects the Company or the securities
of the Company, or which in the opinion of counsel for the Company and counsel
for the Underwriter should be set forth in an amendment of the Registration
Statement 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 to be delivered to a purchaser of the Securities or
in case it shall be necessary to amend or supplement the Prospectus to comply
with law or with the Rules and Regulations, the Company will notify you promptly
and forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you 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 facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case the
Underwriter is required, in connection with the sale of the Securities to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or
9
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required and to
otherwise cooperate and use its best efforts to qualify or register the
Securities for sale under the securities or "Blue-Sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the 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 a period as the counsel to the Company and
the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not consummated
as a result of the Company not performing its obligations hereunder in all
material respects, the Company shall pay all costs and expenses incurred by it
which are incident to the performance of the Company's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable expenses of the Underwriter, (including the reasonable
fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a registration
statement under the Exchange Act to be declared effective concurrently with the
completion of this offering and will notify you in writing immediately upon the
effectiveness of such registration statement, and (ii) to obtain and keep
current a listing in the Standard & Poor's or Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail and at its
expense, will furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, but
no earlier than the filing of such information with the Commission a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income, surplus and 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 accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements
10
furnished to or filed with the Commission or any securities exchange or
automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the Underwriter such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Underwriter may reasonably request. The Company will
deliver to or upon your order, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus filed with
the Commission prior to the effective date of the Registration Statement as you
may reasonably request. The Company will deliver to the Underwriter on the
effective date of the Registration Statement and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, 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.
(h) The Company will make generally available to its security holders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable to do so but in no event later than 90 days after the end of
twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus and, except as set forth therein, shall not use any proceeds to
pay any (i) debt for borrowed funds, or (ii) debt or obligation owed to any
insider outside of salary in the ordinary course of business.
(j) The Company will promptly prepare and file with the Commission any
amendments or supplements to the Registration Statement, Preliminary Prospectus
or Prospectus and take any other action, which in the opinion of counsel to the
Underwriter and counsel to the Company, may be reasonably necessary or advisable
in connection with the distribution of the Securities, and will use its best
efforts to cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available the maximum number of
its authorized but unissued securities which are issuable upon exercise of the
Purchase Option outstanding from time to time.
11
(l) (1) For a period of twenty four (24) months from the First Closing
Date, no officer, director or shareholder of any securities prior to the
offering (collectively, "Insiders") will, directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any shares of Common Stock without the
prior written consent of the Underwriter, other than as set forth in the
Registration Statement. In addition, the Insiders must also agree to an
additional twelve (12) month lockup if the Company has not had after-tax net
earnings of $3,000,000 for the fiscal year ended July 31, 1999. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the securities owned by every shareholder prior to the offering until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to comply
with any applicable Blue-Sky Law, the shares held by such shareholders will be
escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by the Company in
connection with a dividend, recapitalization, reorganization or similar
transactions or as result of the exercise of warrants or options to purchase up
to 750,000 shares of Common Stock pursuant to an incentive and non-qualified
stock option plan disclosed in or issued or granted pursuant to plans disclosed
in the Registration Statement, the Company shall not, for a period of thirty six
(36) months following the First Closing Date, directly or indirectly, offer,
sell, issue or transfer any shares of its capital stock, or any security
exchangeable or exercisable for, or convertible into, shares of the capital
stock or (including stock options) register any of its capital stock (under any
form of registration statement including Form S-8), without the prior written
consent of the Underwriter upon at least 30 days' notice. Options granted
pursuant to plans must be exercisable at the fair market value on the date of
grant. Notwithstanding the foregoing provisions, the Company may issue
securities during said thirty six (36) month period in connection with
acquisitions by the Company which would have a positive effect on the Company's
income statement based upon generally accepted accounting principles.
(m) Upon completion of this offering, the Company will make all filings
required, including registration under the Exchange Act, to obtain the listing
of the Securities, Common Stock and the Warrants in the Nasdaq SmallCap system,
and will use its best efforts to effect and maintain such listing for at least
five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement and as
disclosed in the Prospectus, the Company represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any of the Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Securities, the Company shall execute and deliver to you the Purchase
Option. The Purchase Option will be substantially in the form filed as an
Exhibit to the Registration Statement.
12
(p) On the First Closing Date, the Company will have in force key person
life insurance on the life of Mr. Aldrovandi in an amount of not less than
$1,000,000, payable to the Company, and will use its best efforts to maintain
such insurance during the three year period commencing with the First Closing
Date.
(q) So long as any Warrants are outstanding and the exercise price of
the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption of any of the Warrants unless
a registration statement covering the securities underlying the Warrants has
been declared effective by the Commission and remains current at least until the
date fixed for redemption.
(r) For a period of five (5) years following the Effective Date, the
Company will maintain registration with the Commission pursuant to Section 12(g)
of the Exchange Act and will provide to the Underwriter copies of all filings
made with the Commission pursuant to the Exchange Act. In the event that the
Company fails to maintain registration with the Commission pursuant to Section
12(g) during such five year period, the Company will provide reasonable access
to an independent accountant designated by the Underwriter, to all books,
records and other documents or statements that reflect the Company's financial
status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Underwriter a warrant solicitation fee
of 4% of the exercise price of any of the Warrants exercised beginning one (1)
year after the Effective Date (not including warrants exercised by the
Underwriter) if (a) the market price of the Company's Common Stock on the date
the Warrant is exercised is greater than the exercise price of the Warrant, (b)
the exercise of the Warrant was solicited by the Underwriter and the holder of
the warrant designates the Underwriter in writing as having solicited such
Warrant, (c) the Warrant is not held in a discretionary account, (d) disclosure
of the compensation arrangement is made upon the sale and exercise of the
Warrants, (e) soliciting the exercise is not in violation of Rule 10b-6 under
the Securities Exchange Act of 1934, and (f) solicitation of the exercise is in
compliance with the NASD Notice to Members 81-38 (September 22, 1981).
(t) For a period of two years from the Effective Date, at the request of
the Underwriter, the Company shall provide promptly, at the expense of the
Company, copies of the Company's monthly transfer sheets furnished to it by its
transfer agent and copies of the securities position listings provided to it by
the Depository Trust Company.
(u) The Company hereby agrees that:
13
(i) The Company will pay a finder's fee to the Underwriter, equal to
five percent (5%) of the first $3,000,000 of the consideration involved in any
transaction, 4% of the next $3,000,000 of consideration involved in the
transaction, 3% of the next $2,000,000, 2% of the next $2,000,000 and 1% of the
excess, if any, for future consummated transactions, if any, introduced by the
Underwriter (including mergers, acquisitions, joint ventures, and any other
business for the Company introduced by the Underwriter) consummated by the
Company (an "Introduced Consummated Transaction"), in which the Underwriter
introduced the other party to the Company during a period ending five years
following the First Closing Date; and
(ii) Any finder's fee due hereunder will be paid in cash or other
consideration that is acceptable to the Underwriter, at the closing of the
particular Introduced Consummated Transaction for which the finder's fee is due.
(v) For a period of twenty four (24) months from the Effective Date, the
Company will engage the Underwriter or a representative of the Underwriter as
its financial consultant, in consideration of the payment by the Company to the
Underwriter of a consulting fee equal to one percent (1%) of the gross proceeds
of the Offering which is to be paid in full at the first closing.
(w) For a period of two (2) years following the Effective Date the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission. The Company will retain
its present legal counsel and independent certified public accountants for at
least one year from the Closing Date.
(x) For the two (2) year period commencing on the First Closing Date,
the Company shall recommend and use its best efforts to elect a designee of the
Underwriter as a member of the Company's Board of Directors. Such designee shall
serve on the Compensation Committee of the Board of Directors so long as such
designee would qualify as disinterested for the purpose of Section 162(m) of the
Internal Revenue Code of 1986, as amended. Alternatively, the Underwriter may
appoint an advisor who will be able to attend all meetings of the Board of
Directors. However, the Board of Directors shall have the right to require such
advisor to execute a confidentiality agreement satisfactory to the Company. The
Underwriter shall also have the right to written notice no later than notice to
other directors of each meeting and to obtain copies of the minutes, if
requested, from all Board of Directors meetings for two (2) years following the
Effective Date of the Registration Statement, whether or not a nominee of the
Underwriter attends or participates in any such Board meeting. To the extent
permitted by law, the Company will indemnify the Underwriter and its designee
for the actions of such designee as a director of the Company. The Company will
use its best efforts to obtain liability insurance not to exceed $50,000 per
year in premiums to cover acts of officers and directors, including said
designee. The Company agrees to reimburse the Underwriter immediately upon the
Underwriter's request therefor of any
14
reasonable travel and lodging expenses directly incurred by the Underwriter in
connection with its designee or representative attending Company Board meetings
on the same basis for other Board members.
(y) For a period of thirty (30) days from and after the Effective Date,
the Company will not issue a press release or engage in any publicity other than
promotion by the Company of its products and services and other press releases
in the ordinary course of its business, without the Underwriter's prior written
consent, unless required by law.
(z) The Company agrees that it will use dual check signers, one of such
check signers will be acceptable to the Underwriter.
(aa) The Company agrees that if requested by the Underwriter, the
Company will hire a Chief Operating Officer, such Chief Operating Officer to be
acceptable to the Underwriter, at market compensation rates for the Company's
geographic area.
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 10:00 A.M., New York time, on the
day following the date of this Agreement, or at such later time or on such later
date as to which you may agree in writing; on or prior to the Closing Dates no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that or a 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
satisfaction of the Commission; 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. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Bernstein & Wasserman, LLP, counsel for
the Company, in form and substance satisfactory to counsel for the Underwriter,
to the effect that:
(i) The Registration Statement was declared effective under the Act
on ______ __, 1997; to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been
15
instituted or are pending, threatened or contemplated under the Act or
applicable state securities laws;
(ii) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company;
(iii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of their knowledge, none of the material
provisions of the contracts or instruments described above violates any existing
applicable law, rule or regulation or judgment, order or decree known to us of
any United States governmental agency or court having jurisdiction over the
Company or any of its assets or businesses;
(vi) To the best of their knowledge, except as set forth in the
Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act;
(v) They have participated in reviews and discussions in connection
with the preparation of the Registration Statement and the Prospectus. Although
they are not passing upon and do not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, no facts came to their attention which lead them to believe that (A)
the Registration Statement (except as to the financial statements and other
financial data contained therein, as to which they express no opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which they express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(c) At the Closing Date, you shall have received the opinion of Grubner,
Krauss, special Canadian counsel to the Company with respect to Canadian law,
dated as of such Closing Date, addressed to the Underwriters and in form and
substance satisfactory to counsel to the Underwriters, to the effect that:
16
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Province of Ontario, Canada, with
full corporate power and authority, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the Registration
Statement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions wherein such qualification is
necessary and failure so to qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company;
(ii) The Company has full corporate power and authority to execute,
deliver and perform the Underwriting Agreement, the Consulting Agreement, the
Warrant Agreement and the Underwriters' Warrants and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and
the Underwriters' Warrants by the Company, the consummation by the Company of
the transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreements and the Underwriters' Warrants have been duly authorized by all
necessary corporate action, and each of the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriters' Warrant has
been duly executed and delivered by the Company. Each of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreements and the
Underwriters' Warrants is a valid and binding obligation of the Company,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions and the contribution provisions
set forth in the Underwriting Agreement may be limited by the federal securities
laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriters'
Warrants by the Company, the consummation by the Company of the transactions
therein contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriters' Warrants do not, and will not, with or without the giving of
notice or the lapse of time, or both, (A) result in a violation of the Articles
of Incorporation, as the same may be amended, or by-laws of the Company; (B) to
the best of our knowledge, result in a breach of, or conflict with, any terms or
provisions of or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to, any indenture, mortgage, note, contract, commitment or
other material agreement or instrument to which the Company is a party or by
which the Company or any of its properties or assets are or may be bound or
affected, except where any of the foregoing would not result in a material
adverse effect upon the Company's business or operations; (C) to the best of
their knowledge, violate any existing applicable law, rule or regulation or
judgment, order or decree
17
known to them of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business; or (D) to
the best of their knowledge, have any effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate its properties and to conduct its business or the
ability of the Company to make use thereof;
(iv) No authorization, approval, consent or license of any Canadian
governmental or regulatory body, agency or instrumentality is required in
connection with the conduct of the business of the Company as described in the
Prospectus;
(v) The Company has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to conduct its
business as described in the Prospectus, and such licenses, permits and other
governmental authorizations obtained are in full force and effect, and the
Company is in all material respects complying therewith;
(vi) To the best of their knowledge, no authorization, approval,
consent, order, registration, license or permit of any court or governmental
agency or body (other than under the Act, the Regulations and applicable state
securities or Blue Sky laws) is required for the valid authorization, issuance,
sale and delivery of the Securities, the Additional Securities, the Common
Stock, the Warrants, the Warrant Shares, or the Underwriters' Warrants, and the
consummation by the Company of the transactions contemplated by the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement or the Underwriters'
Warrants;
(vii) The outstanding Common Stock and Warrants have been duly
authorized and validly issued. The outstanding Common stock is fully paid an
nonassessable. To the best of their knowledge, none of the outstanding Common
Stock has been issued in violation of the preemptive rights of any shareholder
of the Company. None of the holders of the outstanding Common Stock is subject
to personal liability solely by reason of being such a holder. The authorized
Common Stock conforms to the description thereof contained in the Registration
Statement and Prospectus.
(viii) The issuance and sale of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares and the
Underwriters' Warrants have been duly authorized and when issued will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. Neither
the Securities, the Additional Securities, nor the Common Stock are subject to
preemptive rights of any stockholder of the Company. The certificates
representing the Securities are in proper legal form;
(ix) The issuance and sale of the Warrant Shares and the
Underwriters' Warrants have been duly authorized and, when paid for, issued and
delivered pursuant to the terms of the Underwriters' Agreement or the
Underwriters' Warrants, as the case may be, the
18
Warrants, the Warrant Shares and the Underwriters' Warrants will constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms, to issue and sell the Warrants, the Warrant Shares and/or
Underwriters' Warrants. All corporate action required to be taken for the
authorization, issuance and sale of the securities has been duly, validly and
sufficiently taken. The Common Stock and the Warrants have been duly authorized
by the Company to be offered in the form of the Securities. The Warrants, the
Warrant Shares and the Underwriters' Warrants conform to the descriptions
thereof contained in the Registration Statement and Prospectus;
(x) The Underwriters have acquired good title to the Securities,
free and clear of all liens, encumbrances, equities, security interests and
claims;
(xi) Assuming that the Underwriters exercise the over-allotment
option to purchase the Additional Securities and make payments therefor in
accordance with the terms of the Underwriting Agreement, upon delivery of the
Additional Securities to the Underwriters thereunder, the Underwriters will
acquire good title to the Additional Securities, free and clear of any liens,
encumbrances, equities, security interests and claims;
(xii) To the best of their knowledge, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or
involving its properties or business, other than as described in the Prospectus,
such description being accurate, and other than litigation incident to the kind
of business conducted by the Company which, individually and in the aggregate,
is not material, and, except as otherwise disclosed in the Prospectus and the
Registration Statement, the Company has complied with all federal and state
laws, statutes and regulations concerning its business;
(xiii) Such counsel is familiar with all contracts or other
agreements entered into by the Company with other Canadian companies, entities,
banking institutions or individuals referred to in the Registration Statement
and Prospectus, including the employment agreement with Louis Aldrovandi, its
President (collectively, the "Canadian Agreements"), and all such Canadian
Agreements are valid, binding and enforceable under Canadian law, and to the
knowledge of such counsel, the Company is not in default under any of the
Canadian Agreements;
(xiv) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by them, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
(xv) The Company is not in violation of or in default under its
Articles of Incorporation or by-laws, or to the knowledge of such counsel, in
the performance or
19
observance of any material obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any contract, indenture, mortgage, loan agreement or instrument to which the
Company is a party or by which it or any of its properties may be bound, or in
violation of any material order, rule, regulation, writ, injunction or decree of
any government or governmental instrumentality or court; and
(xvi) They have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although they are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to their attention which lead them to
believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which they express
no opinion), on the Effective Date, contained any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or
that (B) the Prospectus (except as to the financial statements and other
financial data contained therein, as to which we express no opinion) contains
any untrue statement or a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) On or prior to the Closing Date, counsel for the Underwriters shall
have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraphs (e) and (f) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(e) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by Singer Zamansky, LLP, counsel to the
Underwriter.
(f) You shall have received a letter prior to the Effective Date and
again on and as of the First Closing Date from Schwartz Levitsky Feldman,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(g) At the 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 the Closing Date taking
into account for the Option Closing Date the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and 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 shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto
20
shall 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; (iii) there shall have been, since the respective dates
as of which information is given, no material adverse change, or to the Company
knowledge, any development involving a prospective material adverse change, in
the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement, and
the Company shall not have incurred any material liabilities or entered into any
material agreement not in the ordinary course of business other than as referred
to in the Registration Statement and Prospectus; (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
Registration Statement, and no proceedings shall be pending or threatened
against the Company 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, and (v) you shall have received, at the First Closing Date, a
certificate signed by each of the President and the principal operating officer
of the Company, dated as of the First Closing Date, evidencing compliance with
the provisions of this subsection (g).
(i) Upon exercise of the Over-Allotment Option provided for in Section
2(b) hereof, the obligations of the Underwriter to purchase and pay for the
Option Securities referred to therein will be subject (as of the date hereof and
as of the Option Closing Date) to the following additional conditions:
(j) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to your knowledge or the knowledge of the Company, shall
be contemplated by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of the Commission.
(k) At the Option Closing Date there shall have been delivered to you
the signed opinion of Bernstein & Wasserman, LLP, counsel to the Company, dated
as of the Option Closing Date, in form and substance reasonably satisfactory to
Singer Zamansky, LLP, counsel to the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinion furnished to you at
the First Closing Date pursuant to Sections 4(b) hereof, except that such
opinion, where appropriate, shall cover the Option Securities.
(l) At the Option Closing Date there shall have been delivered to you
the signed opinion of Grubner, Krauss, Canadian counsel to the Company, dated as
of the Option Closing Date, in form and substance reasonably satisfactory to
Singer Zamansky, LLP, counsel to the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinion furnished to you
21
at the First Closing Date pursuant to Sections 4(c) hereof, except that such
opinion, where appropriate, shall cover the Option Securities.
(m) At the Option Closing Date there shall have be delivered to you a
certificate of the President and the principal operating officer of the Company,
dated the Option Closing Date, in form and substance reasonably satisfactory to
Singer Zamansky, LLP, counsel to the Underwriter, substantially the same in
scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(g) hereof.
(n) At the Option Closing Date there shall have been delivered to you a
letter in form and substance satisfactory to you from Schwartz Levitsky Feldman,
dated the Option Closing Date and addressed to the Underwriter confirming the
information in their letter referred to in Section 4(f) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said letter to a date not more than five business
days prior to the Option Closing Date, which would require any change in said
letter if it were required to be dated the Option Closing Date.
(o) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Singer
Zamansky, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(p) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Securities and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company and
the Underwriter represent that at the date hereof each has no knowledge that any
such action is in fact contemplated against it by the Commission or the NASD.
(q) If any of the conditions herein provided for in this Section shall
not have been fulfilled in all material respects as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
canceled at, or at any time prior to, each Closing Date by the Underwriter
notifying the Company of such cancellation in writing or by telegram at or prior
to the applicable Closing Date. Any such cancellation shall be without liability
of the Underwriter to the Company.
5. Conditions of the Obligations of the Company, The obligation of the
Company to sell and deliver the Securities is subject to the following
conditions:
22
(a) The Registration Statement shall have become effective not later
than 10:00 A.M. New York time, on the day following the date of this Agreement,
or on such later date as the Company and the Underwriter may agree in writing.
(b) At the Closing Dates, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of the
Over-Allotment Option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities; insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such preliminary
Prospectus or the Prospectus or any such amendment or supplement thereto,
provided, further that the indemnity with respect to any Preliminary Prospectus
shall not be applicable on account of any
23
losses, claims, damages, liabilities or litigation arising from the sale of
Securities to any person if a copy of the Prospectus was not delivered to such
person at or prior to the written confirmation of the sale to such person. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold harmless the Company, each
of its directors, each nominee (if any) for director named in the Prospectus,
each of its officers who have signed the Registration Statement and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and reasonable attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Securities of any applicable state or federal
law or any rule, regulation or instruction thereunder relating to violations
based on unauthorized statements by Underwriter or its representative; provided
that such violation is not based upon any violation of such law, rule or
regulation or instruction by the party claiming indemnification or inaccurate or
misleading information furnished by the Company or its representatives,
including information furnished to the Underwriter as contemplated herein. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
24
The indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that the reasonable fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party and in the reasonable judgment of the counsel to the
indemnified party, it is advisable for the indemnified party to be represented
by separate counsel (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party). No settlement of any
action against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party. If it is ultimately determined
that indemnification is not permitted, then an indemnified party will return all
monies advanced to the indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the Act in
any case in which the indemnification provided in Section 6 hereof is requested
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon and the
Company shall be responsible for the remaining portion; provided, however, that
if such allocation is not permitted by applicable law then allocated in such
proportion as is appropriate to reflect relative benefits but also the relative
fault of the Company and the Underwriter and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
25
such untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Underwriter and each person who
controls the Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons, and the Company, its officers,
directors and controlling persons shall be entitled to contribution from the
Underwriter to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement of
any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Securities to the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented,
the fee of the NASD in connection with the filing required by the NASD relating
to the offering of the Securities contemplated hereby; all expenses, including
reasonable fees not to exceed $35,000 and disbursements of counsel to the
Underwriter, in connection with the qualification of the Securities under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Securities, Common
Stock and Warrants on Nasdaq or any other securities exchange, the cost of
printing the certificates representing the Securities; fees for bound volumes
and prospectus memorabilia and the fees of the transfer agent and warrant agent.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Underwriter hereunder. The Company will also pay all costs and expenses incident
to the furnishing of any amended Prospectus or of any supplement to be attached
to the Prospectus as called for in Section 3(a) of this Agreement except as
otherwise set forth in said Section.
26
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$156,750. In the event the overallotment option is exercised, the Company shall
pay to the Underwriter at the Option Closing Date an additional amount in the
aggregate equal to 3% of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall not be liable for any expenses of the Underwriter, including
the Underwriter's legal fees. In the event the transactions contemplated hereby
are not consummated by reason of the Company being unable to perform its
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except that you
may, at your option, delay its effectiveness until 11:00 A.M., New York time on
the first full business day following the effective date of the Registration
Statement, or at such earlier time on such business day after the effective date
of the Registration Statement as you in your discretion shall first commence the
public offering of the Securities. The time of the initial public offering shall
mean the time of release by you of the first newspaper advertisement with
respect to the Securities, or the time when the Securities are first generally
offered by you to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by you at any time before it becomes effective
as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 shall
remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement, except for
Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated at any time
prior to the First Closing Date, by you if in your judgment (i) trading in
securities on the New York Stock Exchange or the American Stock Exchange having
been suspended or limited, (ii) material governmental restrictions have been
imposed on trading in securities generally (not in force and effect on the date
hereof), (iii) a banking moratorium has been declared by federal or New York
state authorities, (iv) an outbreak
27
of major international hostilities involving the United States or other
substantial national or international calamity has occurred, (v) a pending or
threatened legal or governmental proceeding or action relating generally to the
Company's business, or a notification has been received by the Company of the
threat of any such proceeding or action, which would materially adversely affect
the Company; (vi) the passage by the Congress of the United States or by any
state legislative body of similar impact, of any act or measure, or the adoption
of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material
adverse impact on the business, financial condition or financial statements of
the Company; or (vii) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement and
Prospectus, in the earnings, business prospects or general condition of the
Company, financial or otherwise, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10, the Company shall be
promptly notified by you, by telephone or telegram, confirmed by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $10, and upon the terms and
conditions set forth in the form of Purchase Option annexed as an exhibit to the
Registration Statement, a Purchase Option to purchase an aggregate of 125,000
shares of Common Stock and 150,000 Warrants. In the event of conflict in the
terms of this Agreement and the Purchase Option with respect to language
relating to the Purchase Option, the language of the Purchase Option shall
control.
12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Securities and that it will comply with all applicable state or federal laws
relating to the sale of the Securities, including but not limited to, violations
based on unauthorized statements by the Underwriter or its representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company and the Underwriter and the undertakings set
forth in or made pursuant to this Agreement will remain in full force and effect
until three years from the date of this Agreement, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any of its
officers or directors or any controlling person and will survive delivery of and
payment of the Securities and the termination of this Agreement.
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14. Notice.
Any communications specifically required hereunder to be in writing, if
sent to the Representative, will be mailed, delivered or telecopied and
confirmed to them at Monroe Parker Securities, Inc., 2500 Westchester Avenue,
Purchase, New York 10577, with a copy sent to Singer Zamansky LLP, 40 Exchange
Place, New York, New York 10005, Attention: Gregory Sichenzia, or if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at 7135
Islington Avenue, Woodbridge, Ontario, Canada L4L 1V9, with a copy sent to
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022. Notice shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company, any person controlling the Company or the Underwriter,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Underwriter of the Securities.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with, of
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts each of which
shall be deemed to constitute an original and shall become effective when one or
more counterparts have been signed by each of the parties hereto and delivered
to the other parties (including by fax, followed by original copies by overnight
mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties hereto
and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
29
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
LIFTKING INDUSTRIES, INC.
By:
---------------------------------
Name: Louis Aldrovandi
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
MONROE PARKER SECURITIES, INC.
By:
---------------------------------
Name: Stephen J. Drescher
Title: Director Corporate Finance
30