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 corporation organized under the laws
of the Province of Ontario, Canada (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
$4.50 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
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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 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
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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 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
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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.
(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.
5
(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
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.
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(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(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
7
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 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
8
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 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
9
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 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
10
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
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.
11
(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.
(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.
12
(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.
(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
13
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:
(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 of $26,125 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
14
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 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:
15
(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 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;
16
(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:
(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
17
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 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;
18
(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 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.
19
(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 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
20
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 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,
21
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(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.
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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:
(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
23
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 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
24
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. 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,
25
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 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
26
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.
(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.
27
(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 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.
28
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.
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).
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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.
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