EXHIBIT 1
RESPONSE USA, INC.
2,400,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
February ___, 1998
Gruntal & Co., L.L.C.
Hampshire Securities Corporation
as Representatives of the Several Underwriters
c/o Hampshire Securities Corporation
640 Fifth Avenue
New York, New York 10019
Gentlemen:
The undersigned, Response USA, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Gruntal & Co. L.L.C. and
Hampshire Securities Corporation, as the representatives (the "Representatives")
of the several underwriters identified in Schedule I hereto (together with the
Representatives, the "Underwriters") as follows:
1. INTRODUCTION. The Company proposes to issue and sell to the
Underwriters an aggregate amount of 2,400,000 shares of common stock, par value
$.008 per share (the "Common Stock"), of the Company. All references to share
information in this Agreement give effect to a proposed one-for-three reverse
stock split of the Company's Common Stock. Such shares of Common Stock are
hereinafter referred to as the "Stock." In addition, solely for the purpose of
covering over-allotments, the Company proposes to grant to the Representatives
an option (the "Over-allotment Option") to purchase from it, in the aggregate,
up to an additional 360,000 shares (the "Additional Stock") of Common Stock.
The Common Stock is more fully described in the prospectus referred to below.
1
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the
Underwriters that:
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed one or more amendments thereto, on Form SB-2 (Registration File
No. 333-37595), including in such registration statement and each such
amendment a related preliminary prospectus, for the registration of
the Stock, the Additional Stock, the common stock purchase warrants
referred to in Section 5(a)(16) (the "Representatives' Warrants") and
the shares of Common Stock underlying the Representatives' Warrants
(the "Warrant Stock") under the Securities Act of 1933, as amended
(the "Act"). As used in this Agreement, the term "Registration
Statement" shall refer to such registration statement, as amended, on
file with the Commission at the time such registration statement
becomes effective under the Act (including the prospectus, financial
statements, exhibits, and all other documents filed as a part thereof,
provided, however, that such registration statement, at the time it
becomes effective, may omit such information as is permitted to be
omitted from such registration statement when it becomes effective
under the Act pursuant to Rule 430A of the General Rules and
Regulations of the Commission under the Act (the "Regulations"), which
information (the "Rule 430A Information") shall be deemed to be
included in such registration statement when a final prospectus is
filed with the Commission in accordance with Rules 430A and 424(b)(1)
or (4) of the Regulations); the term "Preliminary Prospectus" shall
refer to each prospectus included in the Registration Statement, or
any amendments thereto, before the Registration Statement becomes
effective under the Act, the form of prospectus omitting Rule 430A
Information included in the Registration Statement when the
Registration Statement becomes effective under the Act, if applicable
(the "Rule 430A Prospectus"), and any prospectus filed by the Company
with the Representatives' consent pursuant to Rule 424(a) of the
2
Regulations; and the term "Prospectus" shall refer to the final
prospectus in the form first filed pursuant to Rule 424(b)(1) or (4)
of the Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement.
(2) When the Registration Statement becomes effective under the
Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3) and each Additional Closing
Date (as defined in Section 3), and during such longer period as the
Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, and during such longer period until any
post-effective amendment thereto shall become effective under the Act,
the Registration Statement (and any post-effective amendment thereto)
and the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus), respectively, will contain
all statements which are required to be stated therein in accordance
with the Act and the Regulations, will comply with the Act and the
Regulations, and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and no
event will have occurred which should have been set forth in an
amendment or supplement to the Registration Statement or the
Prospectus which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the Registration
Statement at the time it becomes effective under the Act, the
Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) of the
Regulations will contain all Rule 430A Information and all statements
which are required to be stated therein in accordance with the Act or
the Regulations, will comply with the Act and the Regulations, and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and each Preliminary
Prospectus, as of the date filed with the Commission, contained all
statements required to be stated therein in accordance with the Act
and the Regulations, complied with the Act and the Regulations, and
did not contain any
3
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; except that no representation or warranty is
made in this Section 2(a)(2) with respect to statements or omissions
made in reliance upon, and in conformity with, written information
furnished to the Company as stated in Section 8(b) with respect to any
Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in the Registration Statement,
any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto.
(3) The Company has filed with the Commission on a timely basis
all filings required of a company whose securities have been
registered under the Exchange Act (collectively, the "Exchange Act
Filings"). None of the Company's Exchange Act Filings at the time of
their respective filings contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which
they were made, not misleading. For the purpose of this paragraph,
filings pursuant to Rule 12b-25 of the Exchange Act shall be deemed
timely.
(4) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of, or preventing or suspending the use
of, the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, refusing to permit
the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Stock, the Additional Stock, the
Representatives' Warrants or the Warrant Stock, nor has any of such
authorities instituted or, to the best of the Company's knowledge,
threatened to institute any proceedings with respect to a Stop Order.
(5) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed
4
as an exhibit to the Registration Statement has been filed with the
Commission as an exhibit to the Registration Statement.
(6) The Company has no subsidiary or subsidiaries (as defined in
the Regulations) other than as disclosed in the Registration
Statement. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Delaware, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits
of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and assets
and to conduct its business in the manner described in the Prospectus.
The Company is duly qualified to do business as a foreign corporation
and is in good standing as such in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary, except
where the failure to be so qualified does not amount to a material
liability or disability to the Company and its subsidiaries taken as a
whole.
(7) The Company has authorized capital stock as disclosed in the
Registration Statement, of which the Prospectus is a part. Except as
disclosed in the Prospectus, each outstanding share of Common Stock is
validly authorized and issued, fully paid, and nonassessable, without
any personal liability attaching to the ownership thereof, has not
been issued and is not owned or held in violation of any preemptive
rights of stockholders. There is no commitment, plan, or arrangement
to issue, and no outstanding option, warrant, or other right calling
for the issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible into,
or exercisable or exchangeable for, capital stock of the Company,
except as may be properly described in the Prospectus. There is
outstanding no security or other instrument which by its terms is
convertible into, or exercisable or exchangeable for, capital stock of
the Company, except as may be
5
properly be described in the Prospectus. The certificates evidencing
the Common Stock are in proper form.
(8) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present, with respect to the Company and its combined subsidiaries,
the financial position, the results of operations, the cash flows, and
the other information purported to be shown therein at the respective
dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally
accepted accounting principles (except to the extent that certain
footnote disclosures regarding any stub period may have been omitted
in accordance with the applicable rules of the Commission under the
Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) consistently applied throughout the periods involved, are
correct and complete in all material respects, and are in accordance
with the books and records of the Company and its combined
subsidiaries. Deloitte & Touche, LLP, the accountants whose report on
the audited financial statements is filed with the Commission as a
part of the Registration Statement, are, and during the periods
covered by their report(s) included in the Registration Statement and
the Prospectus were, independent certified public accountants with
respect to the Company within the meaning of the Act and the
Regulations. No other financial statements are required by Form SB-2
or otherwise to be included in the Registration Statement or the
Prospectus. There has at no time been a material adverse change in
the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company from the
latest information set forth in the Registration Statement or the
Prospectus, except as may be properly described in the Prospectus.
(9) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, or,
to the best knowledge of the Company, threatened or in prospect (or
any basis therefor) with respect to the Company or any of its
operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the
aggregate do
6
not now have, and can not in the future reasonably be expected to
have, a material adverse effect upon the operations, business,
properties, or assets of the Company and its subsidiaries taken as a
whole. The Company is not in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree, except as
may be properly described in the Prospectus or such as in the
aggregate do not now have, and can not in the future reasonably be
expected to have, a material adverse effect upon the operations,
business, properties, or assets of the Company and its subsidiaries
taken as a whole; nor is the Company currently required to take any
action in order to avoid any such violation or default.
(10) The Company has good title to all properties and assets
which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and
mortgages, except such as to not materially and adversely affect the
value of such property and do not interfere with the use made or
proposed to made of such property (or except as may be properly
described in the Prospectus). No real property leased, licensed, or
used by the Company lies in an area which is, or to the knowledge of
the Company will be, subject to zoning, use, or building code
restrictions which would prohibit, and no state of facts relating to
the actions or inactions of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal property
exists or will exist which would prevent, the continued effective
leasing, licensing, or use of such real property in the business of
the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such
property and buildings by the Company (or except as may be properly
described in the Prospectus).
(11) Neither the Company nor, to the knowledge of the Company,
any other party, is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any material
provision of any contract, agreement, instrument, lease, license,
arrangement, or understanding which is material to the Company, and
each such contract, agreement, instrument, lease, license,
7
arrangement, and understanding is in full force and effect and is the
legal, valid, and binding obligation of the parties thereto and is
enforceable as to them in accordance with its terms. The Company
enjoys peaceful and undisturbed possession under all leases and
licenses under which it is operating. Except as described in the
Prospectus, the Company is not a party to, or bound by, any contract,
agreement, instrument, lease, license, arrangement, or understanding,
or subject to any charter or other restriction, which has had, or may
in the future have, a material adverse effect on the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company and its subsidiaries
taken as a whole. The Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation,
as amended, (or other charter document) or by-laws, as amended.
(12) All United States and foreign patents, patent applications,
trademarks, trademark applications, trade names, service marks,
copyrights, franchises, and other intangible properties and assets
(all of the foregoing being herein called "Intangibles") that the
Company owns or has pending, or under which it is licensed, are in
good standing and uncontested, except as may be properly described in
the Prospectus. There is no right under any Intangible necessary to
the business of the Company as presently conducted or as the
Prospectus indicates it contemplates conducting, except as may be so
designated in the Prospectus. The Company has not infringed, is not
infringing, or has not received notice of (or knows of any basis for)
a third party claim of infringement with respect to asserted
Intangibles of others, except as may be properly described in the
Prospectus. To the knowledge of the Company, there is no infringement
by others of Intangibles of the Company. To the knowledge of the
Company, there is no Intangible of others which has had, or may in the
future have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities or
future prospects of the Company, except as may be properly described
in the Prospectus.
8
(13) Neither the Company nor any director, officer, agent,
employee, or other person associated with, or acting on behalf of, the
Company has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. The Company's internal
accounting controls and procedures are sufficient to cause the Company
to comply in all respects with the Foreign Corrupt Practices Act of
1977, as amended.
(14) The Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representatives'
Warrants. All necessary corporate proceedings of the Company have
been duly taken to authorize the execution, delivery, and performance
by the Company of this Agreement and the Representatives' Warrants.
This Agreement has been duly authorized, executed, and delivered by
the Company, is the legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance with its
terms. The Representatives' Warrants have been duly authorized by the
Company and, when executed and delivered by the Company, will be
legal, valid, and binding obligations of the Company, each enforceable
as to the Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by
the Company of this Agreement or the Representatives' Warrants (except
filings under the Act which have been or will be made before the
Closing Date and filings and consents consisting only of filings and
consents under "blue sky" or securities laws which have been obtained
at or prior to the date of this Agreement). No consent of any party
to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Company is a party, or to which
9
any of their respective properties or assets are subject, is required
for the execution, delivery, or performance of this Agreement and the
Representatives' Warrants; and the execution, delivery, and
performance of this Agreement and the Representatives' Warrants will
not violate, result in a breach of, conflict with, result in the
creation or imposition of any lien, charge, or encumbrance upon any
properties or assets of the Company pursuant to the terms of, or (with
or without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under, any such
contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any
term of the certificate of incorporation, as amended (or other charter
document) or by-laws, as amended, of the Company, or violate, result
in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its
respective operations, businesses, properties, or assets are subject.
(15) The Stock and the Additional Stock are validly authorized
and, when issued and delivered in accordance with this Agreement, will
be validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued
in violation of any preemptive or similar rights of stockholders, and
the Underwriters will receive good title to the Stock and the
Additional Stock, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Common Stock, the Stock, and the Additional Stock conform
to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(16) The Warrant Stock is validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon
exercise of the Representatives' Warrants in accordance with the terms
thereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Representatives' Warrants will
receive good title to the securities purchased by them upon the
exercise of the Representatives' Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Representatives'
10
Warrants and the Warrant Stock conform to all statements relating
thereto contained in the Registration Statement or the Prospectus.
(17) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as may otherwise be properly described in the Prospectus, the Company
has not (i) issued any securities or incurred any liability or
obligation, primary or contingent, for borrowed money, (ii) entered
into any transaction not in the ordinary course of business, (iii)
declared or paid any dividend on its capital stock, or
(iv) experienced any adverse changes or any development which may
materially adversely effect the condition (financial or otherwise),
net assets or stockholders' equity, results of operations, business,
key personnel, assets, or properties of the Company and its
subsidiaries taken as a whole.
(18) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the offering
contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale
of any of the Stock or the Additional Stock.
(19) The Company has obtained from each of its directors and
officers a written agreement, in form and substance satisfactory to
counsel for the Underwriters, that, for a period of 12 months from the
date on which the Registration Statement shall become effective under
the Act, he, she, or it will not, without the Representatives' prior
written consent, publicly offer, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, shares of Common Stock or other securities of the
Company, including, without limitation, any shares of Common Stock
issuable
11
pursuant to the terms of any employee stock options; provided,
however, that such persons may offer, sell, contract to sell, grant an
option for the sale of, or otherwise dispose of all or any part of
his, her, or its shares of Common Stock or other such security or
instrument of the Company during such period only if such transaction
is private in nature and the transferee of such shares of Common Stock
or other securities or instruments agrees, prior to such transaction,
to be bound by all of the provisions of such agreement.
(20) Notwithstanding the foregoing, the Company has obtained from
each of those certain directors and officers who, collectively, hold
422,800 options currently having an exercise price equal to $.03 per
share, a written agreement, in form and substance satisfactory to
counsel for the Underwriters, that he, she, or it will not, for a
period of 24 months from the date on which the Registration Statement
shall become effective under the Act, publicly offer, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any of such options or shares of Common Stock
issuable upon the exercise thereof.
(21) Furthermore, the Company has obtained from each of those
certain optionholders who, collectively, hold 200,000 options
currently having an exercise price equal to $4.50 per share pursuant
to their employment agreements with the Company, a written agreement,
in form and substance satisfactory to counsel for the Underwriters,
that he, she, or it will not, for a period of 24 months from the date
on which the Registration Statement shall become effective under the
Act (the "Extended Period"), publicly offer, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any of such options or shares of Common Stock issuable
upon the exercise thereof. Nevertheless, in the event that such
optionholders' respective employment with the Company shall terminate
prior to such 24 month period, the Extended Period shall end on the
date of such termination but in no event earlier than 12 months from
the date on which the Registration Statement shall become effective
under the Act.
12
(22) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company"
as defined in Section 3(a) of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(23) Except for the securities that are being registered pursuant
to the Registration Statement, no person or entity has the right to
require registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the Registration
Statement.
(24) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(25) Neither the Company, nor any of its affiliates, is presently
doing business with the government of Cuba or with any person or
affiliate located in Cuba. If, at any time after the date on which
the Registration Statement is declared effective under the Act or with
the Florida Department of Banking and Finance (the "Florida
Department"), whichever is later, and prior to the end of the period
referred to in the first clause of Section 2(a)(2), the Company
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba, the Company will so inform the
Florida Department within 90 days after such commencement of business
in Cuba, and, during the period referred to in Section 2(a)(2), will
inform the Florida Department within 90 days after any change occurs
with respect to previously reported information.
(26) To the knowledge of the Company, no officer, director, or
Principal Stockholder of the Company has any affiliation or
association with the National Association of Securities Dealers, Inc.
(the "NASD") or any member thereof.
(27) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state, local, and foreign income and franchise
tax returns and other reports required to be filed and has paid all
taxes shown as due thereon; and there is
13
no tax deficiency which has been, or, to the knowledge of the Company,
might be, asserted against the Company.
(28) To the best knowledge of the Company, none of the activities
or businesses of the Company is in violation of, or will 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 upon the condition
(financial or otherwise), business, property, prospective results of
operations, or net worth of the Company.
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE ADDITIONAL STOCK.
On the basis of the representations, warranties, covenants, and agreements
of the Company herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to the Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the Company, the
numbers of shares of Stock set forth opposite the respective names of the
Underwriters in Schedule I hereto.
The purchase price per share of the Stock to be paid by the Underwriters
shall be $__________. The public offering price per share of the Stock shall be
$_______.
Payment for the Stock by the Underwriters shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company at the offices of Gruntal & Co., L.L.C., 14 Wall Street, 14th Floor, New
York, New York 10005, or at such other place in the New York City metropolitan
area as the Representatives shall determine and advise the Company by at least
two full days' notice in writing, upon delivery of the Stock to the
Representatives for the respective accounts of the Underwriters. Such delivery
and payment shall be made by 12:00 p.m., New York City local time, on the third
business day following the time of the public offering, as defined in Section
11(a) (unless such time and date is postponed in accordance with the provisions
of Section 9(c)), or at such other time as shall be agreed upon between the
Representatives and the Company. The time and date of such delivery and payment
are hereinafter referred to as the "Closing Date."
14
Certificates for the Stock shall be registered in such name or names and in
such authorized denominations as the Representatives may request in writing at
least two full business days prior to the Closing Date. The Company shall
permit the Representatives to examine and package such certificates for delivery
at least one full business day prior to the Closing Date.
In addition, the Company hereby grants to the Representatives the
Over-allotment Option to purchase all or a portion of the Additional Stock as
may be necessary to cover over-allotments, at the same purchase price per share
to be paid by the Underwriters to the Company for the Stock as provided for in
this Section 3. The Over-allotment Option may be exercised only to cover
over-allotments in the sale of shares by the Underwriters. The Over-allotment
Option may be exercised by the Representatives on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth (45th) day following the date
on which the Registration Statement becomes effective under the Act, by written
notice by the Representatives to the Company. Such notice shall set forth the
aggregate number of shares of Additional Stock as to which the Over-allotment
Option is being exercised (which shall be allocated as to the Company and the
Representatives deem appropriate) and the time and date, as determined by the
Representatives, when such shares of Additional Stock are to be delivered (such
time and date are hereinafter referred to as an "Additional Closing Date");
provided, however, that no Additional Closing Date shall be earlier than the
Closing Date nor earlier than the second business day after the date on which
the notice of the exercise of the Over-allotment Option shall have been given
not later than the eighth business day after the date on which such notice shall
have been given.
In the event the Company declares or pays a dividend or a distribution on
the Common Stock, whether in the form of cash, shares of Common Stock, or other
consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date and the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by the Representatives shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company at the offices of Gruntal & Co., L.L.C., 14
Wall Street, New York, New York 10005, or at such other
15
place in the New York City metropolitan area as the Representatives shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of the shares of Additional Stock to the Representatives for the
account of the Representatives.
Certificates for the shares of Additional Stock shall be registered in such
name or names and in such authorized denominations as the Representatives may
request in writing at least two full business days prior to the Additional
Closing Date with respect thereto. The Company shall permit the Representatives
to examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date with respect thereto.
It is understood that the Representatives, individually and not as the
representatives of the several Underwriters, may (but shall not be obligated to)
make any and all the payments required pursuant to this Section 3 on behalf of
any Underwriters whose check or checks shall not have been received by the
Representatives at the time of delivery of the Stock to be purchased by such
Underwriter or Underwriters. Any such payment by the Representatives shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
4. OFFERING. The Underwriters are to make a public offering of the Stock
as soon, on or after the date on which the Registration Statement becomes
effective under the Act, as the Representatives deem it advisable so to do. The
Stock is to be initially offered to the public at the public offering price as
provided for in Section 3 (such price being hereinafter referred to as the
"public offering price"). After the public offering, the Representatives may
from time to time increase or decrease the public offering price, in the
Representatives' sole discretion, by reason of changes in general market
conditions or otherwise.
5. COVENANTS.
(a) The Company covenants that it will:
(1) Use its best efforts to cause the Registration Statement to
become effective under the Act as promptly as possible and notify the
Representatives immediately, and confirm such notice in writing, (i)
when the Registration Statement and any post-effective amendment
thereto become effective under the Act, (ii) of the receipt of any
comments from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective
16
amendment thereto, the Prospectus, or any amendment or supplement
thereto, (iii) of the filing with the Commission of any supplement to
the Prospectus, and (iv) of the receipt of any notification with
respect to a Stop Order or the initiation or threatening of any
proceeding with respect to a Stop Order. The Company will use its
best efforts to prevent the issuance of any Stop Order and, if any
Stop Order is issued, to obtain the lifting thereof as promptly as
possible. If the Registration Statement has become or becomes
effective under the Act with a form of prospectus omitting Rule 430A
Information, or filing of the Prospectus with the Commission is
otherwise required under Rule 424(b), the Company will file with the
Commission the Prospectus, properly completed, pursuant to Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing.
(2) During the time when a prospectus relating to the Stock or
the Additional Stock is required to be delivered hereunder or under
the Act or the Regulations, comply with all requirements imposed upon
it by the Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of, or dealings in, the Stock and the
Additional Stock in accordance with the provisions hereof and the
Prospectus. If, at any time when a prospectus relating to the Stock
or the Additional Stock is required to be delivered hereunder or under
the Act or the Regulations, any event shall have occurred as a result
of which, in the reasonable opinion of counsel for the Company or
counsel for the Underwriters, the Registration Statement or the
Prospectus as then amended or supplemented contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, or if, in the opinion of either of such
counsel, it is necessary at any time to amend or supplement the
Registration Statement or the Prospectus to comply with the Act or the
Regulations, the Company will immediately notify the Representatives
and promptly prepare and file with the Commission an appropriate
amendment or supplement (in form and
17
substance satisfactory to the Representatives) which will correct such
statement or omission or which will effect such compliance and will
use its best efforts to have any such amendment declared effective
under the Act as soon as possible.
(3) Deliver without charge to each of the Underwriters such
number of copies of each Preliminary Prospectus as Underwriters may
reasonably request and, as soon as the Registration Statement, or any
amendment thereto, becomes effective under the Act or a supplement is
filed with the Commission, deliver without charge to the
Representatives two signed copies of the Registration Statement,
including exhibits, or such amendment thereto, as the case may be, and
two copies of any supplement thereto, and deliver without charge to
each of the Underwriters such number of copies of the Prospectus, the
Registration Statement, and amendments and supplements thereto, if
any, without exhibits, as the Representatives may request for the
purposes contemplated by the Act.
(4) Endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement
becomes effective under the Act, to qualify the Stock and the
Additional Stock for offering and sale under the "blue sky" or
securities laws of such jurisdictions as the Representatives may
designate; provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is
not then subject. In each jurisdiction where such qualification shall
be effected, the Company will, unless the Representatives agree in
writing that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may
be required by the laws of such jurisdiction.
(5) Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its securityholders as soon
as practicable, but not later than 45 days after the end of the fiscal
quarter in which the first anniversary date of the Registration
Statement occurs, an earnings statement (which need not be certified
by independent certified public accountants unless required by the Act
or the
18
Regulations, but which shall satisfy the provisions of Section 11(a)
of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration
Statement.
(6) For a period of 12 months after the date on which the
Registration Statement shall become effective under the Act, not,
without the Representatives' prior written consent, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or
other securities of the Company (or any security or other instrument
which by its terms is convertible into, or exercisable or exchangeable
for, shares of Common Stock), except as provided in Section 3 or as
described in the Prospectus and except for (i) the issuance of shares
of Common Stock issuable upon the exercise of stock options to
purchase up to a aggregate of 600,000 shares of Common Stock which may
be granted pursuant to the Company's 1997 Stock Option Plan (the
"Plan"), as properly described in the Prospectus, (ii) the issuance of
240,000 shares of Warrant Stock issuable upon exercise of the
Representatives' Warrants, (iii) the issuance of Common Stock upon the
exercise of currently outstanding options and warrants to purchase
shares of Common Stock and shares issuable pursuant to stock price
guarantees and other incentives in connection with previous
acquisitions, joint ventures and employment agreements, (iv) the
issuance of shares of Common Stock in connection with acquisitions by
the Company, and (v) the issuance or sale of Common Stock (or
securities convertible into Common Stock) at no less than the fair
market value of the Common Stock or the issuance of warrants to
purchase Common Stock (or securities convertible into Common Stock)
having an exercise price of not less than the then fair market value
of the Common Stock in connection with a bonafide financing
transaction by the Company.
(7) For a period of five years after the effective date of the
Registration Statement, furnish to the Representatives, without
charge, the following:
(i) within 105 days after the end of each fiscal year,
three copies of financial statements certified by independent
certified public accountants,
19
including a balance sheet, statement of income, and statement of
changes in cash flows of the Company, with supporting schedules,
prepared in accordance with generally accepted accounting
principles, as at the end of such fiscal year and for the 12
months then ended, which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the
Commission or the NASD, three copies of each annual and interim
financial, proxy statements and other reports or communications
sent by the Company to its stockholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, two copies of every press
release and every material news item and article in respect of
the Company or its affairs which was released by the Company; and
(iv) such additional documents and information with
respect to the Company and its affairs as the Representatives may
from time to time reasonably request; provided, however, that
such additional documents and information shall be received by
the Representatives on a confidential basis, unless otherwise
disclosed to the public, and shall not be used in violation of
the Federal Securities laws and the Regulations.
(8) Apply the net proceeds received by it from the offering
contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
(9) Furnish to the Representatives as early as practicable prior
to the Closing Date and any Additional Closing Date, as the case may
be, but no less than two full business days prior thereto, a copy of
the latest available unaudited interim consolidated financial
statements of the Company which have been read by the Company's
independent certified public accountants, as stated in their letters
to be furnished pursuant to Sections 7(f), 7(g) and 7(h) hereof.
20
(10) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date
on which the Registration Statement becomes effective under the Act,
unless such filing shall comply with the Act and the Regulations and
unless the Representatives shall previously have been advised of such
filing and furnished with a copy thereof, and the Representatives and
counsel for the Underwriters shall have approved such filing in
writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months
after the date on which the Registration Statement shall have become
effective under the Act) and (ii) 25 days after the date on which the
Registration Statement becomes effective under the Act, the Company
will prepare and file with the Commission, promptly upon the
Representatives' request, any amendments or supplements to the
Registration Statement or the Prospectus which, in the
Representatives' opinion, may be necessary or advisable in connection
with the distribution of the Stock.
(11) Comply with all filing and reporting requirements of the
Exchange Act, which may from time to time be applicable to the
Company.
(12) Comply with all provisions of all undertakings contained in
the Registration Statement.
(13) Prior to the Closing Date or any Additional Closing Date, as
the case may be, issue no press release or other communication,
directly or indirectly, and hold no press conference with respect to
the Company, the financial condition, results of operations, business,
properties, assets, liabilities of any of them, or this offering,
without the Representatives' prior written consent.
(14) If the stockholders owning at least 5% of the outstanding
securities of the Company (the "Principal Stockholders"), officers, or
directors of the Company are required by the "blue sky" or securities
authority of any jurisdiction selected by the Representatives pursuant
to Section 5(a)(4) to escrow or agree to restrict the sale of any
security of the Company owned by them for the Company to qualify or
register the Stock or the Additional Stock for sale under the "blue
sky" or securities
21
laws of any such jurisdiction, cause each such person to escrow or
restrict the sale of such security on the terms and conditions and in
the form specified by the securities administrator of such
jurisdiction.
(15) Make all filings required to maintain the inclusion of the
Common Stock on the National Association of Securities Dealers
Automated Quotations SmallCap Market System ("SCM") or the National
Association of Securities Dealers Automated Quotations National Market
System ("NNM"), as the case may be, for a least five years from the
date of this Agreement.
(16) On the Closing Date, sell to the Representatives,
individually and not as the representatives of the Underwriters, at
the price of $.001 per warrant, the Representatives' Warrants to
purchase an aggregate of 10% of the Stock, exclusive of the exercise
of any portion of the Over-allotment Option, which shall be
substantially in the form set forth as an exhibit to the Registration
Statement. Each Representatives' Warrants shall entitle the holder
thereof to purchase one share of Common Stock of the Company at a
price equal to 140% of the public offering price per share of Common
Stock for a four-year period commencing one year after the Commission
declares the Registration Statement effective. The Representatives'
Warrants may not be sold, transferred, assigned, pledged or
hypothecated by any person for a period of one year commencing the
date the Commission declares the Registration Statement effective,
except that it may be transferred, in whole or in part, to (i) one or
more officers and partners of the Representatives or Underwriters, as
the case may be, (ii) a successor to the Representatives or
Underwriters, as the case may be, (iii) a purchaser of substantially
all of the assets of the Representatives or Underwriters, as the case
may be, or (iv) by operation of law.
(17) Until expiration of the Representatives' Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise
of the Representatives' Warrants.
(18) Deliver to the Representatives, without charge, no later
than six months after the last Additional Closing Date or the
expiration of the period during
22
which the Representatives may exercise the Over-allotment Option, five
(5) sets of bound volumes of the complete Registration Statement and
all related materials to the individuals designated by the
Representatives or counsel to the Underwriters.
(19) For a period of three years after the effective date of the
Registration Statement, provide, at its sole expense, to the
Representatives copies of the Company's daily transfer sheets, if so
requested by the Representatives.
(20) Maintain key-person life insurance from such life insurance
Company as reasonably acceptable to the Representatives, payable to
the Company on the life of Mr. Richard M. Brooks, the Company's Chief
Executive Officer, President, Chief Financial Officer and Chairman of
the Board, and Mr. Ronald A. Feldman, the Company's Chief Operating
Officer, Vice President, Secretary and Treasurer, in the amount of at
least $3,000,000 and $1,000,000, respectively, for the period of time
equal to the longer of (i) three years from the date on which the
Registration Statement becomes effective under the Act and (ii) the
terms of the employment agreement between the Company and such
officer.
(21) Use its best efforts, for a period of five years following
the date on which the Registration Statement becomes effective under
the Act, to cause two persons to be elected to the Company's Board of
Directors who are deemed by the Representatives, in the
Representatives' reasonable judgment, to be independent of the
Company's management.
(22) Until the expiration of three years from the date on which
the Registration Statement becomes effective under the Act, not effect
a change in the independent certified public accountants for the
Company unless either the Company has received the prior written
consent of the Representatives or such substitute independent
certified public accountant is one of (i) Arthur Andersen & Co., (ii)
Ernst & Young, (iii) Price Waterhouse, LLP, (iv) Coopers & Lybrand or
(v) KPMG Peat Marwick.
(23) For a period of three years from the date on which the
Registration Statement becomes effective under the Act, the
Representatives shall have the right
23
to appoint a designee as an observer of the Company's Board of
Directors. Such observer will have the right to attend all meetings
of the Board of Directors. Such observer shall be entitled to receive
reimbursement for all out-of-pocket expenses incurred in attending
such meetings, including, but not limited to, food, lodging,
transportation, and any fees paid to directors for attending meetings.
The Representatives shall be given notice of such meetings at the same
time and in the same manner as directors of the Company are informed.
The Representatives and such observer shall be indemnified to the same
extent as the other directors. The Company will use its best efforts
to purchase directors and officers insurance in an amount of not less
than $2,000,000, with a deductible of not more than $50,000, provided,
however, that the Company shall not be required to pay more than
$50,000 per year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall
purchase that amount of such insurance which is available at a cost of
$50,000 per year. The Company will use its best efforts to extend the
coverage of such insurance to the observer.
(24) For a period of three years from date on which the
Registration Statement becomes effective under the Act, 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 fiscal quarters prior
to the announcement of quarterly financial information, the filing of
the Company's Quarterly Report on Form 10-QSB, and the mailing of
quarterly financial information to stockholders.
(25) Have in effect on the Closing Date the Plan, which will
provide for the issuance of options to purchase no more than 600,000
shares of Common Stock. The Company shall not grant, for a period of
three years following the date on which the Registration Statement
becomes effective under the Act, any options having an exercise price
less than the fair market value of the Common Stock on such date,
except that the Company shall be permitted to grant non-qualified
options under the Company's 1997 Stock Option Plan; provided, however,
that the exercise price of
24
such non-qualified options is no less than 85% of the fair market
value of the Company's Common Stock on the date of grant.
(26) During the four-year period commencing one year from the
effective date of the Registration Statement, the Company will agree
to use its best efforts to register the Representatives' Warrants and
the Warrant Stock when and if requested by the Representatives. These
best efforts shall include the preparation and filing of one demand
registration statement with respect to the Warrant Stock during such
four-year period and maintaining the effectiveness thereof, for nine
(9) months or such shorter period as may be required for the sale of
the Warrant Stock in the open market, at the Company's sole expense
(other than underwriter or selling broker costs), including blue sky
fees and expenses. The Company agrees that for the period starting at
the beginning of the second year and concluding at the end of the
seventh year after the effective date of the Registration Statement,
the Company will notify all holders of the Representatives' Warrants
and Warrant Stock of the Company's intention to do another public
offering of the Company's securities (whether by the Company or by any
security holder of the Company) and, if requested by the holders of
the Representatives' Warrants, include any Representatives' Warrants
and Warrant Stock in such offering at the Company's sole cost and
expense and maintain the effectiveness thereof for at least twelve
(12) months ("Piggyback Registration Rights").
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with the following:
(a) the preparation, printing, filing, distribution, and mailing of
the Registration Statement and the Prospectus and the printing, filing,
distribution, and mailing of this Agreement, and other underwriting and related
agreements and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments or
supplements thereto supplied to the Underwriters in quantities as hereinabove
stated;
25
(b) the issuance, sale, transfer, and delivery (as applicable) of the
Stock and the Additional Stock, including any transfer or other taxes payable
thereon;
(c) the qualification of the Stock and the Additional Stock under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees for the
Underwriters' counsel (in the amount of $35,000 ($50,000 if NNM listing is not
obtained)) and the disbursements in connection therewith;
(d) the filing fees payable to the Commission, the NASD, and the
jurisdictions in which such qualification is sought;
(e) any fees relating to the listing of the Common Stock on the SCM
or NNM, as the case may be;
(f) the cost of printing certificates representing the shares of
Common Stock;
(g) the fees of the transfer agent for the Common Stock;
(h) the cost of publication of "tombstone" advertisements with
respect to the offering, which expense shall not be in excess of $50,000 without
the Company's consent;
(i) due diligence expenses and shall pay the Representatives $50,000
in connection therewith and
(j) a non-accountable expense allowance equal to three percent of the
gross proceeds of the sale of the Stock and, to the extent Additional Stock is
sold, on the gross proceeds of the sale of the Additional Stock (less amounts,
if any, previously paid to the Representatives in respect of such
non-accountable expense allowance) to the Representatives on the Closing Date.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock and the Additional Stock,
as provided herein, shall be subject, in their reasonable discretion, to the
continuing accuracy of the representations and warranties of the Company
contained herein in all material respects and in each certificate and document
contemplated under this Agreement to be delivered to the Representatives, as of
the date hereof and as of the Closing Date (or any Additional Closing Date, as
the case may be), to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective under the
Act not later than 6:00 p.m., New York City time, on the date of this Agreement
or such later date and time as
26
shall be consented to in writing by the Representatives; on or prior to the
Closing Date, or any Additional Closing Date, as the case may be, no Stop Order
shall have been issued and no proceeding shall have been initiated or threatened
with respect to a Stop Order; and any request by the Commission for additional
information shall have been complied with by the Company to the reasonable
satisfaction of counsel for the Underwriters. 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 Regulations.
(b)At the Closing Date and any Additional Closing Date, as the case
may be, the Representatives shall have received the favorable opinion of
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel for the Company, dated the
date of delivery, addressed to the Underwriters, and in form and scope
reasonably satisfactory to counsel for the Underwriters, with reproduced copies
or signed counterparts thereof for each of the Underwriters, to the effect that:
(1) the Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, and to the best of such
counsel's knowledge, all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations
and filings with, all federal, state, local, and other governmental
authorities and all courts and other tribunals, to own, lease, license, and
use its properties and assets and to conduct its business in the manner
described in the Prospectus. The Company is duly qualified to do business
as a foreign corporation and is in good standing in the jurisdictions set
forth in Exhibit A attached to such counsel's opinion;
(2) the authorized capital stock of the Company is as reflected
in the Registration Statement, of which the Prospectus is a part. Except
as disclosed in the Prospectus, each outstanding share of Common Stock is
validly authorized and issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, has not been issued
and is not owned or held in violation of any statutory preemptive rights of
stockholders. To the knowledge of such counsel, there is no commitment,
plan, or arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any share of capital stock of the
Company or any security or other instrument
27
which by its terms is convertible into, or exercisable or exchangeable for,
capital stock of the Company, except as may be properly described in the
Prospectus. To the knowledge of such counsel, there is outstanding no
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, capital stock of the Company. The
certificates evidencing the Common Stock are in proper form;
(3) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal),
or investigation pending, threatened, or in prospect with respect to the
Company and its subsidiaries or its operations, business, properties, or
assets, except as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, and can not reasonably be
expected in the future to have, a material adverse effect upon the
operations, business, properties, or assets of the Company and its
subsidiaries. Such counsel has not been advised by the Company that the
Company is in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be properly described
in the Prospectus or such as in the aggregate do not now have and will not
in the future have a material adverse effect upon the operations, business,
properties, or assets of the Company and it subsidiaries, taken as a whole;
(4) such counsel has not been advised by the Company that the
Company is now, or is expected to be in violation or breach of, or in
default with respect to, any material provision of any contract, agreement,
instrument, lease, license, arrangement, or understanding which is material
to the Company, and, to the knowledge of such counsel, each such contract,
agreement, instrument, lease, license, arrangement, or understanding is in
full force and effect and is the valid, legal, and binding obligation of
the parties thereto and is enforceable in accordance with its terms;
(5) to the knowledge of such counsel, the Company is not in
violation or breach of, or in default with respect to, any term of its
certificate of incorporation (or other charter document) or by-laws, as
those documents have been amended or restated;
(6) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representatives'
Warrants. All necessary corporate
28
proceedings of the Company have been taken to authorize the execution,
delivery, and performance by the Company of this Agreement and the
Representatives' Warrants. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally, is enforceable as to the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditors' rights generally. The
Representatives' Warrants have been duly authorized by the Company and,
when executed and delivered by the Company, will be legal, valid, and
binding obligations of the Company, each enforceable as to the Company in
accordance with its terms. To the knowledge of such counsel, no consent,
authorization, approval, order, license, certificate, or permit of or from,
or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by the
Company for the execution, delivery, or performance by the Company of this
Agreement or the Representatives' Warrants (except filings under the Act
which have been made or will be made before the Closing Date or Additional
Closing Date, as the case may be, and filings and consents consisting only
of filings and consents under "blue sky" or securities laws). No consent
of any party to any material contract or agreement filed as an exhibit to
the Registration Statement or incorporated by reference therein or which,
to the best knowledge of such counsel based solely on the representations
of the Company, is required to be filed as exhibit to the Registration
Statement, is required for the execution, delivery, or performance of this
Agreement and the Representatives' Warrants; and the execution, delivery,
and performance of this Agreement and the Representatives' Warrants will
not violate, result in a breach of, conflict with, result in the creation
or imposition of any lien, charge, or encumbrance upon any properties or
assets of the Company pursuant to the terms of, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under, any such contract, agreement or
instrument, violate or result in a breach of, or conflict with any term of
the certificate of incorporation (or other charter document) or by-laws of
the Company.
29
(7) to the knowledge of such counsel, the Company has filed,
since January 1995, with the Commission on a timely basis all filings
required of a company whose securities have been registered under the
Exchange Act. For the purpose of this paragraph, filings pursuant to Rule
12b-25 of the Exchange Act shall be deemed timely.
(8) each share of Stock to be delivered on the Closing Date is
validly authorized and, when issued and delivered in accordance with the
terms hereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and is
not issued in violation of any statutory preemptive rights of stockholders,
and assuming the Underwriters are "bona fide" purchasers under the Uniform
Commercial Code as in effect in the State of New York, the Underwriters
will receive good title to the shares of Stock purchased by them, from the
Company, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts. The Additional
Stock is validly authorized and when issued and delivered in accordance
with the terms hereof, will be fully paid and nonassessable, without any
personal liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive rights of stockholders, and upon
delivery of the Additional Stock in accordance with the terms of the
Over-allotment option, assuming the Underwriters are "bona fide" purchasers
under the Uniform Commercial Code as in effect in the state of New York,
the Underwriters will receive good title to the shares of Additional Stock
purchased by them, from the Company, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholder's agreements and
voting trusts. The Common Stock, the Stock, and the Additional Stock
conform in all material respects to all statements relating thereto
contained in the Registration Statement or the Prospectus;
(9) the Warrant Stock is validly authorized and has been duly
and validly reserved for issuance pursuant to the terms of the
Representatives' Warrants. The Representatives' Warrants have been duly
and validly executed and delivered. The Warrant Stock, when issued and
delivered in accordance with the Representatives' Warrants, will be validly
issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not have been issued in
violation of any statutory preemptive
30
rights of stockholders. The Representatives, and any other holders of the
Representatives' Warrants, assuming the Underwriters are "bona fide"
purchasers under the Uniform Commercial Code as in effect in the State of
New York, will receive good title to the securities purchased by them upon
exercise of the Representatives' Warrants, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Representatives' Warrants and the
Warrant Stock conform in all material respects to all statements relating
thereto contained in the Registration Statement or the Prospectus;
(10) to the knowledge of such counsel, each contract, agreement,
instrument, lease, or license required to be described in the Registration
Statement or the Prospectus has been properly described therein, and each
contract, agreement, instrument, lease, or license required to be filed as
an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
(11) insofar as statements in the Prospectus purport to summarize
the status of litigation or the provisions of laws, rules, regulations,
orders, judgments, decrees, contracts, agreements, instruments, leases, or
licenses, such statements have been prepared or reviewed by such counsel
and accurately reflect the status of such litigation and provisions
purported to be summarized in all material respects;
(12) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, will not become an "investment
company" and will not be required to be registered under the Investment
Company Act;
(13) to the knowledge of such counsel, no person or entity has
the right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement except as described in the Prospectus; and
(14) such counsel has been advised by the Commission that the
Registration Statement has become effective under the Act, the Prospectus
has been filed in accordance with Rule 424(b) of the Regulations, including
the applicable time periods set
31
forth therein, or such filing is not required. To the knowledge of such
counsel, no Stop Order has been issued and no proceeding for that purpose
has been instituted or threatened. On the basis of the participation of
such counsel in conferences at which the contents of the Registration
Statement and the Prospectus and related matters were discussed, but
without independent verification by such counsel of the accuracy,
completeness, or fairness of the statements contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, such
counsel has no knowledge that (other than financial statements and other
financial data and schedules which are or should be contained therein, as
to which such counsel need express no opinion): (A) the Registration
Statement, any Rule 430A Prospectus, and the Prospectus, and any amendment
or supplement thereto, does not appear on its face to comply as to form in
all material respects with the requirements of the Act and the Regulations;
(B) any of the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (C) since the effective date of the Registration Statement,
any event has occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not
been set forth in such an amendment or supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, to the extent counsel for the
Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company and that
reliance thereon by counsel for the Company and the Underwriters is reasonable;
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem proper,
upon written statements or certificates of officers of departments of various
jurisdictions having custody of documents respecting the corporate
32
existence or good standing of the Company; provided that copies of any such
opinions, certificates, or statements shall be annexed as exhibits to the
opinion of counsel for the Company.
(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Representatives shall have been furnished such
information, documents, certificates, and opinions as it may reasonably require
for the purpose of enabling it to review the matters referred to in Section
7(b), and in order to evidence the accuracy, completeness, or satisfaction of
any of the representations, warranties, covenants, agreements, or conditions
herein contained in all material respects, or as the Representatives may
reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) 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 Regulations, and 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, (ii) there shall have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus, no
material adverse change, or any development involving a prospective material
adverse change, in the business, properties, or condition (financial or
otherwise), results of operations, capital stock, long-term or short-term debt,
or general affairs of the Company and its subsidiaries taken as a whole from
that set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after the
date on which the Registration Statement becomes effective under the Act, and
the Company shall not have incurred any material liabilities or entered into any
agreements not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus, (iii) except as set forth in the
Prospectus, no litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation shall be pending, threatened, or in
prospect (or any basis therefor) with respect to the Company or any of its
respective operations, businesses, properties, or assets which would be required
to be set forth in the Registration Statement, wherein an unfavorable decision,
ruling, or finding would materially adversely affect the business, property,
condition (financial or otherwise), results of
33
operations, or general affairs, of the Company and its subsidiaries taken as a
whole and (iv) the Stock shall have been approved for listing on either the SCM
or NNM.
(e) At the Closing Date and any Additional Closing Date, as the case
may be, the Representatives shall have received a certificate of the chief
executive officer, the chief financial officer, and the chief accounting officer
of the Company, dated the Closing Date or such Additional Closing Date, as the
case may be, to the effect that among other things (i) the conditions set forth
in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all materials respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior thereto have
been fully performed.
(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representatives shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representatives, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Deloitte & Touche, LLP,
independent certified public accountants for the Company, dated the date of
delivery:
(1) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the Company
within the meaning of the Act and the published Regulations and stating
that the answer to Item 13 of the Registration Statement is correct insofar
as it relates to them;
(2) stating that, in their opinion, the consolidated financial
statements and schedules of the Company included in the Registration
Statement examined by them comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(3) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited consolidated
interim financial statements of the Company (with an indication of the date
of the latest available unaudited interim financial statements), a reading
34
of the latest available minutes of the stockholders and Board of Directors
of the Company and committees of such Board of Directors, inquiries to
certain officers and other employees of the Company responsible for
financial and accounting matters, and other specified procedures and
inquiries, nothing has come to their attention that caused them to believe
that: (A) the unaudited consolidated financial statements and schedules of
the Company included in the Registration Statement and Prospectus do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting
principles (except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance with the
applicable rules of the Commission under the Exchange Act) applied on a
basis consistent with that of the audited financial statements appearing
therein; (B) there was any change in the capital stock or long-term debt of
the Company or any decrease in the net current assets or stockholders'
equity of the Company as of the date of the latest available consolidated
monthly financial statements of the Company or as of a specified date not
more than five business days prior to the date of such letter, each as
compared with the amounts shown in the most recent balance sheet included
in the Registration Statement and Prospectus, other than as properly
described in the Registration Statement and Prospectus or any change or
decrease (which shall be set forth therein) which the Representatives in
its sole discretion shall accept, or (C) there was any decrease in
consolidated net sales, net earnings, or net earnings per share of Common
Stock of the Company, during the period from the date of such balance sheet
to the date of the latest available consolidated monthly financial
statements of the Company or to a specified date not more than five
business days prior to the date of such letter, each as compared with the
corresponding period in the preceding fiscal year, other than as properly
described in the Registration Statement and Prospectus or any decrease
(which shall be set forth therein) which the Representatives in its sole
discretion shall accept; and
(4) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the
Registration Statement, which have been specified by the Representatives
prior to the date of this Agreement, to the extent that
35
such data and information may be derived from the general accounting
records of the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter, and
found them to be in agreement.
(g) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representatives shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representatives, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Fishbein & Company,
P.C., independent certified public accountants for the Company and its
subsidiaries for each of the two years in the period ended June 30, 1996, dated
the date of delivery:
(1) confirming that they were, during the period covered by
their report(s) included in the Registration Statement and the Prospectus,
independent certified public accountants with respect to the Company and
its subsidiaries within the meaning of the Act and the published
Regulations and stating that the answer to Item 13 of the Registration
Statement is correct insofar as it relates to them;
(2) stating that, in their opinion, the consolidated financial
statements and schedules of the Company and it subsidiaries included in the
Registration Statement examined by them comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(3) stating that there has at no time been a material adverse
change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company or its
subsidiaries on a consolidated basis from the latest information set forth
in the Registration Statement or the Prospectus, except as may be
properly described in the Prospectus.
(h) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representatives shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representatives, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Terry H. Jones,
36
CPA, independent certified public accountants for the Triple A Security Systems,
Inc., a company acquired by the Company on September 30, 1997 ("Triple A"), and
The Jupiter Group, Inc. ("Jupiter") for each of the two years in the period
ended December 31, 1996, dated the date of delivery:
(1) confirming that they were, during the period covered by
their report(s) included in the Registration Statement and the Prospectus,
independent certified public accountants with respect to Triple A and
Jupiter within the meaning of the Act and the published Regulations and
stating that the answer to Item 13 of the Registration Statement is correct
insofar as it relates to them;
(2) stating that, in their opinion, the consolidated financial
statements and schedules of Triple A and Jupiter included in the
Registration Statement examined by them comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(3) stating that there has at no time been a material adverse
change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Triple A and
Jupiter on a consolidated basis from the latest information set forth in
the Registration Statement or the Prospectus, except as may be properly
described in the Prospectus.
(i) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Stock and the Additional Stock shall be
satisfactory in form and substance to the Representatives and to counsel for the
Underwriters, and the Representatives shall have received from such counsel for
the Underwriters a favorable opinion, dated as of the Closing Date and the
Additional Closing Date, as the case may be, with respect to such of the matters
set forth under Section 7(b), and with respect to such other related matters, as
the Representatives may reasonably request.
(j) The NASD, upon review of the terms of the public offering of the
Stock and the Additional Stock, shall not have objected to the Underwriters'
participation in such offering.
(k) Prior to or on the Closing Date, the Company shall have entered
into the Representatives' Warrants with the Representatives.
37
Any certificate or other document signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representatives may, on behalf of the Underwriters, may terminate this
Agreement or, if the Representatives so elect, in writing waive any such
conditions which have not been fulfilled or extends the time for their
fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all loss, liability, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 8, but not be
limited to, reasonable attorneys' fees and any and all reasonable expenses
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claims and any and all amounts paid in
settlement of any claim or litigation) as and when incurred arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto
or (B) any application or other document or communication (for purposes of this
Section 8, collectively referred to as an "application") executed by, or on
behalf of, the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Stock or
the Additional Stock under the "blue sky" or securities laws thereof or filed
with the Commission or any securities exchange; or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company as stated in Section 8(b) with respect to any Underwriter by, or
on behalf of, such Underwriter through the Representatives expressly for
inclusion in the Registration
38
Statement, any Preliminary Prospectus, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, or in any application as the
case may be, or (ii) any breach of any representation, warranty, covenant, or
agreement of the Company contained in this Agreement. The foregoing agreement
to indemnify shall be in addition to any liability the Company may otherwise
have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of an Underwriter (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability it may have other than pursuant to this Section 8(a))
and the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company, and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment or otherwise seek to terminate any pending
or threatened action, in respect of which indemnity may be sought hereunder
(whether or not any indemnified party is a party thereto), unless
39
such settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Representatives and Underwriters of
the commencement of any litigation or proceedings against the Company or any of
its officers or directors in connection with the sale of the Stock or the
Additional Stock, the Registration Statement, any Preliminary Prospectus, any
Rule 430A Prospectus, or the Prospectus, or any amendment or supplement thereto,
or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Underwriters in Section 8(a), but only with respect to
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or on any application in reliance upon, and in conformity with, written
information furnished to the Company as stated in this Section 8(b) with respect
to the Representatives expressly for inclusion in the Registration Statement,
any Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus, or any
amendment or supplement thereto, or on any application, as the case may be;
provided, however, that the obligation of the Representatives to provide
indemnity under the provisions of this Section 8(b) shall be limited to the
amount which represents the product of the number of shares of Stock and
Additional Stock underwritten by the Representatives and the public offering
price per share set forth on the cover page of the Prospectus. For all purposes
of this Agreement, the amounts of the selling concession and reallowance set
forth in the Prospectus constitute the only information furnished in writing by
or on behalf of the Representatives expressly for inclusion in the Registration
Statement, any Preliminary Prospectus, any Rule 430A Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based on
the Registration Statement, any Preliminary Prospectus, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any
application, and in respect of which indemnity may be
40
sought against the Representatives pursuant to this Section 8(b), the
Representatives shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company) as one entity and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party) as a second entity shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject in such proportions as are appropriate to reflect the
relative benefits received by the Company and the Underwriters in the aggregate;
provided, however, that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative fault of the
Company and the Underwriters in the aggregate in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. The relative benefits received by the Company and the
Underwriters in the aggregate shall be deemed to be in the same proportion as
(x) the total proceeds from the offering of the Stock (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
(y) the total proceeds of the offering of the Additional Stock (net of
underwriting discounts and commissions but before deducting expenses), and (z)
the underwriting discounts, commissions and expense reimbursements received by
the Underwriters in the aggregate, in each case as set forth in the table on the
cover page of the Prospectus and in the footnotes thereto. The relative fault,
in the case of an untrue statement, alleged untrue statement, omission, or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission, or alleged omission relates to
information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and
41
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(c). In no
case shall any Underwriter be responsible for a portion of the contribution
obligation imposed on all Underwriters in excess of its pro rata share based on
the number of shares underwritten by it as compared to the number of shares
underwritten by all Underwriters who do not default in their obligations under
this Section 8(c). 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. For purposes
of this Section 8(c), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent, and counsel of an Underwriter
shall have the same rights to contribution as such Underwriter and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement, and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
provisions of this Section 8(c). Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8(c) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
(d) Notwithstanding the foregoing, in no event shall the
indemnification agreement contained in this Section 8 inure to the benefit of
any Underwriter (or to the benefit of any person controlling such Underwriter)
on account of any losses, claims, damages, liabilities or actions arising from
the sale of the Stock upon the public offering to any person by such Underwriter
if such losses, claims, damages, liabilities or actions arise out of, or are
based upon, a statement or omission or alleged omission in a preliminary
prospectus and if, in respect to such statement, omission or alleged omission,
the Prospectus differs in a material respect from such preliminary prospectus
and
42
a copy of the Prospectus has not been sent or given to such person at or prior
to the confirmation of such sale to such person, provided, however, that (i)
sufficient quantities of such Prospectus have been delivered to the Underwriters
to deliver to investors having had received a preliminary prospectus and (ii)
the Company has advised in writing the Underwriters (A) that such Prospectus
materially differs from such preliminary prospectus and (B) to deliver the
Prospectus to such investors.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Stock or Additional Stock hereunder, and if the number of
shares of Stock or Additional Stock to which the defaults of all Underwriters in
the aggregate relate does not exceed 10% of the number of shares of Stock or
Additional Stock, as the case may be, which all Underwriters have agreed to
purchase hereunder, then such shares of Stock or Additional Stock to which such
defaults relate shall be purchased by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, the Representatives may, in the
Representatives' discretion, arrange for itself or for another party or parties
to purchase such shares of Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the
Representatives does not arrange for the purchase of such shares of Stock or
Additional Stock, as the case may be, within five (5) business days after the
occurrence of defaults relating to in excess of 10% of the Stock or the
Additional Stock, as the case may be, then the Company shall be entitled to a
further period of one business day within which to procure another party or
parties reasonably satisfactory to the Representatives to purchase such shares
of Stock or Additional Stock, as the case may be, on such terms. If the
Representatives or the Company with respect to the Stock or Additional Stock
does not arrange for the purchase of the shares of Stock or Additional Stock, as
the case may be, to which such defaults relate as provided in this Section 9(b),
this Agreement may be terminated by the Representatives or by the Company with
respect to the Stock or Additional Stock, in each case without liability on the
part of the Company (except that the provisions of Sections 5(a)(1), 6, 8, 10,
and 13 shall survive
43
such termination) or the several Underwriters, but nothing in this Agreement
shall relieve a defaulting Underwriter of its liability, if any, to the other
several Underwriters and to the Company for any damages occasioned by its
default hereunder.
(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, the Representatives or the
Company with respect to the Stock or Additional Stock or the Representatives
shall have the right to postpone the Closing Date or the Additional Closing
Date, as the case may be, for a reasonable period but not in any event more than
seven business days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements with respect to the Stock or the Additional Stock,
and the Company agrees to prepare and file promptly any amendment or supplement
to the Registration Statement or the Prospectus which in the opinion of counsel
for the Underwriters may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any party substituted under this Section 9
as if such party had originally been a party to this Agreement and had been
allocated the number of shares of Stock and Additional Stock actually purchased
by it as a result of its original commitment to purchase Stock and Additional
Stock and its purchase of shares of Stock or Additional Stock pursuant to this
Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Stock and the Additional Stock to the
several Underwriters. In addition, the provisions of Sections 5(a)(1), 6, 8,
10, 11, and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
44
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 A.M., New York City
local time, on the first full business day following the day on which the
Registration Statement becomes effective under the Act or at the time of the
public offering by the Underwriters of the Stock, whichever is earlier. The time
of the public offering shall mean the time, after the Registration Statement
becomes effective under the Act, of the release by the Representatives for
publication of the first newspaper advertisement which is subsequently published
relating to the Stock or the time, after the Registration Statement becomes
effective under the Act, when the Stock is first released by the Representatives
for offering by the Underwriters or dealers by letter or telegram, whichever
shall first occur. The Representatives or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as noted below in this Section 11, by giving the notice indicated
in Section 11(d) before the time this Agreement becomes effective under the Act.
(b) If the purchase price of the Stock has not been determined as
provided for in Section 3 prior to 4:30 p.m., New York City local time, on the
third full business day after the date the Registration Statement becomes
effective under the Act, this Agreement may be terminated at any time thereafter
either by the Representatives or by the Company by giving notice to the other
unless before such termination the purchase price for the Stock has been so
determined. If the purchase price of the Stock has not been so determined prior
to 4:30 p.m., New York City local time, on the tenth full business day after the
date the Registration Statement becomes effective under the Act, this Agreement
shall automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representatives shall have the right to terminate
this Agreement at any time prior to the Closing Date by giving notice to the
Company, and, if exercised, the Over-allotment Option, at any time prior to any
Additional Closing Date, by giving notice to the Company, (i) if any domestic or
international event, act, or occurrence has materially disrupted, or, in the
Representatives' opinion, will in the immediate future materially disrupt, the
securities markets; or (ii) if there shall have been a general suspension of, or
a general limitation on prices for, trading in securities on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market; or
45
(iii) if there shall have been any new outbreak or increase in the level of
major hostilities or other national or international calamity; or (iv) if a
banking moratorium has been declared by a state or federal authority; or (v) if
a moratorium in foreign exchange trading by major international banks or persons
has been declared; or (vi) if there shall have been a material interruption in
the mail service or other means of communication within the United States; or
(vii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity
or malicious act, whether or not such loss shall have been insured, or from any
labor dispute or court or government action, order, or decree, which will, in
the Representatives' opinion, make it inadvisable to proceed with the offering,
sale, or delivery of the Stock or the Additional Stock, as the case may be; or
(viii) if any key person designated in Section 5(a)(20) is rendered disabled or
dies or otherwise becomes unable to function in his official capacity at the
Company; or (ix) if any material governmental restrictions shall have been
imposed on trading in securities in general, which restrictions are not in
effect on the date hereof; or (x) if there shall be passed by the Congress of
the United States or by any state legislature any act or measure, or adopted by
any governmental body or authoritative accounting institute or board, or any
governmental executive any orders, rules, or regulations, which the
Representatives believe likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (xi) if there shall have a material adverse
change in the market for the Company's securities or securities in general or in
political, financial, or economic conditions as in the Representatives' judgment
makes it inadvisable to proceed with the offering, sale, and delivery of the
Stock or the Additional Stock, as the case may be, on the terms contemplated by
the Prospectus.
(d) If the Representatives elect to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement, the Representatives shall notify the Company promptly by telephone,
telex, or telegram, confirmed by letter. If, as so provided, the Company elects
to prevent this Agreement from becoming effective or to terminate this
Agreement, the Company shall notify the Representatives promptly by telephone,
telex, or telegram, confirmed by letter.
46
(e) Anything in this Agreement to the contrary notwithstanding other
than Section 11(f), if this Agreement shall not become effective by reason of an
election by the Representatives pursuant to this Section 11 the sole liability
of the Company to the Underwriters, in addition to the obligations the Company
assumed pursuant to Section 6, will be to reimburse the Underwriters for
accountable out-of-pocket expenses only as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Stock and the Additional Stock, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representatives for the respective
accounts of the Underwriters. Anything in this Agreement to the contrary
notwithstanding other than Section 11(f), if this Agreement shall not be carried
out within the time specified herein for any reason other than the failure on
the part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the Company
shall have no liability to the Underwriters other than for obligations assumed
by the Company pursuant to Section 6.
(f) If the offering does not proceed as a result of a termination by
the Company prior to the initial filing of the Registration Statement (a
"Pre-Filing Termination"), the Company shall pay the Representatives all of the
Representatives' reasonable and accountable expenses through such date up to a
maximum of $125,000; provided, however, that if there shall be a Pre-Filing
Termination and within a period ending one year after such termination, the
Company shall file a registration statement with the Commission using an
underwriter not currently affiliated with the Representatives or shall effect a
private placement of equity securities using a placement agent not currently
affiliated with the Representatives with unaffiliated investors of the Company
(a "Financing Transaction"), the Company shall, in addition to the payment
provided for in the first part of this sentence, use its best efforts to cause
the Representatives to act as the co-managing underwriter or placement agent in
such transaction. If, after the filing of the Registration Statement and before
the declaration of effectiveness of the Registration Statement, the offering
does not proceed for any reason (a "Post-Filing Termination"), the Company shall
pay the Representatives all of the Representatives' reasonable and accountable
expenses incurred through such date.
(g) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8,
47
10, and 13 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
12. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Gruntal & Co., L.L.C., 14 Wall Street, 14th
Floor, New York, New York 10005; Attention: Mr. Richard Abbe, with a copy to
Morrison Cohen Singer & Weinstein, LLP, 750 Lexington Avenue, New York, New York
10022, Attention: Robert H. Cohen, Esq.; or if sent to the Company shall be
mailed, delivered, or telexed or telegraphed and confirmed by letter, to the
Company, Response USA, Inc., 11-H Princess Road, Lawrenceville, New Jersey
08648, Attention: Richard M. Brooks, Chief Executive Officer and President, with
a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New
York, New York 10176, Attention: Kenneth R. Koch, Esq. All notices hereunder
shall be effective upon receipt by the party to which it is addressed.
13. PARTIES. The Representatives represent that it is authorized to
act on behalf of the several Underwriters named in Schedule I hereto, and the
Company shall be entitled to act and rely on any request, notice, consent,
waiver, or agreement purportedly given on behalf of the Underwriters when the
same shall have been given by the Representatives on such behalf. This
Agreement shall inure solely to the benefit of, and shall be binding upon, the
Underwriters and the Company, and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Stock or the Additional Stock), and no other
person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
14. CONSTRUCTION. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.
48
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
49
If the foregoing correctly sets forth the understanding between the
Representatives and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
RESPONSE USA, INC.
By:
----------------------------------
Name:
Title:
ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN IN NEW YORK, NEW YORK
GRUNTAL & CO., L.L.C.*
By:
--------------------------------
Name:
Title:
HAMPSHIRE SECURITIES CORPORATION*
By:
--------------------------------
Name:
Title:
* ON BEHALF OF ITSELF AND THE OTHER SEVERAL
UNDERWRITERS NAMED IN SCHEDULE I HERETO.
50
SCHEDULE I
TOTAL
NUMBER
OF SHARES
OF COMMON STOCK
TO BE
UNDERWRITER PURCHASED
Gruntal & Co., L.L.C.
Hampshire Securities Corporation
Total . . . . . . . . . . .
---------
---------
2,400,000
51