Underwriting Agreement - Pivot Rules Inc. and GKN Securities Corp.
UNDERWRITING AGREEMENT
BETWEEN
PIVOT RULES, INC.
AND
GKN SECURITIES CORP.
DATED: MAY 15, 1997
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TABLE OF CONTENTS
Page
INDEX OF DEFINITIONS....................................................... v
1. Purchase and Sale of Securities........................................ 1
1.1 Firm Units....................................................... 1
1.1.1 Purchase of Firm Units................................... 1
1.1.2 Payment and Delivery..................................... 1
1.2 Over-Allotment Option............................................ 2
1.2.1 Option Units............................................. 2
1.2.2 Exercise of Option....................................... 2
1.2.3 Payment and Delivery..................................... 2
1.3 Unit Purchase Option............................................. 3
1.3.1 Purchase Option.......................................... 3
1.3.2 Payment and Delivery..................................... 3
2. Representations and Warranties of the Company.......................... 3
2.1 Filing of Registration Statement................................. 3
2.1.1 Pursuant to the Act...................................... 3
2.1.2 Pursuant to the Exchange Act............................. 3
2.2 No Stop Orders, Etc.............................................. 3
2.3 Disclosures in Registration Statement............................ 4
2.3.1 Securities Act and Exchange Act Representation........... 4
2.3.2 Disclosure of Contracts.................................. 4
2.3.3 Prior Securities Transactions............................ 5
2.4 Changes After Dates in Registration Statement.................... 5
2.4.1 No Material Adverse Change............................... 5
2.4.2 Recent Securities Transactions, Etc...................... 5
2.5 Independent Accountants.......................................... 5
2.6 Financial Statements............................................. 5
2.7 Authorized Capital; Options; Etc................................. 5
2.8 Valid Issuance of Securities; Etc................................ 6
2.8.1 Outstanding Securities................................... 6
2.8.2 Securities Sold Pursuant to this Agreement............... 6
2.9 Registration Rights of Third Parties............................. 7
2.10 Validity and Binding Effect of Agreements........................ 7
2.11 No Conflicts, Etc................................................ 7
2.12 No Defaults; Violations.......................................... 7
2.13 Corporate Power; Licenses; Consents.............................. 8
2.13.1 Conduct of Business...................................... 8
2.13.2 Transactions Contemplated Herein......................... 8
2.14 Title to Property; Insurance..................................... 8
2.15 Litigation; Governmental Proceedings............................. 8
2.16 Good Standing.................................................... 8
2.17 Taxes............................................................ 9
2.18 Employees' Options............................................... 9
2.19 Transactions Affecting Disclosure to NASD........................ 9
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Page
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2.19.1 Finder's Fees............................................ 9
2.19.2 Payments Within Twelve Months............................ 9
2.19.3 Use of Proceeds.......................................... 9
2.19.4 Insiders' NASD Affiliation............................... 9
2.20 Foreign Corrupt Practices Act.................................... 10
2.21 Nasdaq and The Boston Stock Exchange Eligibility................. 10
2.22 Intangibles...................................................... 10
2.23 Relations With Employees......................................... 10
2.23.1 Employee Matters......................................... 10
2.23.2 Employee Benefit Plans................................... 11
2.24 Officers' Certificate............................................ 11
2.25 Warrant Agreement................................................ 11
2.26 Agreements With Insiders......................................... 11
2.26.1 Lock-Up Agreements....................................... 11
2.26.2 Insider Sales............................................ 12
2.27 Subsidiaries..................................................... 12
3. Covenants of the Company............................................... 12
3.1 Amendments to Registration Statement............................. 12
3.2 Federal Securities Laws.......................................... 12
3.2.1 Compliance............................................... 12
3.2.2 Filing of Final Prospectus............................... 12
3.2.3 Exchange Act Registration................................ 12
3.3 Blue Sky Filing.................................................. 12
3.4 Delivery to the Underwriters of Prospectuses..................... 13
3.5 Events Requiring Notice to the Representative.................... 13
3.6 Review of Financial Statements................................... 13
3.7 Reserved......................................................... 13
3.8 Secondary Market Trading and Standard & Poor's................... 13
3.9 Nasdaq and BSE Maintenance; De-listing of Units.................. 13
3.10 Warrant Solicitation and Registration of Common Stock Underlying
the Warrants..................................................... 14
3.10.1 Warrant Solicitation and Representative Warrant
Solicitation Fees........................................ 14
3.10.2 Registration of Common Stock............................. 14
3.11 Reserved......................................................... 14
3.12 Reports to the Representative and Others......................... 14
3.12.1 Periodic Reports, Etc.................................... 14
3.12.2 Transfer Sheets and Weekly Position Listings............. 15
3.12.3 Secondary Market Trading Memorandum...................... 15
3.13 Unit Purchase Option............................................. 15
3.14 Disqualification of Form SB-2.................................... 15
3.15 Payment of Expenses.............................................. 15
3.15.1 General Expenses......................................... 15
3.15.2 Non-Accountable Expenses................................. 16
3.16 Application of Net Proceeds...................................... 16
3.17 Delivery of Earnings Statements to Security Holders.............. 16
3.18 Key Person Life Insurance........................................ 17
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Page
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3.19 Stabilization.................................................... 17
3.20 Internal Controls................................................ 17
3.21 Accountants and Lawyers.......................................... 17
3.22 Transfer Agent................................................... 17
3.23 Sale of Securities............................................... 17
3.24 Exercise Price of Options........................................ 17
4. Conditions of the Underwriters' Obligations............................ 17
4.1 Regulatory Matters............................................... 18
4.1.1 Effectiveness of Registration Statement.................. 18
4.1.2 NASD Clearance........................................... 18
4.1.3 No Blue Sky Stop Orders.................................. 18
4.2 Company Counsel Matters.......................................... 18
4.2.1 Effective Date Opinion of Counsel........................ 18
4.2.2 Opinions of Intellectual Property Counsel................ 22
4.2.3 Closing Date and Option Closing Date Opinions of Counsel. 22
4.2.4 Reliance................................................. 22
4.2.5 Secondary Market Trading Memorandum...................... 22
4.3 Cold Comfort Letter.............................................. 22
4.4 Officers' Certificates........................................... 23
4.4.1 Officers' Certificate.................................... 23
4.4.2 Secretary's Certificate.................................. 24
4.5 No Material Changes.............................................. 24
4.6 Delivery of Unit Purchase Option................................. 24
4.7 Opinion of Counsel for the Representative........................ 25
4.8 Unaudited Financials............................................. 25
5. Indemnification........................................................ 25
5.1 Indemnification of the Underwriters.............................. 25
5.1.1 General.................................................. 25
5.1.2 Procedure................................................ 26
5.2 Indemnification of the Company................................... 26
5.3 Contribution..................................................... 26
5.3.1 Contribution Rights...................................... 26
5.3.2 Contribution Procedure................................... 27
6. Default by an Underwriter.............................................. 27
6.1 Default Not Exceeding 10% of Firm Units.......................... 27
6.2 Default Exceeding 10% of Firm Units.............................. 27
6.3 Postponement of Closing Date..................................... 28
7. Additional Covenants................................................... 28
7.1 Board Designee................................................... 28
7.2 Insider Sales.................................................... 28
7.3 Press Releases................................................... 29
7.4 Form S-8 or any Similar Form..................................... 29
7.5 Compensation and Other Arrangements.............................. 29
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Page
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8. Representations and Agreements to Survive Delivery..................... 29
9. Effective Date of This Agreement and Termination Thereof............... 29
9.1 Effective Date................................................... 29
9.2 Termination...................................................... 29
9.3 Notice........................................................... 30
9.4 Expenses......................................................... 30
9.5 Indemnification.................................................. 30
10. Miscellaneous.......................................................... 30
10.1 Notices.......................................................... 30
10.2 Headings......................................................... 31
10.3 Amendment........................................................ 31
10.4 Entire Agreement................................................. 31
10.5 Binding Effect................................................... 31
10.6 Governing Law, Jurisdiction...................................... 31
10.7 Execution in Counterparts........................................ 31
10.8 Waiver, Etc...................................................... 31
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INDEX OF DEFINITIONS
--------------------
Term Section
---- -------
1% or Greater Holders....................................................2.26.1
Act...................................................................... 2.1.1
BSE........................................................................2.21
Closing Date..............................................................1.1.2
Code.....................................................................2.23.2
Commission................................................................2.1.1
Common Stock..............................................................1.1.1
Company..................................................Introductory Paragraph
Effective Date............................................................1.2.2
ERISA....................................................................2.23.2
ERISA Plans..............................................................2.23.2
Exchange Act..............................................................2.1.2
Filing Date..............................................................2.19.2
Firm Units................................................................1.1.1
Insiders.................................................................2.26.1
Intangibles................................................................2.22
NASD.....................................................................2.19.1
Nasdaq.....................................................................2.21
Option Closing Date.......................................................1.2.2
Option Securities.........................................................1.2.1
Over-allotment Option.....................................................1.2.1
Preliminary Prospectus....................................................2.1.1
Prospectus................................................................2.1.1
Public Securities.........................................................1.2.1
Registration Statement....................................................2.1.1
Regulations...............................................................2.1.1
Representative...........................................Introductory Paragraph
SAS.........................................................................4.3
Secondary Market Trading Memorandum......................................3.12.3
Securities................................................................1.3.1
Transfer Agent.............................................................3.22
Unaudited Financials........................................................4.8
Underwriters.............................................Introductory Paragraph
Underwriters' Securities..................................................1.3.1
Underwriters' Warrants....................................................1.3.1
Unit Purchase Option......................................................1.3.1
Warrant(s)................................................................1.1.1
Warrant Agreement..........................................................2.25
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PIVOT RULES, INC.
1,500,000 Units
UNDERWRITING AGREEMENT
----------------------
New York, New York
May 15, 1997
GKN Securities Corp.
61 Broadway
12th Floor
New York, New York 10006
Ladies and Gentlemen:
The undersigned, Pivot Rules, Inc., a New York corporation
("Company"), hereby confirms its agreement with GKN Securities Corp. (being
referred to herein variously as the "Representative" or "you") and the other
underwriters named on Schedule 1 hereto (the Representative and the other
underwriters being collectively called the "Underwriters" or, individually, an
"Underwriter") as follows:
1. Purchase and Sale of Securities.
1.1 Firm Units.
1.1.1 Purchase of Firm Units. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell, severally and not jointly, to the
several Underwriters 1,500,000 units ("Firm Units") for a purchase price (net
of commissions) of $4.50 per Firm Unit. Each Firm Unit consists of one share of
the Company's Common Stock, par value $.01 per share ("Common Stock") , and one
Redeemable Common Stock Purchase Warrant ("Warrant(s)"). The shares of Common
Stock and the Warrants included in the Firm Units will not be detachable or
separately transferable, and may be traded only as Units, until three months
from the date hereof or such earlier date as you may determine. Each Warrant
entitles its holder to purchase one share of Common Stock at an initial
purchase price of $5.00 per share commencing one year after the Effective Date
(as hereinafter defined) until the fifth anniversary of the Effective Date. The
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Firm Units set forth opposite their respective names on Schedule I
attached hereto and made a part hereof at a purchase price of $4.50 per Unit.
1.1.2 Payment and Delivery. Delivery and payment for the Firm Units
shall be made at 10:00 A.M., New York time, on or before the third business day
following the date that the Firm Units commence trading or at such earlier time
as the Representative shall determine, or at such other time as shall be agreed
upon by the Representative and the Company at the offices of the Representative
or at such other place as shall be agreed upon by the Representative and the
Company. The hour and date of delivery and payment for the Firm Units are
called the "Closing Date." Payment for the Firm Units shall be made on the
Closing Date at the Representative's election by wire transfer or by certified
or bank cashier's check(s) in New
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York Clearing House funds, payable to the order of the Company upon delivery to
you of certificates (in form and substance satisfactory to the Representative)
representing the Firm Units for the account of the respective accounts of the
Underwriters. The Firm Units shall be registered in such name or names and in
such authorized denominations as the Representative may request in writing at
least two full business days prior to the Closing Date. The Company will permit
the Representative to examine and package the Firm Units for delivery at least
one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Units except upon tender of payment by
the Underwriters for all the Firm Units.
1.2 Over-Allotment Option.
1.2.1 Option Units. For the purposes of covering any over-allotments
in connection with the distribution and sale of the Firm Units, the
Underwriters are hereby granted an option to purchase up to an additional
225,000 Units ("Option Units") from the Company ("Over-allotment Option"). Each
Option Unit is identical to a Firm Unit. The Firm Units and the Option Units
are, together with the shares of Common Stock issuable upon exercise of the
Warrants, hereinafter referred to collectively as the "Public Securities." The
purchase price to be paid for the Option Units will be the same price per
Option Unit as the price per Firm Unit set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted pursuant
to Section 1.2.1 hereof may be exercised by the Representative on behalf of the
Underwriters as to all or any part of the Option Units at any time, from time
to time, but not more than twice, within forty-five days after the effective
date ("Effective Date") of the Registration Statement (as hereinafter defined).
The Underwriters will not be under any obligation to purchase any Option Units
prior to the exercise of the Over-allotment Option. The Over-allotment Option
granted hereby may be exercised by the giving of oral notice to the Company
from the Representative, which must be confirmed by a letter or telecopy
setting forth the number of Option Units to be purchased, the date and time for
delivery of and payment for the Option Units and stating that the Option Units
referred to therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Firm Units. If such notice
is given at least two full business days prior to the Closing Date, the date
set forth therein for such delivery and payment will be the Closing Date. If
such notice is given thereafter, the date set forth therein for such delivery
and payment will not be earlier than five full business days after the date of
the notice, unless we mutually agree to an earlier date. If such delivery and
payment for the Option Units does not occur on the Closing Date, the date and
time of the closing for such Option Units will be as set forth in the notice
(hereinafter "Option Closing Date"). Upon exercise of the Over-allotment
Option, the Company will become obligated to convey to the Underwriters, and,
subject to the terms and conditions set forth herein, the Underwriters will
become obligated to purchase, the number of Option Units specified in such
notice.
1.2.3 Payment and Delivery. Payment for the Option Units will be at
the Representative's election by wire transfer or by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of
the Company at the offices of the Representative or at such other place as
shall be agreed upon by the Representative and the Company upon delivery to the
Representative of certificates representing such securities for the respective
accounts of the Underwriters. The certificates representing the Option Units to
be delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be, and will be made
available to the Representative for inspection, checking and packaging at
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the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to such Closing Date.
1.3 Unit Purchase Option.
1.3.1 Purchase Option. The Company hereby agrees to issue and sell to
the Underwriters (and/or their designees) on the Closing Date, for an aggregate
purchase price of $100, an option ("Unit Purchase Option") exercisable, at any
time, in whole or in part, for a period of four years commencing one year from
the Effective Date, for the purchase of an aggregate of 150,000 Units
("Underwriters' Units") at an initial exercise price of 160% of the initial
offering price of a Unit (i.e., $8.00 per Unit). The Underwriters' Units are
identical to the Firm Units. The Unit Purchase Option, the Underwriters' Units,
the Warrants underlying the Underwriters' Units ("Underwriters' Warrants"), the
shares of Common Stock issuable upon exercise of the Unit Purchase Option and
the shares of Common Stock issuable upon exercise of the Underwriters' Warrants
are hereinafter referred to collectively as the "Underwriters' Securities." The
Public Securities and the Underwriters' Securities are hereinafter referred to
collectively as the "Securities."
1.3.2 Payment and Delivery. Delivery and payment for the Unit Purchase
Option shall be made on the Closing Date. The Company shall deliver to the
Underwriters, upon payment therefor, certificates for the Unit Purchase Option
in the name or names and in such authorized denominations as the Representative
may request.
2. Representations and Warranties of the Company. The Company represents and
warrants to the Representative as follows:
2.1 Filing of Registration Statement.
2.1.1 Pursuant to the Act. The Company has filed with the Securities
and Exchange Commission ("Commission") a registration statement and an
amendment or amendments thereto, on Form SB-2 (No. 333-22895), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended ("Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act and the rules and
regulations ("Regulations") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is hereinafter called the "Registration
Statement," and the form of the final prospectus dated the Effective Date (or,
if applicable, the form of final prospectus filed with the Commission pursuant
to Rule 424 of the Regulations), is hereinafter called the "Prospectus." The
Registration Statement has been declared effective by the Commission on the
date hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with the
Commission a registration statement on Form 8-A (No. 000-22415), as amended,
providing for the registration under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), of the Units, the Common Stock and the Warrants. Such
registration of the Units, Common Stock and Warrants has been declared
effective by the Commission on the date thereof.
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2.2 No Stop Orders, Etc. Neither the Commission nor, to the best of
the Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has
instituted or, to the best of the Company's knowledge, threatened to institute
any proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
2.3.1 Securities Act and Exchange Act Representation. At the time the
Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment or supplement
thereto contained and will contain all material statements which are required
to be stated therein in accordance with the Act and the Regulations, and
conformed and will conform in all material respects to the requirements of the
Act and the Regulations; neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, during such time period and on such
dates, contained or will contain any untrue statement of a material fact or
omitted or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, nor did they or
will they contain any untrue statement of a material fact nor did they or will
they omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. When any Preliminary Prospectus was first filed with
the Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and did not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The representation and warranty made in this Section 2.3.1 does
not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to
the Underwriters by the Representative expressly for use in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
2.3.2 Disclosure of Contracts. The description in the Registration
Statement and the Prospectus of contracts and other documents is accurate in
all material respects and presents fairly the information required to be
disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement which have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and (i) which is referred to in the Prospectus,
or (ii) is material to the Company's business, has been duly and validly
executed, is in full force and effect in all material respects and is
enforceable against the Company and, to the Company's knowledge, the other
parties thereto in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, as enforceability of any indemnification provision
may be limited under the federal and state securities laws, and that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. None of such contracts or
instruments has been assigned by the Company, and neither the Company nor, to
the best of the Company's knowledge, any other party is in default thereunder
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and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder. To the best of the Company's knowledge, none of the material
provisions of such contracts or instruments violates or will result in a
violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any of its assets or businesses, including, without limitation, those
relating to environmental laws and regulations.
2.3.3 Prior Securities Transactions. No securities of the Company have
been sold by the Company or by or on behalf of, or for the benefit of, any
person or persons controlling, controlled by, or under common control with the
Company within the three years prior to the date hereof, except as disclosed in
the Registration Statement.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. Since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, business or business prospects of the Company, including, but not
limited to, a material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
whether or not arising in the ordinary course of business, and (ii) there have
been no transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the condition,
financial or otherwise, or to the results of operations, business or business
prospects of the Company.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred
any liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect
to its capital stock.
2.5 Independent Accountants. Grant Thornton LLP, whose report is filed
with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the
notes thereto and supporting schedules included in the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The pro forma
financial information set forth in the Registration Statement reflects all
significant assumptions and adjustments relating to the business and operations
of the Company.
2.7 Authorized Capital; Options; Etc. The Company had at the date or dates
indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in "Capitalization" in the Registration Statement
and the Prospectus. Based on the assumptions
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and adjustments stated in the Registration Statement and the Prospectus, the
Company will have on the Closing Date the adjusted stock capitalization set
forth in "Capitalization." Except as set forth in the Registration Statement
and the Prospectus, on the Effective Date and on the Closing Date there will be
no options, warrants, or other rights to purchase or otherwise acquire any
authorized but unissued shares of Common Stock of the Company, including any
obligations to issue any shares pursuant to anti-dilution provisions, or any
security convertible into shares of Common Stock of the Company, or any
contracts or commitments to issue or sell shares of Common Stock or any such
options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders (except to the extent that certain shareholders of the Company may be
liable for employee wages or salaries pursuant to Section 630 of the Business
Corporation Law of the State of New York ("BCL"); and none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company.
The outstanding options and warrants to purchase shares of Common Stock
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms, except (i) as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and (iii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought. The authorized
Common Stock and outstanding options and warrants to purchase shares of Common
Stock conform in all material respects to all statements relating thereto
contained in the Registration Statement and the Prospectus. The offers and
sales of the outstanding Common Stock, options and warrants to purchase shares
of Common Stock were at all relevant times either registered or qualified under
the Act and the applicable state securities or Blue Sky Laws or exempt from
such registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders (except to the
extent that certain shareholders of the Company may be liable for employee
wages or salaries pursuant to Section 630 of the BCL; the Securities are not
and will not be subject to the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company; and all
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. When issued, the Unit
Purchase Option, the Underwriters' Warrants and the Warrants will constitute
valid and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the Company
called for thereby and the Unit Purchase Option, the Underwriters' Warrants and
the Warrants will be enforceable against the Company in accordance with their
respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and (iii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
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2.9 Registration Rights of Third Parties. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any
such securities of the Company under the Act or to include any such securities
in a registration statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. This Agreement, the Unit
Purchase Option and the Warrant Agreement (as hereinafter defined) have been
duly and validly authorized by the Company, and constitute, or when executed
and delivered, will constitute, the valid and binding agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
Company of this Agreement, the Unit Purchase Option, and the Warrant Agreement,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms hereof and
thereof do not and will not, with or without the giving of notice or the lapse
of time or both, (i) result in a breach of, or conflict with any of the terms
and provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company
is subject; (ii) result in any violation of the provisions of the Certificate
of Incorporation or the By-Laws of the Company; (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business; or (iv) have any material adverse effect on
any permit, license, certificate, registration, approval, consent, license or
franchise necessary for the Company to own or lease and operate any of its
properties or to conduct its business.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the properties or assets of the Company is subject, except
where such default, singly or in the aggregate, would not have a material
adverse effect on the financial position, prospects, value or the operation of
the properties or the business of the Company, taken as a whole. The Company is
not in violation of any term or provision of its Certificate of Incorporation
or By-Laws or in violation of any franchise, license, permit, applicable law,
rule, regulation, judgment or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, except as described in the Prospectus and except where
such violation, singly or in the aggregate, would not have a material adverse
effect on the financial position, prospects, value or the operation of the
properties or the business of the Company, taken as a whole.
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2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all requisite corporate
power and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own or lease its properties and conduct its business as
described in the Prospectus, except for those which, if not obtained, would
not, singly or in the aggregate, have a material adverse effect on the Company.
The Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local rules and regulations, except where non-compliance
would not, singly or in the aggregate, have a material adverse effect on the
Company. The disclosures in the Registration Statement concerning the effects
of federal, state and local regulation on the Company's business as currently
contemplated are correct in all material respects.
2.13.2 Transactions Contemplated Herein. The Company has all corporate
power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery, of the
Securities pursuant to this Agreement, the Warrant Agreement and the Unit
Purchase Option, and as contemplated by the Prospectus, except with respect to
applicable federal and state securities laws.
2.14 Title to Property; Insurance. The Company has good and defensible
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable or arising by law.
The Company has insured its properties against loss or damage by fire or other
casualty and maintains such insurance in adequate amounts.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the best of
the Company's knowledge, threatened against, or involving the properties or
business of, the Company which might materially and adversely affect the
financial position, prospects, value or the operation of the properties or the
business of the Company, or which questions the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal, domestic or foreign, naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, its properties or business is bound or subject.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of the state
of its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have
a material adverse effect on its properties or business.
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2.17 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. The Company has paid
all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company. The
provisions for taxes payable, if any, shown on the financial statements filed
with or as part of the Registration Statement are sufficient for all accrued
and unpaid taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Representative, (i) no issues have been raised (and are
currently pending) by any taxing authority in connection with any of the
returns or taxes asserted as due from the Company, and (ii) no waivers of
statutes of limitation with respect to the returns or collection of taxes have
been given by or requested from the Company. The term "taxes" mean all federal,
state, local, foreign, and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments, or charges of any kind whatever, together with any
interest and any penalties, additions to tax, or additional amounts with
respect thereto. The term "returns" means all returns, declarations, reports,
statements, and other documents required to be filed in respect to taxes.
2.18 Employees' Options. No shares of Common Stock are eligible for sale
pursuant to Rule 701 promulgated under the Act.
2.19 Transactions Affecting Disclosure to NASD.
2.19.1 Finder's Fees. There are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's,
consulting or origination fee with respect to the introduction of the Company
to the Underwriters or the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
2.19.2 Payments Within Twelve Months. Other than payments to the
Representative, the Company has not made any direct or indirect payments (in
cash, securities or otherwise) to (i) any person, as a finder's fee, investing
fee or otherwise, in consideration of such person raising capital for the
Company or introducing to the Company persons who provided capital to the
Company, (ii) to any NASD member, or (iii) to any person or entity that has any
direct or indirect affiliation or association with any NASD member within the
twelve month period prior to the date on which the Registration Statement was
filed with the Commission ("Filing Date") or thereafter.
2.19.3 Use of Proceeds. None of the net proceeds of the offering will
be paid by the Company to any participating NASD member or any affiliate or
associate of any NASD member, except as specifically authorized herein.
2.19.4 Insiders' NASD Affiliation. No officer or director of the
Company or, to the Company's knowledge, owner of any of the Company's
unregistered securities has any direct or indirect affiliation or association
with any NASD member, other than Carole Hoffman and Jon Meltzer. The Company
will advise the Representative and the NASD if any stockholder of the Company
becomes, directly or indirectly, an affiliate or associated person of an NASD
member participating in the offering.
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2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
officers, directors, employees or agents or any other person acting on behalf
of the Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
it in connection with any actual or proposed transaction) which (i) is likely
to subject the Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, might
have had a materially adverse effect on the assets, business or operations of
the Company as reflected in any of the financial statements contained in the
Prospectus or (iii) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company. The internal
accounting controls and procedures of the Company are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Nasdaq and The Boston Stock Exchange Eligibility. As of the Effective
Date, the Public Securities have been approved for designation upon notice of
issuance on the Nasdaq SmallCap Market ("Nasdaq") and for listing on the Boston
Stock Exchange ("BSE").
2.22 Intangibles. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights (collectively,
"Intangibles") described as being licensed to or owned by it in the
Registration Statement. The Company's Intangibles which have been registered in
the United States Patent and Trademark Office have been fully maintained and
are in full force and effect. There is no claim or action by any person
pertaining to, or proceeding pending or, to the best of the Company's
knowledge, threatened and the Company has not received any notice of conflict
with, the asserted rights of others which challenges the exclusive right of the
Company with respect to any Intangibles used in the conduct of the Company's
business except as described in the Prospectus. To the best of the Company's
knowledge, the Intangibles and the Company's current products, services and
processes do not infringe on any Intangibles held by any third party. Except
for alleged violations and pending claims set forth on Schedule 2.22, to the
best of the Company's knowledge, no others have infringed upon the Intangibles
of the Company.
2.23 Relations With Employees.
2.23.1 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the best of the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state and local laws and regulations. There is no unfair labor practice charge
or complaint against the Company pending before the National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or, to the best of the Company's knowledge, threatened against or involving the
Company or any predecessor entity, and none has ever occurred. To the best of
the Company's knowledge, no question con cerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
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grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement and on Schedule 2.23.2, the Company neither maintains,
sponsors nor contributes to, nor is it required to contribute to, any program
or arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute to, and has at no time maintained or contributed to, a
defined benefit plan, as defined in Section 3(35) of ERISA. If the Company does
maintain or contribute to a defined benefit plan, any termination of the plan
on the date hereof would not give rise to liability under Title IV of ERISA. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended ("Code"), which could subject the
Company to any tax penalty for prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multi-employer plan."
2.24 Officers' Certificate. Any certificate signed by the President or the
Chief Financial Officer of the Company and delivered to the Representative or
its counsel shall be deemed a representation and warranty by the Company to the
Representative as to the matters covered thereby.
2.25 Warrant Agreement. The Company has entered into a warrant agreement
with respect to the Warrants and the Underwriters' Warrants substantially in
the form filed as an exhibit to the Registration Statement ("Warrant
Agreement") with American Stock Transfer & Trust Company, in form and substance
satisfactory to the Representative, providing for, among other things, (i) no
redemption of the Warrants without the consent of the Representative and (ii)
the payment of a warrant solicitation fee as contemplated by Section 3.10.1
hereof.
2.26 Agreements With Insiders.
2.26.1 Lock-Up Agreements. The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which all of the
officers and directors of the Company and all holders ("1% or Greater Holders")
of at least one percent (1%) of the outstanding Common Stock of the Company or
warrants or options to purchase, or other securities convertible into, one
percent (1%) or more of the outstanding Common Stock (including family members
who reside in the same household as such persons and affiliates of such
persons) or any option holder who would have the ability to sell the shares
underlying his options under Rule 701 under the Act ("Insiders") agree not to
sell any shares of Common Stock or warrants or options to purchase, or other
securities convertible into Common Stock, owned by them (either pursuant to
Rule 144 of the Regulations or otherwise) for a period of 24 months following
the Effective Date except with the prior consent of the Representative (and, if
required by applicable state blue sky laws, the securities commissions in any
such states); provided, however, that, with respect to any person who is a 1%
or Greater Holder (who holds no other position with the Company and who does
not reside in the same household as any other Insider), such agreement shall
continue for only 18 months following the Effective Date.
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2.26.2 Insider Sales. The Company has caused to be executed legally
binding and enforceable agreements pursuant to which each of its Insiders has
granted to the Representative the rights described in Section 7.2 of this
Agreement.
2.27 Subsidiaries. The Company has no subsidiaries and has no interest in,
shares of capital stock of or right to acquire an interest in or shares of
capital stock of, any other corporation, limited liability company, partnership
or other entity.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver to the
Representative, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Representative
shall reasonably object.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus is required to be
delivered under the Act, the Company will use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus. If at any time when a Prospectus relating to the Securities is
required to be delivered under the Act any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Representative, the Prospectus, as then amended or supplemented, includes an
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, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will file the Prospectus
(in form and substance satisfactory to the Representative) with the Commission
pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years from the
Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and Warrants under the provisions of Section
12 of the Exchange Act.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided 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. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may be
required by the laws of such jurisdiction.
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3.4 Delivery to the Underwriters of Prospectuses. The Company will deliver
to each of the several Underwriters, without charge, from time to time during
the period when the Prospectus is required to be delivered under the Act or the
Exchange Act, such number of copies of each Preliminary Prospectus and the
Prospectus as such Underwriter may reasonably request and, as soon as the
Registration Statement or any amendment or supplement thereto becomes
effective, deliver to you two original executed Registration Statements,
including exhibits, and all post-effective amendments thereto and copies of all
exhibits filed therewith or incorporated therein by reference and all original
executed consents of certified experts.
3.5 Events Requiring Notice to the Representative. The Company will notify
the Representative immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Securities for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose, (iv) of
the mailing and delivery to the Commission for filing of any amendment or
supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof which, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from the
Effective Date, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to participate in the preparation and
presentation (but not audit) of 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 Form 10-QSB quarterly
reports and the mailing of quarterly financial information to stockholders.
3.7 Reserved.
3.8 Secondary Market Trading and Standard & Poor's. The Company will take
all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within thirty
(30) days after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market trading exemption in such states as may be requested
by the Underwriter, including the payment of any necessary fees and expenses
and the filing of a Form (e.g. 25101(b)) for secondary market trading in the
State of California on the Effective Date or as soon thereafter as is
permissible.
3.9 Nasdaq and BSE Maintenance; De-listing of Units. For a period of five
years from the date hereof, the Company will use its best efforts to maintain
the quotation on Nasdaq and the listing on the BSE of the Units, Common Stock
and Warrants and, if the Company satisfies the inclusion standards of the
Nasdaq National Market System, apply for and maintain quotations on the Nasdaq
National Market System of such securities during such period. Upon request by
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the Underwriter, the Company agrees to take immediately all actions necessary
to de-list the Units from Nasdaq and/or the BSE, provided that at such time the
Common Stock and Warrants are permitted to trade separately.
3.10 Warrant Solicitation and Registration of Common Stock Underlying the
Warrants.
3.10.1 Warrant Solicitation and Representative Warrant Solicitation
Fees. The Company hereby engages the Representative, on a non-exclusive basis,
as its agent for the solicitation of the exercise of the Warrants. The Company,
at its cost, will (i) assist the Representative with respect to such
solicitation, if requested by the Representative and will (ii) provide to the
Representative, and direct the Company's transfer and warrant agent to provide
to the Representative, lists of the record and, to the extent known, beneficial
owners of the Company's Warrants. Commencing one year from the Effective Date,
the Company will pay to the Representative a commission of five percent of the
Warrant exercise price for each Warrant exercised, payable on the date of such
exercise, on the terms provided for in the Warrant Agreement, if allowed under
the rules and regulations of the NASD and only if the Representative has
provided bona fide services to the Company in connection with the exercise of
Warrants and has received written confirmation from the holder that the
Representative has solicited such exercise. In addition to soliciting, either
orally or in writing, the exercise of Warrants, such services may also include
disseminating information, either orally or in writing, to Warrantholders about
the Company or the market for the Company's securities, and the assisting in
the processing of the exercise of Warrants. The Representative may engage
sub-agents who are members of the NASD in its solicitation efforts, provided,
however, nothing herein shall obligate the Company to make any payment to any
such sub-agent. The Company will disclose the arrangement to pay such
solicitation fees to the Representative in any prospectus used by the Company
in connection with the registration of the shares of Common Stock underlying
the Warrants. The Company shall not be obligated to reimburse the
Representative for any of its expenses incurred in connection with such
solicitation.
3.10.2 Registration of Common Stock. The Company agrees that prior to
the date that the Warrants become exercisable, it shall file with the
Commission a post-effective amendment to the Registration Statement, if
possible, or a new registration statement, to register, under the Act, and it
shall take such action as is necessary to qualify for sale, in those states in
which the Warrants were initially offered by the Company, the Common Stock
issuable upon exercise of the Warrants. In either case, the Company shall cause
the same to become effective at or prior to the date that the Warrants become
exercisable, and maintain the effectiveness of such registration statement and
keep current a prospectus thereunder and maintain such qualification until the
expiration of the Warrants in accordance with the provisions of the Warrant
Agreement. The provisions of this Section 3.10.2 may not be modified, amended
or deleted without the prior written consent of the Representative.
3.11 Reserved.
3.12 Reports to the Representative and Others.
3.12.1 Periodic Reports, Etc. For a period of five years from the
Effective Date, the Company will promptly furnish to the Representative, and to
each other Underwriter who may so request, copies of such financial statements
and other periodic and special reports as the Company from time to time files
with any governmental authority or furnishes generally to holders of any class
of its securities, and promptly furnish to the Representative (i) a copy of
each periodic report the Company shall be required to file with the Commission,
(ii) a copy of every
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press release with respect to the Company or its affairs which was released by
the Company, (iii) copies of each Form SR, or (iv) a copy of each Form 8-K or
Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company.
3.12.2 Transfer Sheets and Weekly Position Listings. For a period of
five years from the Closing Date, the Company will furnish to the
Representative at the Company's sole expense such transfer sheets and position
listings of the Company's securities as the Representative may reasonably
request, including the daily, weekly and monthly consolidated transfer sheets
of the transfer agent of the Company and the weekly position listings of the
Depository Trust Company.
3.12.3 Secondary Market Trading Memorandum. Until such time as the
Securities are listed or quoted, as the case may be, on one of the following:
the New York Stock Exchange, the American Stock Exchange or Nasdaq National
Market, the Company shall engage the Representative's legal counsel to deliver
to the Representative a written opinion detailing those states in which
Securities may be traded in non-issuer transactions under the Blue Sky laws of
the fifty states ("Secondary Market Trading Memorandum") and to update such
memorandum and deliver same to the Representative on a timely basis, but in any
event on the Effective Date, and on the first day of every calendar quarter
thereafter. The Company shall pay to the Representative's legal counsel a
one-time fee of $5,000 for such services at the Closing.
3.13 Unit Purchase Option. On the Closing Date, the Company will execute
and deliver the Unit Purchase Option to the Representative substantially in the
form filed as an exhibit to the Registration Statement.
3.14 Disqualification of Form SB-2. For a period equal to five years from
the date hereof, the Company will not take any action or actions which may
prevent or disqualify the Company's use of Form SB-2 (or other appropriate
form) for the registration of the Warrants and the Unit Purchase Option and the
securities issuable upon exercise of those securities under the Act.
3.15 Payment of Expenses.
3.15.1 General Expenses. The Company hereby agrees to pay on each of
the Closing Date and, to the extent not paid at Closing Date, the Option
Closing Date, if any, all expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
(i) the preparation, printing, filing, delivery and mailing (including the
payment of postage with respect to such mailing) of the Registration Statement,
the Prospectus and the Preliminary Prospectuses and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and any amendments thereof or supplements thereto supplied to the Underwriters
in quantities as may be reasonably required by the Underwriters, (ii) the
printing, engraving, issuance and delivery of the Units, the shares of Common
Stock and the Warrants included in the Units and the Unit Purchase Option,
including any transfer or other taxes payable thereon, (iii) the qualification
of the Securities under state or foreign securities or Blue Sky laws, including
the filing fees under such Blue Sky laws, the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," and all amendments and supplements thereto,
fees up to an aggregate of $35,000 and disbursements of the Representative's
counsel, and a one-time fee of $5,000 payable to the Representative's counsel
for the preparation of the Secondary Market Trading Memorandum, (iv) costs
associated with applications for assignments of a rating of the Securities by
qualified rating agencies, (v) filing fees, costs and expenses (including fees
up to an aggregate of $5,000 and disbursements for
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the Representative's counsel) incurred in registering the offering with the
NASD, (vi) costs up to an aggregate of $30,000 of placing "tombstone"
advertisements in The Wall Street Journal, The New York Times and a third
publication to be mutually selected by the Representative and the Company,
(vii) fees and disbursements of the transfer and warrant agent, (viii) the
Company's expenses associated with "due diligence" meetings arranged by the
Representative; (ix) the preparation, binding and delivery of transaction
"bibles" in quantity, form and style reasonably satisfactory to the
Representative and transaction lucite cubes or similar commemorative items in a
style and quantity as reasonably requested by the Representative, (x) any
listing of the Securities on Nasdaq SmallCap, and any securities exchange or
any listing in Standard & Poor's, (xi) fees and disbursements of any counsel
engaged to review the Company's intellectual property rights, and (xii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section
3.15.1. Since an important part of the public offering process is for the
Company to describe appropriately and accurately the background of the
principals of the Company, the Company has engaged and will pay for an
investigative search firm of the Representative's choice to conduct an
investigation of principals of the Company mutually selected by the
Representative and the Company. The Representative may deduct from the net
proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein to be paid by the
Company to the Representative and/or to third parties.
3.15.2 Non-Accountable Expenses. The Company further agrees that, in
addition to the expenses payable pursuant to Section 3.15.1, it will pay to the
Representative a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Securities,
of which $50,000 has been paid to date, and the Company will pay the balance on
the Closing Date and any additional monies owed attributable to the Option
Securities or otherwise on the Option Closing Date by certified or bank
cashier's check or, at the election of the Representative, by deduction from
the proceeds of the offering contemplated herein. If the offering contemplated
by this Agreement is not consummated for any reason whatsoever other than a
breach by the Representative of this Agreement, then the following provisions
shall apply: The Company's liability for payment to the Representative of the
non-accountable expense allowance shall be equal to the sum of the
Representative's actual out-of-pocket expenses (including, but not limited to,
counsel fees, "road-show" and due diligence expenses. The Representative shall
retain such part of the non-accountable expense allowance previously paid as
shall equal such actual out-of-pocket expenses. If the amount previously paid
is insufficient to cover such actual out-of-pocket expenses, the Company shall
remain liable for and promptly pay any other actual out-of-pocket expenses. If
the amount previously paid exceeds the amount of actual out-of-pocket expenses,
the Representative shall promptly remit to the Company any such excess.
3.16 Application of Net Proceeds. The Company will apply the net proceeds
from the offering received by it in a manner consistent in all material
respects with the application described under the caption "USE OF PROCEEDS" in
the Prospectus. The Company hereby agrees that, except as so described, the
Company will not apply any net proceeds from the offering to pay (i) any debt
for borrowed funds, or (ii) any debt or obligation owed to any Insider.
3.17 Delivery of Earnings Statements to Security Holders. The Company will
make generally available to its security holders as soon as practicable, but
not later than the first day of the fifteenth full calendar month following the
Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under
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Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
3.18 Key Person Life Insurance. The Company will maintain key person life
insurance in an amount not less than $1,200,000 on the life of E. Kenneth Seiff
and pay the annual premiums therefor naming the Company as the sole beneficiary
thereof for at least three years following the Effective Date.
3.19 Stabilization. Neither the Company, nor, to its knowledge, any of its
employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
3.20 Internal Controls. The Company maintains and will continue to maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.21 Accountants and Lawyers. For a period of five years from the Effective
Date, the Company shall retain independent public accountants and securities
lawyers acceptable to the Representative. Accountants Grant Thornton LLP, and
lawyers Shereff, Friedman, Hoffman & Goodman, LLP, are acceptable to the
Representative.
3.22 Transfer Agent. For a period ending at the earlier of (i) the five
year anniversary of the Effective Date or (ii) the redemption of the Warrants,
the Company shall retain a transfer agent for the Common Stock and Warrants
acceptable to the Representative. American Stock Transfer & Trust Company
("Transfer Agent") is acceptable to the Representative.
3.23 Sale of Securities. The Company agrees not to permit or cause a
private or public sale or private or public offering (except for such private
transfers as are permitted under the terms of the lockup agreements executed by
the Insiders prior to the date hereof) of any of its securities (in any manner,
including pursuant to Rule 144 under the Act) owned nominally or beneficially
by the Insiders for a period of 24 months following the Effective Date without
obtaining the prior written approval of the Underwriter; provided, however,
that with respect to any person who is a 1% or Greater Holder (who holds no
other position with the Company and who does not reside in the same household
as any other Insider), the Company shall refuse to permit or cause any such
sale or offering for only 18 months following the Effective Date.
3.24 Exercise Price of Options. For a period of three years after the
Effective Date, the Company will not grant any option pursuant to the Company's
1997 Stock Option Plan at an exercise price less than the greater of $5.00 per
share or the fair market value of the Common Stock on the date of the grant.
4. Conditions of the Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy of the representations and warranties of
the Company as of the date hereof and as of
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each of the Closing Date and the Option Closing Date, if any, to the accuracy
of the statements of officers of the Company made pursuant to the provisions
hereof and to the performance by the Company of its obligations hereunder and
to the following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement. The Registration
Statement has been declared effective on the date of this Agreement and, at
each of the Closing Date and the Option Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for such purpose shall have been instituted or shall be pending or,
to the best knowledge of the Company, contemplated by the Commission and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Graubard Mollen & Miller,
counsel to the Representative.
4.1.2 NASD Clearance. By the Effective Date, the Representative shall
have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration
Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of the
Securities in any jurisdiction designated by the Representative pursuant to
Section 3.3 hereof shall have been issued on either on the Closing Date or the
Option Closing Date, and no proceedings for that purpose shall have been
instituted or, to the best knowledge of the Company, shall be contemplated.
4.2 Company Counsel Matters.
4.2.1 Effective Date Opinion of Counsel. On the Effective Date, the
Representative shall have received the favorable opinion of Shereff, Friedman,
Hoffman & Goodman, LLP, counsel to the Company, dated the Effective Date,
addressed to the Representative and in form and substance satisfactory to
Graubard Mollen & Miller, counsel to the Representative, to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of the State of New
York and in good standing in each jurisdiction in which it owns or leases any
real property or the character of its operations requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business of the Company.
(ii) The Company has all requisite corporate power and
authority, and, to the best of such counsel's knowledge, has all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental or regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Prospectus, and, to the
best of such counsel's knowledge, the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates and permits, except where the failure to obtain or to comply would
not have a material adverse effect on the Company. The Company has all
corporate power and authority to enter into this Agreement, the Warrant
Agreement and the Unit Purchase Option and to carry out the provisions and
conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained, except where the failure
to obtain such consents, authorizations, approvals and orders would not have a
material adverse effect on the Company. No consents, approvals, authorizations
or orders of, and no filing with, any court or governmental agency or body
(other
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than such as may be required under the Act and applicable Blue Sky laws), is
required for the valid offer, authorization, issuance, sale and delivery of the
Securities, and the consummation of the transactions and agreements
contemplated by this Agreement, the Warrant Agreement and the Unit Purchase
Option, and as contemplated by the Prospectus or if so required, all such
authorizations, approvals, consents, orders, registrations, licenses and
permits have been duly obtained and are in full force and effect and have been
disclosed to the Representative.
(iii) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof are not subject to personal liability by reason of being
such holders (except to the extent that certain shareholders of the Company may
be liable for employee wages or salaries pursuant to Section 630 of the BCL);
and none of such securities were issued in violation of statutory preemptive
rights of any holders of any security of the Company or, to the best of such
counsel's knowledge, similar contractual rights granted by the Company. The
outstanding options and warrants to purchase shares of Common Stock known to
such counsel to be outstanding constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The authorized and, to such counsel's
knowledge, outstanding capital stock of the Company is as set forth under the
caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when issued
and paid for, will be validly issued, fully paid and non-assessable; the
holders thereof are not and will not be subject to personal liability by reason
of being such holders (except to the extent that certain shareholders of the
Company may be liable for employee wages or salaries pursuant to Section 630 of
the BCL). The Securities are not and will not be subject to the statutory
preemptive rights of any holders of any security of the Company or, to the best
of such counsel's knowledge, similar contractual rights granted by the Company.
All corporate action required to be taken for the authorization, issuance and
sale of the Securities has been duly and validly taken. When issued, the Unit
Purchase Option, the Underwriters' Warrants and the Warrants will constitute
valid and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor as provided therein, the number and type of
securities of the Company called for thereby and such Warrants, the Unit
Purchase Option, and the Underwriters' Warrants, when issued, in each case,
will be enforceable against the Company in accordance with their respective
terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provisions may be limited under the federal and state securities laws and
public policy, and (c) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought. The forms of certificates representing the Securities are in due and
proper form under New York corporate law.
(v) To the best of such counsel's knowledge, except as set forth
in the Prospectus, no holders of any securities of the Company or of any
options, warrants or securities of the Company exercisable for or convertible
or exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company.
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(vi) To the best of such counsel's knowledge, the Units, the
shares of Common Stock and the Warrants are eligible for quotation on the
Nasdaq SmallCap Market and have been approved for quotation on the BSE.
(vii) This Agreement has been duly and validly authorized and,
assuming the due and valid authorization, execution and delivery of such
agreement by the Representative, will constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provisions may be limited under the federal and state securities laws and
public policy, and (c) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought.
(viii) The execution, delivery and performance by the Company of
this Agreement, the Unit Purchase Option and the Warrant Agreement, the
issuance and sale of the Securities, the consummation of the transactions
contemplated hereby and thereby and the compliance by the Company with the
terms and provisions hereof and thereof, do not and will not, with or without
the giving of notice or the lapse of time, or both, (a) conflict with, or
result in a breach of, any of the terms or provisions of, or constitute a
default under, or result in the creation or modification of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to the terms of, any material mortgage, deed of trust, note,
indenture, loan, contract, commitment or other material agreement or instrument
to which the Company is a party or by which the Company or any of its
properties or assets is bound, except for such breaches, defaults, liens,
security interests, charges or encumbrances as would not have a material
adverse effect on the Company, (b) result in any violation of the provisions of
the Certificate of Incorporation or the By-Laws of the Company, (c) violate any
judgment, order or decree of which such counsel has knowledge, statute, rule or
regulation applicable to the Company of any court, domestic or foreign, or of
any federal, state or other regulatory authority or other governmental body
having jurisdiction over the Company, its properties or assets except where
such violation would not have a material adverse effect on the Company, or (d)
have a material adverse effect on any permit, certification, registration,
approval, consent, license or franchise of the Company.
(ix) The Registration Statement, each Preliminary Prospectus and
the Prospectus and any post-effective amendments or supplements thereto (other
than the financial statements and other financial data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and Regulations. The Securities and all other
securities issued or issuable by the Company conform in all material respects
to the description thereof contained in the Registration Statement and the
Prospectus. The statements in the Prospectus under "Risk Factors," "Business,"
"Management," "Certain Transactions," "Principal Shareholders," "Description of
Securities" and "Shares Eligible for Future Sale" have been reviewed by such
counsel, and insofar as they contain descriptions of law, statutes, licenses,
rules or regulations are correct in all material respects. No statute or
regulation or legal or governmental proceeding required to be described in the
Prospectus is not described as required, nor are any contracts or documents of
which such counsel has knowledge of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement not so described or filed as required.
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(x) The Registration Statement is effective under the Act, and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act or applicable state securities laws.
(xi) Except as described in the Prospectus, to the best of such
counsel's knowledge, no default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, commitment, or any
other material agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of its properties or assets is
subject, except such defaults which, singly or in the aggregate, would not have
a material adverse effect on the Company. The Company is not in violation of
any term or provision of its Certificate of Incorporation or, to the best of
such counsel's knowledge, its By-Laws. To the best of such counsel's knowledge,
the Company is not in violation of any judgment, order or decree of which such
counsel has knowledge, franchise, license, permit, law, rule or regulation
applicable to the Company, of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business, except where such violations, singly or in the aggregate, would not
have a material adverse effect on the Company.
(xii) To the best of such counsel's knowledge, except as
described in the Prospectus, the Company does not own an interest in any
corporation, partnership, joint venture, trust or other business entity.
(xiii) To the best of such counsel's knowledge, except as set
forth in the Prospectus, there is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending or
threatened against the Company, which would reasonably be expected to have a
material adverse effect on the business, properties or financial condition of
the Company.
(xiv) The Company is not, and upon consummation of the
transactions contemplated by this Agreement will not be, an "investment
company" within the meaning of Section 3 of the Investment Company Act of 1940,
as amended.
Counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriters at which
the contents of the Registration Statement, the Prospectus and related matters
were discussed and although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus (except as
otherwise set forth in counsel's opinion), subject to the qualification that as
to determination of materiality of any factual matters, such counsel may rely,
where such counsel concludes that such reliance is justifiable, on the views of
the Chief Executive Officer of the Company, no facts have come to the attention
of such counsel which lead them to believe that either the Registration
Statement or the Prospectus or any amendment or supplement thereto contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and other financial and statistical data contained in or
omitted from the Registration Statement or Prospectus).
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The opinion of counsel for the Company and any opinion relied upon by
such counsel for the Company shall include a statement to the effect that it
may be relied upon by counsel for the Representative in its opinion delivered
to the Representative.
4.2.2 Opinions of Intellectual Property Counsel. On the Effective
Date, the Representative also shall have received the opinions of Alston & Bird
LLP, intellectual property counsel to the Company for trademark matters, and
Lerner, David, Littenberg, Krumholz & Mentlik, intellectual property counsel to
the Company for patent matters, addressed to the Representative and in the
forms attached hereto as Exhibits A and B, respectively.
4.2.3 Closing Date and Option Closing Date Opinions of Counsel. On
each of the Closing Date and the Option Closing Date, if any, the
Representative shall have received the favorable opinions of Shereff, Friedman,
Hoffman & Goodman, LLP, counsel to the Company, Alston & Bird LLP, intellectual
property counsel to the Company for trademark matters, and Lerner, David,
Littenberg, Krumholz & Mentlik, intellectual property counsel to the Company
for patent matters, dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Representative and in form and substance
satisfactory to Graubard Mollen & Miller, counsel to the Representative,
confirming as of the Closing Date and, if applicable, the Option Closing Date,
the statements made by Shereff, Friedman, Hoffman & Goodman, LLP, Alston & Bird
LLP and Lerner, David, Littenberg, Krumholz & Mentlik in their respective
opinions delivered on the Effective Date.
4.2.4 Reliance. In rendering such opinions, such counsel may rely (i)
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinions, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Representative's counsel) of other counsel reasonably acceptable to
Representative's counsel, familiar with the applicable laws, and (ii) as to
matters of fact, to the extent they deem proper, on certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Representative's counsel if requested. Any opinion relied upon by
counsel for the Company shall include a statement to the effect that it may be
relied upon by counsel for the Representative in its opinion delivered to the
Representative.
4.2.5 Secondary Market Trading Memorandum. On the Effective Date the
Representative shall have received the written Secondary Market Trading
Memorandum.
4.3 Cold Comfort Letter. At the time this Agreement is executed, and at
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Representative and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Graubard
Mollen & Miller, counsel for the Representative, from Grant Thornton LLP,
dated, respectively, as of the date of this Agreement and as of the Closing
Date and the Option Closing Date, if any:
(i) confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
Regulations;
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(ii) stating that in their opinion the financial statements of
the Company included in the Registration Statement and Prospectus comply as to
form in all material respects with the applicable accounting requirements of
the Act and the published Regulations thereunder;
(iii) stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a
review of the latest available unaudited interim financial statements of the
Company (as described in Statement on Auditing Standards ("SAS") No. 71 --
"Interim Financial Information"), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with 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
which would lead them to believe that (a) the unaudited financial statements of
the Company included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the Act
and the Regulations or any material modification should be made to the
unaudited interim financial statements included in the Registration Statement
for them to be in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, (b) at a date
not later than five days prior to the Effective Date, Closing Date or Option
Closing Date, as the case may be, there was any change in the capital stock or
long-term debt of the Company, or any decrease in the shareholders' equity of
the Company as compared with amounts shown in the December 31, 1996 balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any decrease,
setting forth the amount of such decrease, and (c) during the period from
December 31, 1996 to a specified date not later than five days prior to the
Effective Date, Closing Date or Option Closing Date, as the case may be, there
was any decrease in revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period in the preceding
year and as compared with the corresponding period in the preceding quarter,
other than as set forth in or contemplated by the Registration Statement, or,
if there was any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, and work
sheets, of the Company 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;
(v) statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the President and the Chief Financial
Officer of the Company, dated the Closing Date or the Option Closing Date, as
the case may be, respectively, to the effect that the Company has performed all
covenants and complied with all conditions required by this Agreement to be
performed or
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complied with by the Company prior to and as of the Closing Date, or the Option
Closing Date, as the case may be, and that the conditions set forth in Section
4.5 hereof have been satisfied as of such date and that, as of Closing Date and
the Option Closing Date, as the case may be, the representations and warranties
of the Company set forth in Section 2 hereof are true and correct. In addition,
the Representative will have received such other and further certificates of
officers of the Company as the Representative may reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation, as amended, of the
Company are true and complete, have not been modified and are in full force and
effect, (ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been modified,
(iii) all correspondence between the Company or its counsel and the Commission,
(iv) all correspondence between the Company or its counsel and the NASD
concerning inclusion of the Securities on Nasdaq, (v) all correspondence
between the Company or its counsel and the BSE concerning listing on the BSE,
and (vi) as to the incumbency of the officers of the Company. The documents
referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and the
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company, taken as a whole, (iii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a material adverse effect on the Company,
(iv) no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus,
(v) no action suit or proceeding, at law or in equity, shall have been pending
or threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations
and conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto 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, in light of the circumstances under
which they were made, not misleading.
4.6 Delivery of Unit Purchase Option. The Company has delivered to the
Representative an executed copy of the Unit Purchase Option.
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4.7 Opinion of Counsel for the Representative. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Graubard Mollen & Miller, counsel to the Representative, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel to the Representative
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
4.8 Unaudited Financials. The Company has furnished to the Representative a
copy of the latest available unaudited interim financial statements for the
quarter ended March 31, 1997 ("Unaudited Financials") of the Company which have
been read by the Company's independent accountants, as stated in their letter
dated as of the Closing Date to be furnished pursuant to Section 4.3 hereof.
5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1 General. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each of the Underwriters, their
respective directors, officers, agents and employees and each person, if any,
who controls any such Underwriter ("controlling person") 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 (including but not
limited to any and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, whether arising out of any action between any of the Underwriters
and the Company or between any of the Underwriters and any third-party or
otherwise) to which they or any of them may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact directly relating to the
transactions effected by the Underwriters in connection with this offering
contained in (i) any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time each may be amended and supplemented); (ii) in
any post-effective amendment or amendments or any new registration statement
and prospectus in which are included securities of the Company issued or
issuable upon exercise of the Unit Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to an Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof,
or in any application, as the case may be; provided, further, that the
indemnification hereunder shall not be applicable to any Preliminary Prospectus
if the untrue statement or alleged untrue statement was contained in a
Preliminary Prospectus and was
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corrected in the Prospectus. The Company agrees promptly to notify the
Representative of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the
Registration Statement or Prospectus.
5.1.2 Procedure. If any action is brought against an Underwriter or
controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and fees of counsel
(subject to the approval of such Underwriter) and payment of actual expenses.
Underwriter or controlling person 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 Underwriter or such controlling person unless (i) the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action, or (ii) the Company shall not
have employed counsel to have charge of the defense of such action, or (iii)
such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or additional
to those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys selected by the Underwriter and/or controlling
person shall be borne by the Company. Notwithstanding anything to the contrary
contained herein, if an Underwriter or controlling person shall assume the
defense of such action as provided above, the Company shall have the right to
approve the terms of any settlement of such action which approval shall not be
unreasonably withheld.
5.2 Indemnification of the Company. Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage and expense described in the foregoing indemnity
from the Company to the several Underwriters, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions by the Underwriters made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any application in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to such Underwriter by or on
behalf of such Underwriter expressly for use in such Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement thereto
or in any such application. In case any action shall be brought against the
Company or any other person so indemnified based on any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement thereto
or any application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter 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 several Underwriters by the provisions of
Section 5.1.2.
5.3 Contribution.
5.3.1 Contribution Rights. In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 5 makes claim for indemnification pursuant
hereto but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 5
provides for indemnification in such case, or (ii) contribution under the Act,
the Exchange Act or otherwise may be required on the part of any
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such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses
of the nature contemplated by said indemnity agreement incurred by the Company
and the Underwriters, as incurred, in such proportions that the Underwriters
are responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears to
the initial offering price appearing thereon and the Company is responsible for
the balance; provided, that, 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 was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 5.3, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each director, officer and employee of an Underwriter, and each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act, shall have the same rights to contribution as such Underwriter, and
each director, officer and employee of the Company, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act, shall
have the same rights to contribution as the Company.
5.3.2 Contribution Procedure. Within fifteen days after receipt by any
party to this Agreement (or its representative) of notice of the commencement
of any action, suit or proceeding, such party will, if a claim for contribution
in respect thereof is to be made against another party ("contributing party"),
notify the contributing party of the commencement thereof, but the omission to
so notify the contributing party will not relieve it from any liability which
it may have to any other party other than for contribution hereunder. In case
any such action, suit or proceeding is brought against any party, and such
party notifies a contributing party or its representative of the commencement
thereof within the aforesaid fifteen days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution on
account of any settlement of any claim, action or proceeding which was effected
by the party seeking contribution without the written consent of the
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to
contribution under the Act, the Exchange Act or otherwise available.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Units. If any Underwriter or
Underwriters shall default in its or their obligations to purchase the Firm
Units or the Option Units if exercised, hereunder, and if the number of the
Firm Units with respect to which such default relates does not exceed in the
aggregate 10% of the number of Firm Units or Option Units which all
Underwriters have agreed to purchase hereunder, then such Firm Units or Option
Units to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Units. In the event that such default
relates to more than 10% of the Firm Units or Option Units, you may in your
discretion arrange for yourself or for another party or parties to purchase
such Firm Units or Option Units to which such default relates on the terms
contained herein. If within one business day after such default relating to
more than 10% of the Firm Units or Option Units you do not arrange for the
purchase of such
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Firm Units or Option Units, then the Company shall be entitled to a further
period of one business day within which to procure another party or parties
satisfactory to you to purchase said Firm Units or Option Units on such terms.
In the event that neither you nor the Company arrange for the purchase of the
Firm Units or Option Units to which a default relates as provided in this
Section 6, this Agreement may be terminated by you or the Company without
liability on the part of the Company (except as provided in Section 3.15 and
Sections 5.1 hereof) or the several Underwriters; provided, however, that if
such default occurs with respect to the Option Units, this Agreement will not
terminate as to the Firm Units, and provided further that nothing herein shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for damages occasioned by its default
hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Units or
Option Units to which the default relates are to be purchased by the
non-defaulting Underwriters, or are to be purchased by another party or parties
as aforesaid, you or the Company shall have the right to postpone the Closing
Date or Option Closing Date for a reasonable period, but not in any event
exceeding five 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, and the Company agrees to file promptly any
amendment 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 6 with like effect as if it had originally been a party to
this Agreement with respect to such Securities.
7. Additional Covenants.
7.1 Board Designee. For a period of four years from the Effective Date, the
Company will elect a designee of the Representative (reasonably acceptable to
the Company) as a member of the Board of Directors of the Company. Such
designee shall receive no more or less compensation than is paid to other
non-management directors of the Company. If the Representative does not
exercise its option to designate a member of the Company's Board of Directors,
the Representative shall nevertheless have the right to send a representative
(who need not be the same individual from meeting to meeting) to observe each
meeting of the Board of Directors. Such person, whether a member of the Board
of Directors or a representative, shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but
not limited to, food, lodging and transportation. The Company agrees to give
the Representative written notice of each such meeting and to provide the
Representative with an agenda of the meeting no later than it gives such notice
and provides such agenda to the other directors.
7.2 Insider Sales. During the four year period following the Effective
Date, the Representative shall have the right to purchase for the
Representative's account or to sell for the account of the Insiders any
securities sold on any United States securities market or exchange, including,
but not limited to, open market sales or sales pursuant to Rule 144 under the
Act. Each of the Insiders will agree to consult with the Representative with
regard to any such sales and will offer the Representative the exclusive
opportunity to purchase or sell such securities on terms at least as favorable
to the Insiders as they can secure elsewhere. If the Representative fails to
accept in writing any such proposal for sale by the Insiders within one
business day after receipt of a notice containing such proposal, then the
Representative shall have no claim or right with respect to any such sales
contained in any such notice. If, thereafter, such proposal is modified in any
material respect, the Insiders shall adopt the same procedures as with respect
to the original proposal.
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7.3 Press Releases. The Company will not issue a press release or engage
in any other publicity out of the ordinary course until 25 days after the
Effective Date without the Representative's prior written consent unless
required by law.
7.4 Form S-8 or any Similar Form. The Company shall not file a
Registration Statement on Form S-8 (or any similar or successor form) for the
registration of shares of Common Stock underlying stock options for a period of
one year from the Effective Date without the Representative's prior written
consent.
7.5 Compensation and Other Arrangements. The Company hereby agrees that
for a period of three years from the Effective Date, all compensation and other
arrangements between the Company and its officers, directors and affiliates
shall be approved by the Option Plan/Compensation Committee of the Company's
Board of Directors, a majority of the members of which shall have no
affiliation or other relationship with the Company other than as directors.
8. Representations and Agreements to Survive Delivery. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriters and Company, including the indemnity agreements contained in
Section 5 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the several
Underwriters until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of the later of the Closing Date or the
Option Closing Date, if any, at which time the representations, warranties and
agreements shall terminate and be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
9.1 Effective Date. This Agreement shall become effective on the Effective
Date at the time that the Registration Statement is declared effective.
9.2 Termination. You shall have the right to terminate this Agreement at
any time prior to any Closing Date, (i) if any domestic or international event
or act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, The Boston Stock Exchange or in the over-the-counter market shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (iii) if the United States shall
have become involved in a war or major hostilities, or (iv) if a banking
moratorium has been declared by a New York State or federal authority, or (v)
if a moratorium on foreign exchange trading has been declared which materially
adversely impacts the United States securities market, or (vi) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether
or not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if E.
Kenneth Seiff shall no longer serve the Company in his present capa city, or
(viii) if the Company has breached any of its representations, warranties or
obligations hereunder, or (ix) if the Representative shall have become aware
after the date hereof of such a material adverse change in the condition
(financial or otherwise), business, or prospects of the
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Company, or such adverse material change in general market conditions, as in
the Representative's judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Securities or to enforce contracts made
by the Underwriters for the sale of the Securities.
9.3 Notice. If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 9, the Company shall
be notified on the same day as such election is made by you by telephone or
telecopy, confirmed by letter.
9.4 Expenses. In the event that this Agreement shall not be carried out for
any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.15 hereof.
9.5 Indemnification. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 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.
10. Miscellaneous.
10.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Representative:
GKN Securities Corp.
61 Broadway
12th Floor
New York, New York 10006
Attention: Brian K. Coventry, Vice President
Copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attention: David Alan Miller, Esq.
If to the Company:
Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
Attention: E. Kenneth Seiff, Chief Executive Officer
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Copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9928
Attention: Richard A. Goldberg, Esq.
10.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may be amended only by a written instrument
executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Representative, the Underwriters, the Company
and the controlling persons, directors and officers referred to in Section 5
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provisions herein contained.
10.6 Governing Law, Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of, relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York or the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting
a copy thereof by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 10.1
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The parties hereto
agree that the prevailing party(ies) in any such action shall be entitled to
recover from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
10.7 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
10.8 Waiver, Etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such
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provision, nor to in any way affect the validity of this Agreement or any
provision hereof or the right of any of the parties hereto to thereafter
enforce each and every provision of this Agreement. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
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If the foregoing correctly sets forth the understanding between the
Representative 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,
PIVOT RULES, INC.
By: /s/ E. Kenneth Seiff
--------------------------------
Name: E. Kenneth Seiff
Title: President and Chief
Executive Officer
Accepted as of the date first
above written.
New York, New York
GKN SECURITIES CORP.
By: /s/ Deborah S. Novick
--------------------------
Deborah S. Novick
Title: Vice President
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SCHEDULE I
PIVOT RULES, INC.
1,500,000 UNITS
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
GKN Securities Corp. 1,200,000
Rickel & Associates, Inc. 300,000
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SCHEDULE 2.22
INTANGIBLES
The Company brought an action against the Wool Bureau, Inc.
(the "Wool Bureau") (a trade association that promotes wool clothing and other
products) on August 28, 1996 in the United States District Court for the
Southern District of New York entitled Pivot Rules, Inc. v. The Wool Bureau,
Inc., 96-CV-6573 (AGS) alleging federal trademark infringement, use of false
designation of origin, false descriptions and false representations, and common
law unfair competition. These claims arise from the Wool Bureau's alleged
infringement of the Company's "The Rules Have Changed" registered trademark,
Certificate of Registration No. 1,718,326. The Wool Bureau answered the
complaint on September 30, 1996, denying the core allegations and asserting
affirmative defenses of failure to state a claim, fair use, mootness, no
likelihood of confusion and weakness and diluteness of trademark.
<PAGE>
SCHEDULE 2.23.2
EMPLOYEE WELFARE BENEFIT PLANS
1. Group Medical Insurance
2. Life insurance provided for the following officers pursuant to
their contracts:
E. Kenneth Seiff Chief Executive Officer
William McLoone Executive V.P. of Sales
David Lewis Vice President of Operations
3. Company Stock Option Plan