<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999.
REGISTRATION NO. 333-48701
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 7
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL SMART SOURCING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
DELAWARE 3089 11-3423157
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
INTERNATIONAL SMART SOURCING, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(516) 293-0750
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
ANDREW FRANZONE, CHIEF EXECUTIVE OFFICER
INTERNATIONAL SMART SOURCING, INC.
320 BROAD HOLLOW ROAD
FARMINGDALE, NEW YORK 11735
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
CARL SELDIN KOERNER, ESQ. ROBERT H. COHEN, ESQ.
GUIDO A. PANZERA, ESQ. PHILIP MAGRI, ESQ.
KOERNER SILBERBERG & WEINER, LLP MORRISON COHEN SINGER & WEINSTEIN, LLP
112 MADISON AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 689-4400 TELEPHONE:(212) 735-8600
FACSIMILE: (212) 689-3077 FACSIMILE:(212) 735-8708
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware
empowers a Delaware corporation to indemnify, subject to the standards therein
prescribed, any person in connection with any action, suit or proceeding brought
or threatened by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation or was serving as such with
respect to another corporation or other entity at the request of such
corporation.
The Company's Certificate provides that each person who was or is made a
party to (or is threatened to be made a party to) or is otherwise involved in
any civil or criminal action, suit or proceeding by reason of the fact that such
person is or was a director or officer of the Company shall be indemnified and
held harmless by the Company to the fullest extent authorized by Section 145 of
the General Corporation Law of the State of Delaware against all expense,
liability and loss (including without limitation attorneys' fees) incurred by
such person in connection therewith.
Nothing contained in the Company's Certificate shall eliminate or limit the
liability of directors (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law;
(iii) under Section 174 of the General Corporation Law of the State of Delaware;
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company maintains directors and officers liability insurance covering
all directors and officers of the Company against claims arising out of the
performance of their duties.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the Common Stock.
<TABLE>
<S> <C>
SEC Registration............................................................... $ 4,675.00
NASD Filing Fee................................................................ 2,079.00
Nasdaq Listing Fee............................................................. 9,500.00
Boston Stock Exchange Listing Fee.............................................. 14,750.00
Transfer Agent Fee............................................................. 2,500.00
Printing and Engraving Costs................................................... 150,000.00
Legal Fees and Expenses........................................................ 270,000.00
Accounting Fees and Expenses................................................... 200,000.00
Blue Sky Fees and Expenses..................................................... 35,000.00
Miscellaneous.................................................................. 11,496.00
-----------
Total........................................................................ $700,000.00
-----------
-----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following shares of Common Stock were issued by the Company during the
past three years without registering the securities under the Securities Act.
There were no underwriting discounts or commissions paid in connection with the
issuance of any of the securities set forth below.
The sales of the securities described in the following table were made in
reliance upon Section 4(2) of the Securities Act, which provides certain
exemptions for transactions not involving a public offering. The purchasers of
securities in each transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof. All purchasers of securities in each such
transaction had adequate information concerning the Company.
II-1
<PAGE>
As part of a reorganization, the Company acquired solely in exchange for
Common Stock of the Company, all of the outstanding capital stock of EHC and
CDP, effective as of December 24, 1998. The value and number of shares to be
issued to former holders of the outstanding capital stock of CDP and EHC was
determined by negotiations between the Company and Andrew Franzone, David L.
Kassel, Harry Goodman, Robert Gillings and David Cowan. Mr. Gillings
subsequently transferred his shares of CDP to David L. Kassel in an arms'-length
transaction dated May 29, 1998 in return for a nonrecourse promissory note from
Mr. Kassel in favor of Mr. Gillings in the principal amount of $450,000 bearing
interest at the rate of 6% per annum, payable in full on August 1, 2000 or
earlier as provided in such promissory note. The reorganization exchange is an
arm's-length transaction acceptable to each of the parties based upon such
negotiations. The amount of shares issued is based on a ratio of shares held in
CDP and EHC to a percentage of shares of the Company. Following the
reorganization, each of the following individuals will hold the amount of shares
of the Company's common stock set forth below:
<TABLE>
<S> <C>
David L. Kassel.................................................................... 900,000
Harry Goodman...................................................................... 500,000
Andrew Franzone.................................................................... 500,000
David Cowan........................................................................ 45,000
</TABLE>
ITEM 27. LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement, as amended
*2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and CDP and
Amendment No. 1 effective as of December 24, 1998
*2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and EHC and
Amendment No. 1 effective as of December 24, 1998
*3.1 Certificate of Incorporation of International Plastic Technologies, Inc. and Amendment to the
Certificate of Incorporation dated December 7, 1998
*3.2 By-Laws of International Plastic Technologies, Inc., as amended
*4.1 Form of Common Stock Certificate
*4.2 Form of Warrant Certificate
*4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust Company
*4.4 Form of Underwriter's Warrant Agreement
*5 Opinion of Koerner Silberberg & Weiner, LLP
*10.1 Employment Agreement between the Company and Andrew Franzone
*10.2 Employment Agreement between the Company and David L. Kassel
*10.3 Employment Agreement between the Company and Harry Goodman
*10.4 Consulting Agreement between the Company and B.C. China Business Consulting, Inc. and Letter Agreement
between the Company and Bao-Wen Chen dated March 1, 1998, as amended
*10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
*10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989, Rider to Lease
Agreement dated January 1, 1990, Letter Agreement between the Company and K&G Realty Associates dated
March 16, 1995 and Riders to Lease Agreement dated March 1, 1998 and May 14, 1998
*10.7 Licensing Agreement between CDP and Inch, Inc.
*10.8 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996, December 31,
1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated January 1, 1998 by International
Plastic Technologies, Inc.
*10.9 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
*10.10 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997, Term Loan
Agreement Promissory Note between AFC and Republic National Bank of New York dated July 29, 1996 and
Guaranty and Security Agreement by EHC dated July 25, 1996
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*10.11 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996 and Term
Loan Agreement Promissory Note dated July 29, 1996
*10.12 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
*10.13 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997, Loan
Promissory Note dated February 21, 1997, Security Agreement dated February 21, 1997 and Waiver Letter
dated July 13, 1998
*10.14 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28, 1995, Rider
to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note by EHC and Assignment of
Leases and Rent
*10.15 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of Teamsters,
AFL-CIO and Memorandum of Agreement dated as of May 10, 1998
*10.16 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry Goodman and
Amendment No. 1 to the Stockholders' Agreement
*10.17 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
*10.18 Agreement between AFC and EHC to engineer, manufacture and import products
*10.19 Letter agreement between EHC and Republic National Bank of New York to release the personal guarantees
of Andrew Franzone, David Kassel and Harry Goodman dated May 14, 1998
*10.20 Demand Negotiable Promissory Note payable to David L. Kassel dated October 27, 1998
*10.21 Demand Negotiable Promissory Notes payable to Harry Goodman dated October 22, 1998 and December 7,
1998
*10.22 Agreement between EHC and David L. Kassel to extend maturity date of January 1, 1998 Promissory Note,
dated December 8, 1998
*10.23 Agreement between CDP and David L. Kassel to extend maturity date of January 1, 1998 Promissory Note,
dated December 8, 1998
*10.24 Promissory Note payable by CDP to David Kassel dated May 29, 1998 and Guarantee of the Promissory Note
by the Company
*21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5 hereto).
23.2 Consent of Feldman Sherb Ehrlich & Co., P.C.
*24 Power of Attorney (included on the signature page)
*27.1 Financial Data Schedule for International Smart Sourcing, Inc.
*27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------------
* Previously filed.
ITEM 28. UNDERTAKINGS
A. Certificates
The undersigned registrant (the "Registrant") hereby undertakes to provide
to the Underwriter at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
B. Rule 415 Offering
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the Registration Statement and;
(iii) include any additional or changed material information on the plan of
distribution.
II-3
<PAGE>
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the Effective Date of the
Registration Statement under Rule 461 of the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
D. Rule 430A Offering
If the Company relies on Rule 430A under the Securities Act, the Company
hereby undertakes that:
(1) For purposes of determinating any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A of the Securities
Act and contained in a form of Prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all requirements of filing on Form SB-2 and authorizes this Amendment
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York on April 21, 1999.
INTERNATIONAL SMART SOURCING, INC.
By: /s/ ANDREW FRANZONE
-----------------------------------
Andrew Franzone
Chief Executive Officer and
President
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
* Chief Executive Officer, President and April 21, 1999
- ------------------------------------------ Director
Andrew Franzone
* Chairman of the Board April 21, 1999
- ------------------------------------------
David L. Kassel
* Vice President and Director April 21, 1999
- ------------------------------------------
Harry Goodman
* Chief Financial Officer and Controller April 21, 1999
- ------------------------------------------
Steven Sgammato
* Director April 21, 1999
- ------------------------------------------
Carl Seldin Koerner
/s/ BAO-WEN CHEN Director April 21, 1999
- ------------------------------------------
Bao-Wen Chen
/s/ MITCHELL SOLOMON Director April 21, 1999
- ------------------------------------------
Mitchell Solomon
*By: /s/ ANDREW FRANZONE
--------------------------------------
Andrew Franzone, Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
CDP and Amendment No. 1 effective as of December 24, 1998
*2.2 Agreement and Plan of Reorganization between International Plastic Technologies, Inc. and
EHC and Amendment No. 1 effective as of December 24, 1998
*3.1 Certificate of Incorporation of International Plastic Technologies, Inc. and Amendment to
the Certificate of Incorporation dated December 7, 1998
*3.2 By-Laws of International Plastic Technologies, Inc., as amended
*4.1 Form of Common Stock Certificate
*4.2 Form of Warrant Certificate
*4.3 Form of Warrant Agreement between the Company and Continental Stock Transfer and Trust
Company
*4.4 Form of Underwriter's Warrant Agreement
*5 Opinion of Koerner Silberberg & Weiner, LLP
*10.1 Employment Agreement between the Company and Andrew Franzone
*10.2 Employment Agreement between the Company and David L. Kassel
*10.3 Employment Agreement between the Company and Harry Goodman
*10.4 Consulting Agreement between the Company and B.C. China Business Consulting, Inc. and
Letter Agreement between the Company and Bao-Wen Chen dated March 1, 1998, as amended
*10.5 Consulting Agreement between the Company and Network 1 Financial Securities, Inc.
*10.6 Lease Agreement between the Company and K&G Realty Associates dated December 19, 1989,
Rider to Lease Agreement dated January 1, 1990, Letter Agreement between the Company and
K&G Realty Associates dated March 16, 1995 and Riders to Lease Agreement dated March 1,
1998 and May 14, 1998
*10.7 Licensing Agreement between CDP and Inch, Inc.
*10.8 Promissory Notes payable to David L. Kassel dated September 13, 1994, August 1, 1996,
December 31, 1997 and Janaury 1, 1998, and Guarantee of CDP Promissory Note dated
January 1, 1998 by International Plastic Technologies, Inc.
*10.9 Promissory Notes payable to Harry Goodman dated September 1, 1994 and August 1, 1996
*10.10 Demand Grid Note between AFC and Republic National Bank of New York dated December 1, 1997,
Term Loan Agreement Promissory Note between AFC and Republic National Bank of New York
dated July 29, 1996 and Guaranty and Security Agreement by EHC dated July 25, 1996
*10.11 Term Loan Agreement between EHC and Republic National Bank of New York dated July 29, 1996
and Term Loan Agreement Promissory Note dated July 29, 1996
*10.12 Demand Grid Note between Republic National Bank of New York and EHC dated July 29, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ------------------------------------------------------------------------------------------- ------
<S> <C> <C>
*10.13 Loan Agreement between EHC and Long Island Development Corporation dated February 21, 1997,
Loan Promissory Note dated February 21, 1997, Security Agreement dated February 21, 1997
and Waiver Letter dated July 13, 1998
*10.14 Mortgage between K&G Realty Associates and Long Island Commercial Bank dated November 28,
1995, Rider to Mortgage dated November 28, 1995, Mortgage Note, Guaranty of Mortgage Note
by EHC and Assignment of Leases and Rent
*10.15 Collective Bargaining Agreement between EHC and Local 531, International Brotherhood of
Teamsters, AFL-CIO and Memorandum of Agreement dated as of May 10, 1998
*10.16 Stockholders' Agreement between the Company, Andrew Franzone, David L. Kassel and Harry
Goodman and Amendment No. 1 to the Stockholders' Agreement
*10.17 International Plastic Technologies, Inc., 1998 Stock Option and Grant Plan
*10.18 Agreement between AFC and EHC to engineer, manufacture and import products
*10.19 Letter agreement between EHC and Republic National Bank of New York to release the personal
guarantees of Andrew Franzone, David Kassel and Harry Goodman dated May 14, 1998
*10.20 Demand Negotiable Promissory Note payable to David L. Kassel dated October 27, 1998
*10.21 Demand Negotiable Promissory Notes payable to Harry Goodman dated October 22, 1998 and
December 7, 1998
*10.22 Agreement between EHC and David L. Kassel to extend maturity date of January 1, 1998
Promissory Note, dated December 8, 1998
*10.23 Agreement between CDP and David L. Kassel to extend maturity date of January 1, 1998
Promissory Note, dated December 8, 1998
*10.24 Promissory Note payable by CDP to David Kassel dated May 29, 1998 and Guarantee of
Promissory Note by the Company
*21 List of Subsidiaries of the Company
*23.1 Consent of Koerner Silberberg & Weiner, LLP (contained in its opinion filed as Exhibit 5
hereto).
23.2 Consent of Feldman Sherb Ehrlich & Co., P.C.
*24 Power of Attorney (included on the signature page)
*27.1 Financial Data Schedule for International Smart Sourcing, Inc.
*27.2 Financial Data Schedule for Compact Disc Packaging Corp.
</TABLE>
- ------------------
* Previously filed.
<PAGE>
INTERNATIONAL SMART SOURCING, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
<PAGE>
TABLES OF CONTENTS
Section Page
1. Introduction...............................................................1
2. Representations and Warranties.............................................2
3. Purchase, Sale, and Delivery of the Securities and the Additional
Securities................................................................14
4. Offering..................................................................16
5. Covenants.................................................................17
6. Payment of Expenses.......................................................28
7. Conditions of Underwriter's Obligations...................................29
8. Indemnification and Contribution..........................................41
9. Default by an Underwriter.................................................46
10. Representations and Agreements to Survive Delivery........................47
11. Effective Date of This Agreement and Termination Thereof..................48
12. Notices...................................................................50
13. Parties...................................................................51
14. Severability..............................................................52
15. Captions..................................................................52
16. Counterparts..............................................................52
17. Construction..............................................................52
18. Consent to Jurisdiction...................................................52
i
<PAGE>
INTERNATIONAL SMART SOURCING, INC.
1,250,000 SHARES OF COMMON STOCK
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
April __, 1999
To Underwriters listed on Schedule I attached hereto
c/o Network 1 Financial Securities, Inc.
The Galleria
Building 2/Penthouse
Red Bank, New Jersey 07701-1106
Gentlemen:
The undersigned, International Smart Sourcing, Inc., a Delaware
corporation, hereby confirms its agreement with Network 1 Financial Securities,
Inc., as the representative (the "Representative") of the several underwriters
identified in Schedule I hereto (together with the Representative, the
"Underwriters") as follows. All references to the "Company" shall include
International Smart Sourcing, Inc., and all of its wholly-owned subsidiaries, to
wit Electronic Hardware Corp., a New York corporation ("EHC"), and Compact Disc
Packaging Corp., a Delaware corporation ("CDP"), unless otherwise noted.
1. Introduction. The Company proposes to issue and sell to the
Underwriters an aggregate amount of 1,250,000 shares of common stock (the
"Stock"), par value $.001 per share (the "Common Stock"), and 1,250,000
Redeemable Common Stock Purchase Warrants (the "Warrants," and together with the
Stock, the "Securities") of the Company. The Stock and the Warrants shall be
separately transferrable immediately upon issuance. Each Warrant is exercisable
for a five-year period, commencing 12 months from the date the Securities and
Exchange Commission (the "Commission") declares the Registration Statement (as
defined herein) effective and entitles the holder thereof to purchase one share
of Common Stock at an exercise price equal to $5.00 per share (the "Warrant
Stock"), subject to adjustment in certain circumstances. As long as the
Registration
2
<PAGE>
Statement (as defined herein) is effective, the Warrants are redeemable by the
Company at any time commencing 12 months after the date of the prospectus, at a
price of $.10 per Warrant, upon not less than 30 days prior written notice to
the registered holders of the Warrants, provided that the average closing bid
quotation of the Common Stock as reported on the Nasdaq SmallCap Market System
("SCM") or the Boston Stock Exchange ("BSE"), if traded thereon, or if not
traded thereon, the average closing sale price if listed on a national or
regional securities exchange equals or exceeds 150% of the exercise price per
share of the Stock for any 20 trading days within a period of 30 consecutive
trading days ending on the 15th day prior to the day on which the Company gives
notice of redemption. In addition, solely for the purpose of covering
over-allotments, the Company proposes to grant to the Representative an option
(the "Over-allotment Option") to purchase from the Company, up to an additional
187,500 shares of Common Stock (the "Additional Stock") and 187,500 Warrants
(the "Additional Warrants," and together with the Additional Stock, the
"Additional Securities"). The Securities and the Additional Securities are more
fully described in the prospectus referred to below.
2. Representations and Warranties.
(a) The Company represents and warrants to, and agrees
with, the Underwriters that:
(1) The Company has filed with the Commission a
registration statement, and may have filed one or more
amendments thereto, on Form SB-2 (Registration File No.
333-48701), including in such registration statement and each
such amendment a related preliminary prospectus, for the
registration of the Securities, the Warrant Stock and the
Additional Securities, the Common Stock issuable upon the
exercise of the Additional Warrants (the "Additional Warrant
Stock") the warrants referred to in Section 5(a)(15) (the
"Underwriter's Warrants"), the shares of Common Stock issuable
upon exercise of the Underwriter's Warrants (the "Underlying
Stock"), Warrants issuable upon the exercise of the
Underwriter's Warrants (the "Underlying Warrants," and
together with the Underlying Stock, the "Underlying
Securities") and the Common Stock issuable upon the exercise
of the Underlying Warrants (the "Underlying Warrant Stock")
under the Securities Act of 1933, as
3
<PAGE>
amended (the "Act"). As used in this Agreement, the term
"Registration Statement" shall refer to such registration
statement, as amended, on file with the Commission at the time
such Registration Statement becomes effective under the Act
(including the prospectus, financial statements, exhibits, and
all other documents filed as a part thereof, provided,
however, that such Registration Statement, at the time it
becomes effective, may omit such information as is permitted
to be omitted from such Registration Statement when it becomes
effective under the Act pursuant to Rule 430A of the General
Rules and Regulations of the Commission under the Act (the
"Regulations"), which information (the "Rule 430A
Information") shall be deemed to be included in such
Registration Statement when a final prospectus is filed with
the Commission in accordance with Rules 430A and 424(b)(1) or
(4) of the Regulations); the term "Preliminary Prospectus"
shall refer to each prospectus included in the Registration
Statement, or any amendments thereto, before the Registration
Statement becomes effective under the Act, the form of
prospectus omitting Rule 430A Information included in the
Registration Statement when the Registration Statement becomes
effective under the Act, if applicable (the "Rule 430A
Prospectus"), and any prospectus filed by the Company with the
Representative's consent pursuant to Rule 424(a) of the
Regulations; and the term "Prospectus" shall refer to the
final prospectus in the form first filed pursuant to Rule
424(b)(1) or (4) of the Regulations or, if no such filing is
required, the form of final prospectus included in the
Registration Statement.
(2) When the Registration Statement becomes effective
under the Act, and at all times subsequent thereto up to and
including the Closing Date (as defined in Section 3) and each
Additional Closing Date (as defined in Section 3), and during
such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a
dealer, and during such longer period until any post-effective
amendment thereto shall become effective under the Act, the
Registration Statement (and any post-effective amendment
thereto) and the Prospectus (as amended or as supplemented if
the Company shall have filed with the
4
<PAGE>
Commission any amendment or supplement to the Registration
Statement or the Prospectus), respectively, will contain all
statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and no event will have
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the
Registration Statement at the time it becomes effective under
the Act, the Prospectus filed pursuant to Rules 430A and
424(b)(1) or (4) of the Regulations will contain all Rule 430A
Information and all statements which are required to be stated
therein in accordance with the Act or the Regulations, will
comply with the Act and the Regulations, and will not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; and each
Preliminary Prospectus, as of the date filed with the
Commission, contained all statements required to be stated
therein in accordance with the Act and the Regulations,
complied with the Act and the Regulations, and did not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; except that no
representation or warranty is made in this Section 2(a)(2)
with respect to statements or omissions made in reliance upon,
and in conformity with information furnished to the Company as
stated in Section 8(b) with respect to any Underwriter by or
on behalf of such Underwriter through the Representative
expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto.
(3) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction has issued an order
(a "Stop Order") suspending the effectiveness of, or
preventing or suspending the use of, the Registration
Statement, any Preliminary
5
<PAGE>
Prospectus, the Prospectus, or any amendment or supplement
thereto, refusing to permit the effectiveness of the
Registration Statement, or suspending the registration or
qualification of the Securities, Warrant Stock, Additional
Securities, Additional Warrant Stock, Underwriter's Warrants,
Underlying Securities, or the Underlying Warrant Stock, nor
has any of such authorities instituted or, to the best of the
Company's knowledge, threatened to institute any proceedings
with respect to a Stop Order.
(4) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract, agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed properly with the Commission as an exhibit to the
Registration Statement.
(5) The Company has no subsidiary or subsidiaries (as
defined in the Regulations) other than as disclosed in the
Registration Statement. The Company is a corporation duly
organized, validly existing, and in good standing under the
laws of the State of Delaware, with full power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. The Company is duly qualified to do business
as a foreign corporation and is in good standing as such in
every jurisdiction in which its ownership, leasing, licensing,
or use of property and assets or the conduct of its business
makes such qualification necessary, except where the failure
to be so qualified does not amount to a material liability or
disability to the Company and its subsidiaries taken as a
whole.
(6) The Company has authorized capital stock as
disclosed in the Registration Statement, of which the
Prospectus is a part. Except as disclosed in the Prospectus,
each outstanding share of Common Stock is validly authorized
and
6
<PAGE>
issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive
rights of stockholders. There is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or
other right calling for the issuance of, any share of capital
stock of the Company or any security or other instrument which
by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may
be properly described in the Prospectus. There is outstanding
no security or other instrument which by its terms is
convertible into, or exercisable or exchangeable for, capital
stock of the Company, except as may be properly be described
in the Prospectus. The certificates evidencing the Common
Stock are in proper form.
(7) The consolidated financial statements of the
Company and EHC and the financial statements of CDP included
in the Registration Statement and the Prospectus fairly
present the financial position, the results of operations, the
cash flows, and the other information purported to be shown
therein at the respective dates and for the respective periods
to which they apply. Such financial statements have been
prepared in accordance with generally accepted accounting
principles (except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under
the Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) consistently applied throughout the
periods involved, are correct and complete in all material
respects, and are in accordance with the books and records of
the Company and its combined subsidiaries. Feldman Sherb
Ehrlich & Co, P.C., the certified public accountants whose
reports on the audited financial statements are filed with the
Commission as a part of the Registration Statement, are, and
during the periods covered by their reports included in the
Registration Statement and the Prospectus were, independent
certified public accountants to the Company, EHC and CDP,
respectively, within the meaning of the Act and the
Regulations. No other financial statements are required by
Form SB-2 or otherwise to be included in the Registration
7
<PAGE>
Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company from the latest information
set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
(8) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, or, to the best knowledge of the
Company, threatened or in prospect (or any basis therefor)
with respect to the Company or any of its operations,
businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the
aggregate do not now have, and can not in the future
reasonably be expected to have, a material adverse effect upon
the operations, business, properties, or assets of the Company
and its subsidiaries taken as a whole. The Company is not in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be
properly described in the Prospectus or such as in the
aggregate do not now have, and can not in the future
reasonably be expected to have, a material adverse effect upon
the operations, business, properties, or assets of the Company
and its subsidiaries taken as a whole; nor is the Company
required currently to take any action in order to avoid any
such violation or default.
(9) The Company has good title to all properties and
assets which the Prospectus indicates are owned by it, free
and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages, except such as to not materially
and adversely affect the value of such property and do not
interfere with the use made or proposed to made of such
property (or except as may be properly described in the
Prospectus). No real property leased, licensed, or used by the
Company lies in an area which is, or to the knowledge of the
Company will be, subject to zoning, use, or building code
restrictions which would prohibit, and no state of facts
relating to the actions or inactions of another person or
entity or his or its ownership, leasing, licensing, or use of
any real or personal property exists or will exist which would
8
<PAGE>
prevent, the continued effective leasing, licensing, or use of
such real property in the business of the Company as presently
conducted or as the Prospectus indicates it contemplates
conducting, with such exceptions as are not material and do
not interfere with the use made or proposed to be made of such
property and buildings by the Company (or except as may be
properly described in the Prospectus).
(10) Neither the Company nor, to the knowledge of the
Company, any other party, is now, or is expected by the
Company to be, in violation or breach of, or in default with
respect to, any material provision of any contract, agreement,
instrument, lease, license, arrangement, or understanding
which is material to the Company, and each such contract,
agreement, instrument, lease, license, arrangement, and
understanding is in full force and effect and is the legal,
valid, and binding obligation of the parties thereto and is
enforceable as to them in accordance with its terms, except as
otherwise disclosed in the Prospectus. The Company enjoys
peaceful and undisturbed possession under all leases and
licenses under which it is operating. Except as described in
the Prospectus, the Company is not a party to, or bound by,
any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or
other restriction, which has had, or may in the future have, a
material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company and its subsidiaries taken as
a whole. The Company is not in violation or breach of, or in
default with respect to, any term of its certificate of
incorporation, as amended, (or other charter document) or
By-Laws, as amended.
(11) All United States and foreign patents, patent
applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, and other intangible
properties and assets (all of the foregoing being herein
called "Intangibles") that the Company owns or has pending, or
under which it is licensed, are in good standing and
uncontested, except as may be properly described in the
Prospectus. There is no right under any Intangible necessary
to the business of the Company as presently conducted or as
the Prospectus indicates it contemplates
9
<PAGE>
conducting, except as may be so designated in the Prospectus.
The Company to the best of its knowledge has not received
notice of (or knows of any basis for) a third party claim of
infringement with respect to asserted Intangibles of others,
except as may be properly described in the Prospectus. To the
knowledge of the Company, there is no material infringement by
others of Intangibles of the Company. To the knowledge of the
Company, there is no Intangible of others which has had, or
may in the future have a material adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company, except as may be properly described in the
Prospectus.
(12) Neither the Company nor, to the best of the
Company's knowledge, any director, officer, agent, employee,
or other person associated with, or acting on behalf of, the
Company has, directly or indirectly: used any corporate funds
for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. The Company's internal accounting controls
and procedures are sufficient to cause the Company to comply
in all respects with the Foreign Corrupt Practices Act of
1977, as amended.
(13) The Company has all requisite power and
authority to execute, deliver, and perform this Agreement and
the Underwriter's Warrants. All necessary corporate
proceedings of the Company have been duly taken to authorize
the execution, delivery, and performance by the Company of
this Agreement and the Underwriter's Warrants. This Agreement
has been duly authorized, executed, and delivered by the
Company, is the legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance
with its terms. The Underwriter's Warrants have been duly
authorized by the Company and, when executed and delivered by
the Company, will be legal, valid, and binding obligations
10
<PAGE>
of the Company, each enforceable as to the Company in
accordance with its terms. No consent, authorization,
approval, order, license, certificate, or permit of or from,
or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or
performance by the Company of this Agreement or the
Underwriter's Warrants (except filings under the Act which
have been or will be made before the Closing Date and filings
and consents consisting only of filings and consents under
"blue sky" or securities laws which have been obtained at or
prior to the date of this Agreement). No consent of any party
to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party,
or to which any of their respective properties or assets are
subject, is required for the execution, delivery, or
performance of this Agreement and the Underwriter's Warrants;
and the execution, delivery, and performance of this Agreement
and the Underwriter's Warrants will not violate, result in a
breach of, conflict with, result in the creation or imposition
of any lien, charge, or encumbrance upon any properties or
assets of the Company pursuant to the terms of, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under, any
such contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate, result in a breach
of, or conflict with any term of the certificate of
incorporation, as amended (or other charter document) or
By-Laws, as amended, of the Company, or violate, result in a
breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of
its respective operations, businesses, properties, or assets
are subject.
(14) The Stock and Additional Stock are validly
authorized and, when issued and delivered in accordance with
this Agreement, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive or similar rights of stockholders, and the
Underwriters will receive good title to the Stock and
Additional Stock free and clear of all liens, security
interests, pledges, charges,
11
<PAGE>
encumbrances, stockholders' agreements, and voting trusts. The
Common Stock, Stock and Additional Stock conform to all
statements relating thereto contained in the Registration
Statement or the Prospectus.
(15) The Warrant Stock and the Additional Warrant
Stock are validly authorized and have been duly and validly
reserved for issuance and, when issued and delivered upon
exercise of the Warrants and Additional Warrants,
respectively, in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Warrants and Additional
Warrants, as the case may be, will receive good title to the
Common Stock purchased by them upon the exercise of the
Warrants and Additional Warrants, free and clear of all liens,
security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Warrants,
Additional Warrants, Warrant Stock and the Additional Warrant
Stock conform to all statements relating thereto contained in
the Registration Statement or the Prospectus.
(16) The Underlying Stock and the Underlying Warrant
Stock are validly authorized and have been duly and validly
reserved for issuance and, when issued and delivered upon
exercise of the Underwriter's Warrants and Underlying
Warrants, as the case may be, in accordance with the
respective terms thereof, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to
the ownership thereof, and will not be issued in violation of
any preemptive rights of stockholders; and the holders of the
Underwriter's Warrants and the Underlying Warrants will
receive good title to the securities purchased by them upon
the exercise of the such warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Underwriter's
Warrants, Underlying Stock, Underlying Warrants and the
Underlying Warrant Stock conform to all statements relating
thereto contained in the Registration Statement or the
Prospectus.
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<PAGE>
(17) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as may otherwise be properly described
in the Prospectus, the Company has not (i) issued any
securities or incurred any liability or obligation, primary or
contingent, for borrowed money, (ii) entered into any
transactions not in the ordinary course of business, (iii)
declared or paid any dividend on its capital stock, or (iv)
experienced any adverse changes or any development which may
materially adversely effect the condition (financial or
otherwise), net assets or stockholders' equity, results of
operations, business, key personnel, assets, or properties of
the Company and its subsidiaries taken as a whole.
(18) Neither the Company nor, to the best of the
Company's knowledge, any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will
take, directly or indirectly, prior to the termination of the
offering contemplated by this Agreement, any action designed
to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Securities or the Additional Securities.
(19) The Company has obtained from each of its
directors, officers and principal stockholders a written
agreement, in form and substance satisfactory to counsel for
the Underwriters, that, for a period of 24 months from the
date on which the Registration Statement shall become
effective under the Act, he or she will not, without the
Representative's prior written consent, publicly offer, sell,
contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of
Common Stock or any security or other instrument which by its
terms is convertible into, or exercisable or exchangeable for,
shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock
issuable pursuant to the terms of any employee stock options;
provided, however, that such persons may offer, sell, contract
to sell, grant an option for the sale of, or otherwise dispose
of all or any part of his, her, or its shares of
13
<PAGE>
Common Stock or other such security or instrument of the
Company during such period only if such transaction is private
in nature and the transferee of such shares of Common Stock or
other securities or instruments agrees, prior to such
transaction, to be bound by all of the provisions of such
agreement. Further, if either of Messrs. Andrew Franzone, the
Company's Chief Executive Officer and President, David L.
Kassel, the Chairman of the Company's Board of Directors, and
Harry Goodman, the Company's Vice President and Secretary,
dies during such 24-month period, the estate of the deceased
may cause the Company to redeem 250,000 shares for an
aggregate of $500,000 and may sell the remaining shares
pursuant to Rule 144 promulgated under the Act, provided that
the estate does not sell more than 25,000 shares within any
three-month period.
(20) The Company is not, and does not intend to
conduct its business in a manner in which it would become, an
"investment company" as defined in Section 3(a) of the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
(21) Except for the securities that are being
registered pursuant to the Registration Statement, no person
or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement.
(22) Except as may be set forth in the Prospectus,
the Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment
of a broker or finder in connection with the transactions
contemplated by this Agreement.
(23) Neither the Company, nor any of its affiliates,
is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba. If, at any time
after the date on which the Registration Statement is declared
effective under the Act or with the Florida Department of
Banking and Finance (the "Florida Department"), whichever is
later, and prior to the end of the period referred to in the
first clause of Section 2(a)(2), the Company commences
engaging in business with
14
<PAGE>
the government of Cuba or with any person or affiliate located
in Cuba, the Company will so inform the Florida Department
within 90 days after such commencement of business in Cuba,
and, during the period referred to in Section 2(a)(2), will
inform the Florida Department within 90 days after any change
occurs with respect to previously reported information.
(24) To the knowledge of the Company, no officer,
director, or principal stockholder of the Company has any
affiliation or association with the National Association of
Securities Dealers, Inc. (the "NASD") or any member thereof.
(25) Except as disclosed in the Prospectus, the
Company has filed all necessary federal, state, local, and
foreign income and franchise tax returns and other reports
required to be filed and has paid all taxes shown as due
thereon; and there is no tax deficiency which has been, or, to
the knowledge of the Company, might be, asserted against the
Company.
(26) To the best knowledge of the Company, none of
the activities or businesses of the Company is in violation
of, or will cause the Company to violate, any law, rule,
regulation, or order of the United States, any state, county,
or locality, or of any agency or body of the United States or
of any state, county, or locality, the violation of which
would have a material adverse effect upon the condition
(financial or otherwise), business, property, prospective
results of operations, or net worth of the Company.
3. Purchase, Sale, and Delivery of the Securities and the Additional
Securities. On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company on a firm-commitment basis, the numbers of shares of Stock and
Warrants set forth opposite the respective names of the Underwriters in Schedule
I hereto.
The purchase price per share of the Stock to be paid by the
Underwriters shall be $4.05. The public offering price per share of the Stock
shall be $4.50. The purchase price per Warrant to be paid by the Underwriters
shall be $.09. The public offering price per Warrant shall be $.10.
15
<PAGE>
Payment for the Securities by the Underwriters shall be made by wire
transfer or certified or official bank check in New York Clearing House funds
payable to the order of the Company at the offices of Morrison Cohen Singer &
Weinstein, LLP, counsel to the Underwriters, 750 Lexington Avenue, New York, New
York 10022, or at such other place as the Representative shall determine and
advise the Company by at least two full days' notice in writing, upon delivery
of the Securities to the Representative for the respective accounts of the
Underwriters. Such delivery and payment shall be made by 12:00 p.m., New York
City local time, on the fifth business day following the time of the public
offering, as defined in Section 11(a) (unless such time and date is postponed in
accordance with the provisions of Section 9(c)), or at such other time as shall
be agreed upon between the Representative and the Company. The time and date of
such delivery and payment are hereinafter referred to as the "Closing Date."
Certificates for the Stock and Warrants 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 shall permit the Representative, or its designee, to examine and
package such certificates for delivery at least one full business day prior to
the Closing Date.
In addition, the Company hereby grants to the Representative the
Over-allotment Option to purchase all or a portion of the Additional Stock and
Additional Warrants as may be necessary to cover over-allotments, at the same
respective purchase price per share to be paid by the Underwriters to the
Company for the Additional Stock and Additional Warrants as provided for in this
Section 3. The Representative may elect to exercise the Over-allotment Option
for a disproportionate amount of Additional Stock and Additional Warrants. The
Over-allotment Option may be exercised only to cover over-allotments in the sale
of Stock and Warrants by the Underwriters. The Over-allotment Option may be
exercised by the Representative on the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, at any time and from time to time on or
before the forty-fifth (45th) day following the date on which the Registration
Statement becomes effective under the Act, by written notice by the
Representative to the Company. Such notice shall set forth the aggregate number
of Additional Stock and Additional Warrants as to which the Over-allotment
Option is being exercised (which shall be allocated as the Company and the
Representative deems appropriate) and the time and date,
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<PAGE>
as determined by the Representative, when such Additional Stock and Additional
Warrants are to be delivered (such time and date are hereinafter referred to as
an "Additional Closing Date"); provided, however, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the second business
day after the date on which the notice of the exercise of the Over-allotment
Option shall have been given not later than the eighth business day after the
date on which such notice shall have been given.
In the event the Company declares or pays a dividend or a distribution
on the Common Stock, whether in the form of cash, shares of Common Stock, or
other consideration, prior to the Additional Closing Date, excluding any
payments in connection with the Company's Subchapter S corporation status
pursuant to the Internal Revenue Code of 1986, as amended, as set forth in the
Prospectus, such dividend or distribution shall also be paid on the Additional
Stock on the later of the Additional Closing Date and the date on which such
dividend or distribution is payable.
Payment for the shares of Additional Stock and Additional Warrants by
the Representative shall be made by wire transfer or certified or official bank
check in New York Clearing House funds payable to the order of the Company at
the offices of Morrison Cohen Singer & Weinstein, LLP, counsel to the
Underwriters, 750 Lexington Avenue, New York, New York 10022, or at such other
place as the Representative shall determine and advise the Company by at least
two full days' notice in writing, upon delivery of the Additional Stock and
Additional Warrants to the Representative for the account of the Representative.
Certificates for the Additional Stock and Additional Warrants 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 Additional Closing Date with respect thereto. The Company shall permit the
Representative, or its designee, to examine and package such certificates for
delivery at least one full business day prior to the Additional Closing Date
with respect thereto.
4. Offering. The Underwriters are to make an initial public offering of
the Securities and Additional Securities, as the case may be, as soon, on or
after the date on which the Registration Statement becomes effective under the
Act, as the Representative deems it advisable so to do. The Stock and Warrants
or Additional Stock and Additional Warrants, as the case may be, are to be
initially offered to the public at the respective initial public offering prices
set forth in Section 3
17
<PAGE>
(such respective prices being hereinafter referred to as the "Public Offering
Price"). After the initial public offering, the Representative may from time to
time increase or decrease the initial Public Offering Price, in the
Representative's sole discretion, by reason of changes in general market
conditions or otherwise.
5. Covenants.
(a) The Company covenants that it will:
(1) Use its best efforts to cause the Registration
Statement to become effective under the Act as promptly as
possible and notify the Representative immediately, and
confirm such notice in writing, (i) when the Registration
Statement and any post-effective amendment thereto become
effective under the Act, (ii) of the receipt of any comments
from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, (iii) of the filing with the
Commission of any supplement to the Prospectus, and (iv) of
the receipt of any notification with respect to a Stop Order
or the initiation or threatening of any proceeding with
respect to a Stop Order. The Company will use its best efforts
to prevent the issuance of any Stop Order and, if any Stop
Order is issued, to obtain the lifting thereof as promptly as
possible. If the Registration Statement has become or becomes
effective under the Act with a form of prospectus omitting
Rule 430A Information, or filing of the Prospectus with the
Commission is otherwise required under Rule 424(b), the
Company will file with the Commission the Prospectus, properly
completed, pursuant to Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the
Representative of such timely filing.
(2) During the time when a prospectus relating to the
Securities, Warrant Stock, Additional Securities and the
Additional Warrant Stock is required to be delivered hereunder
or under the Act or the Regulations, comply with all
requirements imposed upon it by the Act, as now existing and
as hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit
18
<PAGE>
the continuance of sales of, or dealings in, the Securities,
Warrant Stock, Additional Securities and the Additional
Warrant Stock in accordance with the provisions hereof and the
Prospectus. If, at any time when a prospectus relating to the
Securities, Warrant Stock, Additional Securities or the
Additional Warrant Stock is required to be delivered hereunder
or under the Act or the Regulations, any event shall have
occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriters, the
Registration Statement or the Prospectus as then amended or
supplemented contains any untrue statement of a material fact
or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, or if, in the reasonable opinion of either of such
counsel, it is necessary at any time to amend or supplement
the Registration Statement or the Prospectus to comply with
the Act or the Regulations, the Company will immediately
notify the Representative and promptly prepare and file with
the Commission an appropriate amendment or supplement (in form
and substance satisfactory to the Representative) which will
correct such statement or omission or which will effect such
compliance and will use its best efforts to have any such
amendment declared effective under the Act as soon as
possible.
(3) Deliver without charge to each of the
Underwriters such number of copies of each Preliminary
Prospectus as the Underwriters may reasonably request and, as
soon as the Registration Statement, or any amendment thereto,
becomes effective under the Act or a supplement is filed with
the Commission, deliver without charge to the Representative
two signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and
two copies of any supplement thereto, and deliver without
charge to each of the Underwriters such number of copies of
the Prospectus, the Registration Statement, and amendments and
supplements thereto, if any, without exhibits, as the
Representative may request for the purposes contemplated by
the Act.
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(4) Endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration
Statement becomes effective under the Act, to qualify the
Securities, Warrant Stock, Additional Securities and
Additional Warrant Stock for offering and sale under the "blue
sky" or securities laws of such jurisdictions as the
Representative may designate; provided, however, that no such
qualification shall be required in any jurisdiction where, as
a result thereof, the Company would be subject to service of
general process or to taxation as a foreign corporation doing
business in such jurisdiction to which it is not then subject.
In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees
in writing that such action is not at the time necessary or
advisable, file and make such statements or reports at such
times as are or may be required by the laws of such
jurisdiction.
(5) Make generally available (within the meaning of
Section 11(a) of the Act and the Regulations) to its
securityholders as soon as practicable, but not later than 45
days after the end of the fiscal quarter in which the first
anniversary date of the Registration Statement occurs, an
earnings statement (which need not be certified by independent
certified public accountants unless required by the Act or the
Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at
least 12 months beginning after the effective date of the
Registration Statement.
(6) For a period of 24 months after the date on which
the Registration Statement shall become effective under the
Act, not, without the Representative's prior written consent,
offer, issue, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or other securities of the Company (or
any security or other instrument which by its terms is
convertible into, or exercisable or exchangeable for, shares
of Common Stock), except as provided in Section 3 or as
described in the Prospectus and except for the issuance of (i)
300,000 shares of Common Stock which may be issued pursuant to
the Company's Stock Option and Grant Plan, as described in the
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Prospectus (the "Plan"), including the shares of Common Stock
issuable upon the exercise of options granted thereunder, (ii)
the Underlying Stock and (iii) the Underlying Warrant Stock.
(7) For a period of five years after the effective
date of the Registration Statement, furnish to the
Representative, without charge, the following:
(i) as soon as practicable after they have
been sent to stockholders of the Company or filed
with, or furnished to, the Commission or the NASD,
three copies of each annual and interim financial,
proxy statements and other reports or communications
sent by the Company to its stockholders or filed
with, or furnished to, the Commission or the NASD;
and
(ii) as soon as practicable, two copies of
every press release and every material news item and
article in respect of the Company or its affairs
which was released by the Company.
(iii) such additional documents and
information with respect to the Company and its
affairs as the Representative may from time to time
reasonably request; provided, however, that such
additional documents and information shall be
received by the Representative on a confidential
basis, unless otherwise disclosed to the public, and
shall not be used in violation of the Federal
Securities laws and the Regulations.
(8) Apply the net proceeds received by it from the
offering contemplated by this Agreement in a manner as close
as practicable to that set forth under the heading "Use of
Proceeds" in the Prospectus.
(9) Furnish to the Representative as early as
practicable prior to the Closing Date and any Additional
Closing Date, as the case may be, but no less than two full
business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements of the
Company which have been read by the Company's independent
certified public accountants, as stated in their letters to be
furnished pursuant to Sections 7(f) hereof.
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(10) Comply with all filing and reporting
requirements of the Exchange Act, which may from time to time
be applicable to the Company.
(11) Comply with all provisions of all undertakings
contained in the Registration Statement.
(12) Prior to the Closing Date or any Additional
Closing Date, as the case may be, issue no press release or
other public communication, financial in nature or otherwise,
directly or indirectly, and hold no press conference with
respect to the Company, the financial condition, results of
operations, business, properties, assets, liabilities of any
of them, or this offering, without the Representative's prior
written consent.
(13) If the principal stockholders, officers, or
directors of the Company are required by the "blue sky" or
securities authority of any jurisdiction selected by the
Representative pursuant to Section 5(a)(4) to escrow or agree
to restrict the sale of any security of the Company owned by
them for the Company to qualify or register the Securities or
the Additional Securities for sale under the "blue sky" or
securities laws of any such jurisdiction, use its best power
to cause each such person to escrow or restrict the sale of
such securities on the terms and conditions and in the form
specified by the securities administrator of such
jurisdiction.
(14) Use its best efforts to maintain the inclusion
of the Securities and the Additional Securities, if
applicable, on the SCM and BSE, for at least five years from
the date of this Agreement.
(15) On the Closing Date, sell to the Representative,
individually and not as the representative of the
Underwriters, for an aggregate purchase price of $10.00, the
Underwriter's Warrants to purchase up to 125,000 shares of the
Stock and 125,000 Warrants, exclusive of the exercise of any
portion of the Over-allotment Option, which shall be
substantially in the form set forth as an exhibit to the
Registration Statement. The Underwriter's Warrants shall not
be redeemable by the Company at any time or for any reason
without the prior, written consent of the Representative. Each
Underwriter's Warrant shall entitle the holder thereof to
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<PAGE>
purchase one share of Common Stock and one Warrant of the
Company at a price equal to 160% of the initial public
offering price of the Securities sold in the offering,
respectively, for a four-year period, commencing one year
after the Commission declares the Registration Statement
effective. The Underwriter's Warrants may not be sold,
transferred, assigned, pledged or hypothecated by any person
for a period of one year, commencing the date the Commission
declares the Registration Statement effective, except that it
may be transferred, in whole or in part, to one or more
officers and partners of the Representative or Underwriters,
as the case may be or by operation of law; provided, however,
that the foregoing restriction shall lapse in respect to
shares of Common Stock and other securities issuable upon
exercise of the Underlying Warrants as the Warrants are called
for redemption. Thereafter, the Underwriter's Warrants will be
transferrable provided such transfer is in accordance with the
Act.
(16) For five (5) years following the Effective Date,
should the Company merge, reorganize or take any other action
which would terminate the Underwriter's Warrants, the Company
shall make provision, satisfactory to the Representative or
its designees, for either the exercise or continuation of the
Underwriter's Warrants. Furthermore, the Company may not under
any circumstances call for the redemption of the Underwriter's
Warrants. The Underwriter's Warrants will contain certain
anti-dilution provisions in the event the Company (a)
subdivides or combines the outstanding shares of Common Stock,
(b) issues or sells any shares of Common Stock or options or
warrants to purchase Common Stock or securities convertible
into Common Stock for consideration less than the prevailing
market price of a share of Common Stock or (c) engages in a
merger or combination which results in a reclassification or
change of the outstanding Common Stock. In the event of a
merger or acquisition of the Company which involves the
issuance of shares of Common Stock, any change in the exercise
price of the Underwriter's Warrants shall be adjusted based
upon the difference between the exercise price of the
Underwriter's Warrants and fair market value of the Common
Stock issued in connection with such
23
<PAGE>
merger or acquisition (if lower than the market price of the
Common Stock) and the total number of outstanding shares of
Common Stock. The Company shall set aside and at all times
have available a sufficient number of Shares of Common Stock
to be issued upon exercise of the Underwriter's Warrants.
(17) During the four-year period commencing one year
from the effective date of the Registration Statement, the
Company will agree to use its best efforts to register the (i)
Underwriter's Warrants, (ii) Underlying Stock, (iii)
Underlying Warrants and (iv) Underlying Warrant Stock upon
written request of the holders of at least a majority of the
Underlying Stock, no more than once at the Company's own
expense, on a registration statement on Forms SB-2, S-1 or S-3
or other appropriate form, or offering statement, pursuant to
the Act, or file an amendment to the Registration Statement.
These best efforts shall include the preparation and filing of
one demand registration statement with respect to the
securities issuable upon the exercise of the Underwriter's
Warrants during such four-year period and maintaining the
effectiveness thereof, for nine months or until the sale of
such securities in the open market, at the Company's sole
expense (other than underwriter or selling broker costs),
including blue sky fees and expenses.
(18) During the period commencing the second year and
concluding at the end of the seventh year after the effective
date of the Registration Statement, notify all holders of the
Underwriter's Warrants and securities issuable thereunder of
the Company's intention to do another offering of the
Company's securities (whether by the Company or by any
security holder of the Company) and, if requested by such
holders, include any Underwriter's Warrants, Underlying Stock,
Underlying Warrants and Underlying Warrant Stock, regardless
of whether some of such holders have availed themselves of any
of the demand registration right described above, in such
offering at the Company's sole cost and expense, and maintain
the effectiveness thereof for at least 12 months ("Piggyback
Registration Rights"). The Piggyback Registration Rights are
not applicable to a Registration Statement filed by the
Company with the Commission on Forms S-4, S-8 or any other
inappropriate form.
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<PAGE>
The objection of a subsequent underwriter to the exercise of
any Piggyback Registration Rights and inclusion of such
securities, to the extent deemed necessary by such
underwriter, shall be without penalty or prejudice to any of
the Piggyback Registration Rights of the holders of the
unregistered Underwriter's Warrants and securities issuable
thereunder. Notwithstanding the foregoing, to the extent a
subsequent underwriter agrees to register a portion of the
Underwriter's Warrants and securities issuable thereunder,
such inclusion shall be on a pro-rata basis to the holders
thereof without penalty or prejudice to the holders of the
unregistered securities. However, in such event, the Company
will, within six months of the completion of such subsequent
underwriting, file, at its sole expense, a registration
statement to such register such excluded securities.
(19) Until expiration of the Underwriter's Warrants,
keep reserved sufficient shares of Common Stock for issuance
upon exercise of the Underwriter's Warrants and Underlying
Warrants.
(20) Deliver to the Representative, without charge,
no later than six months after the last Additional Closing
Date or the expiration of the period during which the
Representative may exercise the Over-allotment Option, five
(5) sets of bound volumes of the complete Registration
Statement and all related materials to the individuals
designated by the Representative or counsel to the
Underwriters.
(21) For a period of three years after the effective
date of the Registration Statement, provide, at its sole
expense, to the Representative copies of the Company's daily
transfer sheets. The Company shall cause its depository (at
the Company's expense) to fax a "special security position
report" to the Underwriter on a weekly basis.
(22) Maintain key-person life insurance, payable to
the Company on the life of Mr. Andrew Franzone, the Company's
Chief Executive Officer and President, in the amount of
$200,000 and use its best efforts to increase such amount by
an additional $300,000 for the period of time equal to the
longer of (i) three years from
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<PAGE>
the date on which the Registration Statement becomes effective
under the Act and (ii) the terms of the employment agreement
between the Company and Mr. Franzone.
(23) Use its best efforts, for a period of three
years following the date on which the Registration Statement
becomes effective under the Act, to cause a designee of the
Representative to be elected to the Company's Board of
Directors, in the Representative's reasonable judgment, or to
be appointed as an advisor to such Board of Directors (the
"Designee"). The Designee shall attend the meetings of the
Board, receive all notices and other correspondence and
communications sent by the Company to members of the Board of
Directors and receive compensation equal to entitlement of
other non-officer Directors. In addition, the Designee shall
be entitled to receive reimbursement for all costs incurred in
attending such meetings, including, but not limited to, food,
lodging and transportation. The Company further agrees that,
during said three-year period, it shall schedule no less than
four formal and "in person" meetings of its Board of Directors
in each such year at which meetings the Designee shall be
permitted to attend as set forth herein; said meetings shall
be held quarterly each year and advance notice of such
meetings identical to the notice given to Directors shall be
given to the Designee. Further, in the event the
Representative shall not have selected the Designee during
such three-year period, the Company and its principal
stockholders shall give notice to the Representative with
respect to any proposed acquisition, merger, reorganization or
other similar transaction.
(24) Indemnify, to the extent permitted by applicable
law, and hold the Representative and the Designee harmless
against any and all claims, actions, damages, costs, expenses
and judgments arising solely out of the attendance and
participation of the Designee at any such meeting described in
Section 5(a)(23) above. In the event the Company maintains a
liability insurance policy affording coverage of its officers
and directors, it agrees, if possible, to include the Designee
as an insured party under such policy.
(25) Until the expiration of three years from the
date on which the Registration Statement becomes effective
under the Act, not effect a change in the
26
<PAGE>
independent certified public accountants for the Company
unless the Company has received the prior written consent of
the Representative.
(26) For a period of three years from date on which
the Registration Statement becomes effective under the Act,
the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not
audit) the Company's financial statements for each of the
first three fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's
Quarterly Report on Form 10-QSB, and the mailing of quarterly
financial information to stockholders.
(27) Have outstanding, on the Closing Date, 3,195,000
shares of Common Stock on a fully diluted basis, excluding the
Additional Stock, Additional Warrant Stock, Warrant Stock,
Underlying Stock and Underlying Warrant Stock. The Company
will supply the Underwriter with a list of all current
stockholders of the Company and all persons who possess
securities exercisable or exchangeable for, or convertible
into, capital stock.
(28) Have in effect on the Closing Date the Plan,
which will provide for the issuance of shares of Common Stock
and options to purchase Common Stock (which in either case
shall not be more than an aggregate of 300,000 shares of
Common Stock). The Company shall not grant, for a period of
three years following the date on which the Registration
Statement becomes effective under the Act, any options having
an exercise price less than the fair market value of the
Common Stock on such date, except that the Company shall be
permitted to grant non-qualified options; provided, however,
that the exercise price of such non-qualified options shall be
no less than 85% of the fair market value of the Company's
Common Stock on the date of grant.
(29) Cooperate, in addition to the demand and
Piggyback Registration Rights, with the then holders of the
Underwriter's Warrants and securities issuable thereunder, in
the preparation and execution of any registration statement,
in addition to the registration statements and offering
statements referred to above, required in
27
<PAGE>
order to sell or transfer the aforesaid securities and supply
all information required to be included in such registration
statement, but the expenses of such additional registration
statement or offering statement will be pro-rated between the
Company and the holders of the registered securities according
to the aggregate sales price of the securities being
registered.
(30) For a period of 24 months following the
effective date, not effect any offerings of securities
pursuant to Regulation S (or any successor statute) under the
Act, without the Representative's consent, which consent shall
not be unreasonably withheld.
(31) For a period of 24 months following the
effective date, not file a Registration Statement on Form S-8
registering securities other than securities issued to (i)
employees of the Company and its subsidiaries and (ii) 25,000
shares of Common Stock to be issued to Ms. Bao-Wen Chen under
the Plan as of the date the Commission declares the
Registration Statement effective and fully vesting on the
second anniversary of such date.
(32) The Company, its subsidiaries and its principal
stockholders will grant to the Representative a right of first
refusal for a period of three years from the effective date
for any public or private offering of securities to raise
capital and sale of securities to be made by the Company, its
principal stockholders or any of its present or future
subsidiaries.
(33) At or prior to the Closing Date, the Company
shall enter into an agreement retaining the Representative as
management and financial consultants to the Company for a
24-month period, commencing as of the Closing Date at a fee
equal to $5,000 per month, or an aggregate of $120,000. The
entire fee of $120,000 shall be paid in its entirety on the
Closing Date.
(34) Subject to the rules and regulations of the
NASD, the Company will pay the Representative a commission
equal to five percent (5%) for all Warrants exercised more
than 12 months after the effective date. The Representative
may allow a portion of this commission to members in good
standing with the NASD.
28
<PAGE>
Any costs incurred by the Company in connection with the
solicitation of the exercise price of such Warrants shall be
borne by the Company. The Company agrees not to solicit
warrant exercises through any broker dealer other than the
Representative.
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with the following:
(a) the preparation, printing, filing, distribution, and
mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement, and other underwriting and
related agreements and related documents, including the cost of all copies
thereof and of the Preliminary Prospectus and of the Prospectus and any
amendments or supplements thereto supplied to the Underwriters in quantities as
herein above-stated;
(b) the issuance, sale, transfer, and delivery (as applicable)
of the Securities and the Additional Securities, including any transfer or other
taxes payable thereon;
(c) the qualification of the Securities, Warrant Stock,
Additional Securities and Additional Warrant Stock under state or foreign "blue
sky" or securities laws, including the costs of printing and mailing the
preliminary and final "Blue Sky Survey" and the fees for the Underwriters'
counsel in the amount of $35,000 and the disbursements in connection therewith
(not including fees of special counsel if required to be incurred in a merit
review state which may require local counsel);
(d) the filing fees payable to the Commission, the NASD, and
the jurisdictions in which such qualification is sought;
(e) any fees relating to the listing of the Common Stock and
Warrants on SCM or BSE, as the case may be;
(f) the cost of printing certificates representing the
Securities, Warrant Stock, Additional Securities and Additional Warrant Stock.
(g) the fees of the transfer agent and warrant agent for the
Common Stock and Warrants, respectively;
(h) the cost of publication of "tombstone" advertisements with
respect to the offering;
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<PAGE>
(i) a non-accountable expense allowance to the Representative
equal to three percent of the gross proceeds of the Securities and, to the
extent Additional Securities are sold, on the gross proceeds of the sale of the
Additional Securities (less amounts, if any, previously paid to the
Representative in respect of such non-accountable expense allowance) to the
Representative on the Closing Date or Additional Closing Date, as the case may
be.
7. Conditions of Underwriter's Obligations. The obligations of the
Underwriters to purchase and pay for the Securities and the Additional
Securities, as provided herein, shall be subject, in their reasonable
discretion, to the continuing accuracy of the representations and warranties of
the Company contained herein in all material respects and in each certificate
and document contemplated under this Agreement to be delivered to the
Representative, as of the date hereof and as of the Closing Date (or any
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective
under the Act no later than 6:00 p.m., New York City time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representative; on or prior to the Closing Date, or any Additional Closing Date,
as the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order; and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of counsel for the Underwriters. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Regulations.
(b) At the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have received the favorable opinion of
Koerner Silberberg & Weiner, LLP, counsel for the Company, having offices at 112
Madison Avenue, New York, New York 10016, dated the date of delivery, addressed
to the Underwriters, and in form and scope reasonably satisfactory to counsel
for the Underwriters, with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that, as of such Closing Date or
Additional Closing Date, as the case may be:
30
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(1) the Company is a corporation duly incorporated,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation, with full power and
authority, and, to the best of such counsel's knowledge, all
necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. To the best of such Counsel's knowledge, the
Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions in
which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(2) EHC is a corporation duly incorporated, validly
existing, and in good standing under the laws of the
jurisdiction of its incorporation, with full power and
authority, and, to the best of such counsel's knowledge, all
necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. To the best of such Counsel's knowledge, the
Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions in
which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(3) CDP is a corporation duly incorporated, validly
existing, and in good standing under the laws of the
jurisdiction of its incorporation, with full power and
authority, and, to the best of such counsel's knowledge, all
necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the
31
<PAGE>
Prospectus. To the best of such Counsel's knowledge, the
Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions in
which its ownership and leasing of any properties or the
characteristics of its operations require such qualification;
(4) the authorized capital stock of the Company is as
reflected in the Registration Statement, of which the
Prospectus is a part. Except as disclosed in the Prospectus,
each outstanding share of Common Stock is validly authorized
and issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, has not
been issued and is not owned or held in violation of any
statutory preemptive rights of stockholders. To the knowledge
of such counsel, there is no commitment, plan, or arrangement
to issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms
is convertible into, or exercisable or exchangeable for,
capital stock of the Company, except as may be properly
described in the Prospectus. To the knowledge of such counsel,
there is outstanding no security or other instrument which by
its terms is convertible into, or exercisable or exchangeable
for, capital stock of the Company, except as may be described
in the Prospectus. The certificates evidencing the Common
Stock are in proper form;
(5) to the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or
in prospect with respect to the Company and its subsidiaries
or its operations, business, properties, or assets, except as
may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, and can not
reasonably be expected in the future to have, a material
adverse effect upon the operations, business, properties, or
assets of the Company and its subsidiaries.
(6) such counsel has not been advised by the Company
that the Company is now, or is expected to be in violation or
breach of, or in default with respect to, any material
provision of any contract, agreement, instrument, lease,
license,
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<PAGE>
arrangement, or understanding which is material to the
Company, except as set forth in Exhibit E, and, to the
knowledge of such counsel, each such contract, agreement,
instrument, lease, license, arrangement, or understanding is
in full force and effect and is the valid, legal, and binding
obligation of the parties thereto and is enforceable in
accordance with its terms;
(7) to the knowledge of such counsel, the Company is
not in violation or breach of, or in default with respect to,
any term of its certificate of incorporation (or other charter
document) or By-Laws, as those documents have been amended or
restated;
(8) the Company has all requisite power and authority
to execute, deliver, and perform this Agreement and the
Underwriter's Warrants. All necessary corporate proceedings of
the Company have been taken to authorize the execution,
delivery, and performance by the Company of this Agreement and
the Underwriter's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is the
legal, valid, and binding obligation of the Company, and is
enforceable as to the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditors' rights generally.
(9) the Underwriter's Warrants have been duly
authorized by the Company and, when executed and delivered by
the Company, will be legal, valid, and binding obligations of
the Company, each enforceable as to the Company in accordance
with its terms. To the knowledge of such counsel, no consent,
authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution,
delivery, or performance by the Company of this Agreement or
the Underwriter's Warrants (except filings under the Act which
have been made or will be made before the Closing Date or
Additional Closing Date, as the case may be, and filings and
consents consisting only of filings and consents under "blue
sky" or securities laws).
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<PAGE>
No consent of any party to any material contract or agreement
filed as an exhibit to the Registration Statement or
incorporated by reference therein or which, to the best
knowledge of such counsel based solely on the representations
of the Company, is required to be filed as exhibit to the
Registration Statement, is required for the execu tion,
delivery, or performance of this Agreement and the
Underwriter's Warrants; and the execution, delivery, and
performance of this Agreement and the Underwriter's Warrants
will not violate, result in a breach of, conflict with, result
in the creation or imposition of any lien, charge, or
encumbrance upon any properties or assets of the Company
pursuant to the terms of, or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under, any such contract,
agreement or instrument, violate or result in a breach of, or
conflict with any term of the certificate of incorporation (or
other charter document) or ByLaws of the Company.
(10) each share of Stock to be delivered on the
Closing Date is validly authorized and, when issued and
delivered in accordance with the terms hereof, will be validly
issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and is not
issued in violation of any statutory preemptive rights of
stockholders, and assuming the Underwriters are "bona fide"
purchasers under the Uniform Commercial Code as in effect in
the State of New York, the Underwriters will receive good
title to the shares of Stock purchased by them, from the
Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts. The Additional Stock is validly authorized and
when issued and delivered in accordance with the terms hereof,
will be fully paid and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be
issued in violation of any preemptive rights of stockholders,
and upon delivery of the Additional Stock in accordance with
the terms of the Over-allotment Option, assuming the
Underwriters are "bona fide" purchasers under the Uniform
Commercial Code as in effect in the state of New York, the
Underwriters will receive good title to the shares of
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Additional Stock purchased by them, from the Company, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholder's agreements and voting trusts. The
Common Stock, the Stock, and the Additional Stock conform in
all material respects to all statements relating thereto
contained in the Registration Statement or the Prospectus;
(11) the Warrant Stock is validly authorized and has
been duly and validly reserved for issuance pursuant to the
terms of the Warrants. The Warrants have been duly and validly
authorized, executed and delivered. The Warrant Stock, when
issued and delivered in accordance with the Warrants will be
validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, and
will not have been issued in violation of any statutory
preemptive rights of stockholders. The holders of the
Warrants, assuming the Underwriters are "bona fide" purchasers
under the Uniform Commercial Code as in effect in the State of
New York, will receive good title to the Warrant Stock upon
exercise of the Warrants, free and clear of all liens,
security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Warrants and
the Warrant Stock conform in all material respects to all
statements relating thereto contained in the Registration
Statement or the Prospectus;
(12) the Underlying Stock and Underlying Warrant
Stock are validly authorized and has been duly and validly
reserved for issuance pursuant to the terms of the
Underwriter's Warrants and Underlying Warrants, respectively.
The Underlying Warrants have been duly and validly authorized,
executed and delivered. The Underlying Stock and Underlying
Warrant Stock, when issued and delivered in accordance with
the Underwriter's Warrants and Underlying Warrants,
respectively will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and will not have been issued in violation
of any statutory preemptive rights of stockholders. The
Representative, and any other holders of the Underwriter's
Warrants, assuming the Underwriters are "bona fide" purchasers
under the Uniform Commercial Code as in effect in the State of
New
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York, will receive good title to the Underlying Stock and
Underlying Warrants upon exercise of the Underwriter's
Warrants and to the Underlying Warrant Stock upon exercise of
the Underlying Warrants, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Underwriter's Warrants,
Underlying Stock, Underlying Warrants and Underlying Warrant
Stock conform in all material respects to all statements
relating thereto contained in the Registration Statement or
the Prospectus;
(13) to the knowledge of such counsel, each contract,
agreement, instrument, lease, or license required to be
described in the Registration Statement or the Prospectus has
been properly described therein, and each contract, agreement,
instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to the Registration Statement;
(14) insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases, or licenses, such
statements have been prepared or reviewed by such counsel and
accurately reflect the status of such litigation and
provisions purported to be summarized in all material
respects;
(15) the Company is not an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940,
as amended and, if the Company conducts its business as set
forth in the Prospectus, will not become an "investment
company" and will not be required to be registered under the
Investment Company Act;
(16) to the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement except
as described in the Prospectus; and
(17) such counsel has been advised by the Commission
that the Registration Statement has become effective under the
Act, the Prospectus has been
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filed in accordance with Rule 424(b) of the Regulations,
including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel,
no Stop Order has been issued and no proceeding for that
purpose has been instituted or threatened. On the basis of the
participation of such counsel in conferences at which the
contents of the Registration Statement and the Prospectus and
related matters were discussed, but without independent
verification by such counsel of the accuracy, completeness, or
fairness of the statements contained in the Registration
Statement, the Prospectus, or any amendment or supplement
thereto, such counsel has no knowledge that (other than
financial statements and other financial data and schedules
which are or should be contained therein, as to which such
counsel need express no opinion): (A) the Registration
Statement, any Rule 430A Prospectus, and the Prospectus, and
any amendment or supplement thereto, does not appear on its
face to comply as to form in all material respects with the
requirements of the Act and the Regulations; (B) any of the
Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains
any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading; or (C) since the
effective date of the Registration Statement, any event has
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement.
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws, solely on the federal laws
of the United States, the laws of the State of Delaware and the laws of the
State of New York, without giving effect to principles relating to conflicts of
laws; (B) as to matters of fact, to the extent such counsel deems proper, on
originals or copies, certified or otherwise identified to such counsel's
satisfaction, of such corporate records, agreements, documents and other
instrument or comparable documents of public officials; and (C) as to opinions
expressed as being made "to such counsel's knowledge," such counsel's
examination is limited to (i) a review of documents in such counsel's files as
to which such counsel has
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represented the Company, (ii) conversations with certain of the executive
officers of the Company, and (iii) reasonable inquiry by such counsel into
applicable laws. Such counsel has not made independent investigation as to the
accuracy or completeness of any representations, warranties, data or other
information, written or oral, made or furnished by the Company to such counsel
or to the Representative.
In such examination, counsel has assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to counsel as originals, the conformity to original
documents of all documents submitted to counsel as certified or photostatic
copies and the authenticity of the originals of such latter documents.
(c) On or prior to the Closing Date and any Additional Closing
Date, as the case may be, the Representative shall have been furnished with such
information, documents, certificates, and opinions as it may reasonably require
and specifically request for the purpose of enabling it to review the matters
referred to in Section 7(b), and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations, warranties,
covenants, agreements, or conditions herein contained in all material respects,
or as the Representative may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the
case may be, (i) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Regulations,
and in all material respects conform to the requirements thereof, and neither
the Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company and its subsidiaries taken as
a whole from that set forth in the Registration Statement and the Prospectus,
except changes which the Registration Statement and Prospectus indicate might
occur after the date on which the Registration Statement becomes effective under
the Act, and the Company shall not have incurred any material
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liabilities or entered into any agreements not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus,
(iii) except as set forth in the Prospectus, no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation shall be
pending or threatened with respect to the Company or any of its respective
operations, businesses, properties, or assets which would be required to be set
forth in the Registration Statement, wherein an unfavorable decision, ruling, or
finding would materially adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs, of the
Company and its subsidiaries taken as a whole and (iv) the Securities shall have
been approved for listing on the SCM and BSE.
(e) At the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have received a certificate of the
chief executive officer, the chief financial officer, and the chief accounting
officer of the Company, dated the Closing Date or such Additional Closing Date,
as the case may be, to the effect that among other things (i) the conditions set
forth in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all materials respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior thereto have
been fully performed.
(f) At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, the Representative
shall have received a letter, addressed to the Underwriters, and in form and
substance satisfactory to the Representative, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from the independent
certified public accountants for the Company, dated the date of delivery:
(1) confirming that they are, and during the period
covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified
public accountants with respect to the Company within the
meaning of the Act and the published Regulations and stating
that the answer to Item 13 of the Registration Statement is
correct insofar as it relates to them;
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(2) stating that, in their opinion, the consolidated
financial statements and schedules of the Company included in
the Registration Statement examined by them comply in form in
all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(3) stating that, on the basis of procedures (but not
an examination made in accordance with generally accepted
auditing standards) consisting of a reading of the latest
available unaudited consolidated interim financial statements
of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading
of the latest available minutes of the stockholders and Board
of Directors of the Company and committees of such Board of
Directors, inquiries to certain officers and other employees
of the Company responsible for financial and accounting
matters, and other specified procedures and inquiries, nothing
has come to their attention that caused them to believe that:
(A) the unaudited consolidated financial statements and
schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material
respects with the applicable accounting requirements of the
Act, the Exchange Act and the Regulations, or are not fairly
presented in conformity with generally accepted accounting
principles (except to the extent that certain footnote
disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under
the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) there
was any change in the capital stock or long-term debt of the
Company or any decrease in the net current assets or
stockholders' equity of the Company as of the date of the
latest available consolidated monthly financial statements of
the Company or as of a specified date not more than five
business days prior to the date of such letter, each as
compared with the amounts shown in the most recent balance
sheet included in the Registration Statement and Prospectus,
other than as properly described in the Registration Statement
and Prospectus or any change or decrease (which shall be set
forth therein) which the Representative in its sole discretion
shall accept, or (C) there was any
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decrease in consolidated net sales, net earnings, or net
earnings per share of Common Stock of the Company, during the
period from the date of such balance sheet to the date of the
latest available consolidated monthly financial statements of
the Company or to a specified date not more than five business
days prior to the date of such letter, each as compared with
the corresponding period in the preceding fiscal year, other
than as properly described in the Registration Statement and
Prospectus or any decrease (which shall be set forth therein)
which the Representative in its sole discretion shall accept;
and
(4) stating that they have compared specific
numerical data and financial information pertaining to the
Company set forth in the Registration Statement, which have
been specified by the Representative prior to the date of this
Agreement, to the extent that such data and information may be
derived from the general accounting records of the Company,
and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application
of specified readings, inquiries, and other appropriate
procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set
forth in the letter, and found them to be in agreement.
(g) All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Securities and the Additional Securities
shall be satisfactory in form and substance to the Representative and to counsel
for the Underwriters, and the Representative shall have received from such
counsel for the Underwriters a favorable opinion, dated as of the Closing Date
and the Additional Closing Date, as the case may be, with respect to such of the
matters set forth under Section 7(b), and with respect to such other related
matters, as the Representative may reasonably request.
(h) The NASD, upon review of the terms of the initial public
offering of the Securities and the Additional Securities, shall not have
objected to the Underwriters' participation in such offering.
(i) Prior to or on the Closing Date, the Company shall have
entered into the Underwriter's Warrants with the Representative.
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Any certificate or other document signed by any officer of the
Company and delivered to the Representative or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representative may, on behalf of the Underwriters, may terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extends the time for their
fulfillment.
8. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, against any and all loss, liability, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 8, but
not be limited to, reasonable attorneys' fees and any and all reasonable
expenses incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claims and any and all amounts paid
in settlement of any claim or litigation) as and when incurred arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto
or (B) any application or other document or communication (for purposes of this
Section 8, collectively referred to as an "application") executed by, or on
behalf of, the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the
Securities or the Additional Securities under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
any Underwriter by, or on behalf of, such Underwriter through the Representative
expressly for inclusion
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in the Registration Statement, any Preliminary Prospectus, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of an Underwriter (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability it may have other than pursuant to this Section 8(a))
and the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company, and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. The Company shall not,
without the prior written consent of each indemnified party that is not released
as described in this sentence, settle or compromise any action, or permit a
default or consent to the entry of judgment or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Representative and
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Underwriters of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of the
Securities or the Additional Securities, the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus, or any
amendment or supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
who shall have signed the Registration Statement on their own behalf or pursuant
to a power of attorney, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to the
Underwriters in Section 8(a), but only with respect to statements or omissions,
if any, made in the Registration Statement, any Preliminary Prospectus, any Rule
430A Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or on any application in
reliance upon, and in conformity with, written information furnished to the
Company as stated in this Section 8(b) with respect to the Representative
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, any Rule 430A Prospectus, or the Prospectus, or any amendment or
supplement thereto, or on any application, as the case may be; provided,
however, that the obligation of the Representative to provide indemnity under
the provisions of this Section 8(b) shall be limited to the amount which
represents the product of the number of shares of Securities and Additional
Securities underwritten by the Representative and the initial public offering
price per share of such as set forth on the cover page of the Prospectus. For
all purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus constitute the only information
furnished in writing by or on behalf of the Representative expressly for
inclusion in the Registration Statement, any Preliminary Prospectus, any Rule
430A Prospectus, or the Prospectus (as from time to time amended or
supplemented), or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company or any other
person so indemnified based on the Registration Statement, any Preliminary
Prospectus, any Rule 430A Prospectus, or the Prospectus, or any amendment or
supplement thereto, or on any application, and in respect of which indemnity may
be sought against the Representative pursuant to this Section 8(b), the
Representative shall have the
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rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company) as one entity and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party), as a second entity, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject in such proportions as are appropriate to reflect the
relative benefits received by the Company and the Underwriters in the aggregate;
provided, however, that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative fault of the
Company and the Underwriters in the aggregate in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. The relative benefits received by the Company and the
Underwriters in the aggregate shall be deemed to be in the same proportion as
(i) the total proceeds from the offering of the Securities (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and (ii) the total proceeds of the offering of the Additional Securities (net of
underwriting discounts and commissions but before deducting expenses). The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission, or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission, or alleged omission relates
to information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission, or alleged omission. The
Company and the Underwriters agree that it would be unjust and inequitable if
the respective obligations of the Company and the Underwriters for contribution
were determined by pro rata or per capita
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allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(c). In no
case shall any Underwriter be responsible for a portion of the contribution
obligation imposed on all Underwriters in excess of its pro rata share based on
the number of shares underwritten by it as compared to the number of shares
underwritten by all Underwriters who do not default in their obligations under
this Section 8(c). No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 8(c), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent, and counsel of an Underwriter
shall have the same rights to contribution as such Underwriter and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement, and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
provisions of this Section 8(c). Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8(c) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
(d) Notwithstanding the foregoing, in no event shall the
indemnification agreement contained in this Section 8 inure to the benefit of
any Underwriter (or to the benefit of any person controlling such Underwriter)
on account of any losses, claims, damages, liabilities or actions arising from
the sale of the Securities upon the initial public offering to any person by
such Underwriter if such losses, claims, damages, liabilities or actions arise
out of, or are based upon, a statement or omission or alleged omission in a
preliminary prospectus and if, in respect to such statement, omission or alleged
omission, the Prospectus differs in a material respect from such preliminary
prospectus and a copy of the Prospectus has not been sent or given to such
person at or prior to the confirmation of such sale to such person, provided,
however, that (i) sufficient quantities of such Prospectus have been delivered
to the Underwriters to deliver to investors having had
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<PAGE>
received a preliminary prospectus and (ii) the Company has advised in writing
the Underwriters (A) that such Prospectus materially differs from such
preliminary prospectus and (B) to deliver the Prospectus to such investors.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Securities or Additional Securities hereunder, and
if the number of Securities or Additional Securities to which the defaults of
all Underwriters in the aggregate relate does not exceed 10% of the number of
Securities or Additional Securities, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such Securities or Additional Securities
to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number
Securities or Additional Securities, as the case may be, which all Underwriters
have agreed to purchase hereunder, the Representative may, in the
Representative's discretion, arrange for itself or for another party or parties
to purchase such Securities or Additional Securities, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such Securities or Additional Securities
within five business days after the occurrence of defaults relating to in excess
of 10% of the Securities or the Additional Securities, as the case may be, then
the Company shall be entitled to a further period of four business days within
which to procure another party or parties reasonably satisfactory to the
Representative to purchase such Securities or Additional Securities, as the case
may be, on such terms. If the Representative or the Company with respect to the
Securities or Additional Securities, as the case may be, does not arrange for
the purchase of the Securities or Additional Securities to which such defaults
relate as provided in this Section 9(b), this Agreement may be terminated by the
Representative or Company with respect to the Securities or Additional
Securities, in each case without liability on the part of the Company (except
that the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall survive such
termination) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.
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(c) If the Securities or Additional Securities to which such
defaults relate are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, the Representative or
the Company with respect to the Securities or Additional Securities shall have
the right to postpone the Closing Date or the Additional Closing Date, as the
case may be, for a reasonable period but in any event not more than ten business
days in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements with respect to the Securities or the Additional Securities, and
the Company agrees to prepare and file promptly any amendment or supplement to
the Registration Statement or the Prospectus which in the opinion of counsel for
the Underwriters may thereby be made necessary. The term "Underwriter" as used
in this Agreement shall include any party substituted under this Section 9 as if
such party had originally been a party to this Agreement and had been allocated
the number of Securities and Additional Securities actually purchased by it as a
result of its original commitment to purchase Securities and Additional
Securities and its purchase of Securities or Additional Securities pursuant to
this Section 9.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Securities and the Additional Securities
to the several Underwriters. In addition, the provisions of Sections 5(a)(1), 6,
8, 10, 11, and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
11. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 9:30 a.m., New
York City local time, on the first full business day following the day on which
the Registration Statement becomes
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effective under the Act. The Representative or the Company may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as noted below in this Section 11, by giving the notice indicated
in Section 11(d) before the time this Agreement becomes effective under the Act.
(b) If the relative purchase price of the Stock and the
Warrants as provided for in Section 3 has been changed and has not been
determined prior to 4:30 p.m., New York City local time, on the fifth full
business day after the date the Registration Statement becomes effective under
the Act, this Agreement may be terminated at any time thereafter either by the
Representative or by the Company by giving notice to the other unless before
such termination the relative purchase price for the Stock and Warrants has been
so determined. If the relative purchase price of the Stock and Warrants has not
been so determined prior to 4:30 p.m., New York City local time, on the tenth
full business day after the date the Registration Statement becomes effective
under the Act, this Agreement shall automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement
pursuant to Sections 7 and 9 hereof, the Representative shall have the right to
terminate this Agreement at any time prior to the Closing Date by giving notice
to the Company, and, if exercised, the Over-allotment Option, at any time prior
to any Additional Closing Date, by giving notice to the Company, (i) if any
domestic or international event, act, or occurrence has materially disrupted,
or, in the Representative's opinion, will in the immediate future materially
disrupt, the securities markets; or (ii) if there shall have been a general
suspension of, or a general limitation on prices for, trading in securities on
the New York Stock Exchange, Boston Stock Exchange or the American Stock
Exchange or in the over-the-counter market; or (iii) if there shall have been
any new outbreak or increase in the level of major hostilities or other national
or international calamity; or (iv) if a banking moratorium has been declared by
a state or federal authority; or (v) if a moratorium in foreign exchange trading
by major international banks or persons has been declared; or (vi) if there
shall have been a material interruption in the mail service or other means of
communication within the United States; or (vii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage, or other calamity or malicious act, whether or not
such loss shall have been insured, or from any labor dispute or court or
government action, order, or decree, which will, in the Representative's
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opinion, make it inadvisable to proceed with the offering, sale, or delivery of
the or the Additional Securities, as the case may be; or (viii) if any two of
David L. Kassel, Andrew Franzone and Harry Goodman are rendered disabled or die
or otherwise become unable to function in their respective official capacities
at the Company; or (ix) if any material governmental restrictions shall have
been imposed on trading in securities in general, which restrictions are not in
effect on the date hereof; or (x) if there shall be passed by the Congress of
the United States or by any state legislature any act or measure, or adopted by
any governmental body or authoritative accounting institute or board, or any
governmental executive any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Stock and Warrants; or (xi) if there shall have a material
adverse change in the market for the Securities or securities in general or in
political, financial, or economic conditions as in the Representative's judgment
makes it inadvisable to proceed with the offering, sale, and delivery of the
Securities or the Additional Securities, as the case may be, on the terms
contemplated by the Prospectus.
(d) If the Representative elects to prevent this Agreement
from becoming effective, as provided in this Section 11, or to terminate this
Agreement, the Representative shall notify the Company promptly by telephone,
telex, or telegram, confirmed by letter. If, as so provided, the Company elects
to prevent this Agreement from becoming effective or to terminate this
Agreement, the Company shall notify the Representative promptly by telephone,
telex, or telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding
other than Section 11(f), if this Agreement shall not become effective by reason
of an election by the Representative pursuant to this Section 11, the sole
liability of the Company to the Underwriters, in addition to the obligations the
Company assumed pursuant to Section 6, will be to reimburse the Underwriters for
accountable out-of-pocket expenses only as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Securities and the Additional Securities, and, upon demand, the Company agrees
to pay promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters. If this Agreement shall not be carried out within
the time specified herein for any reason other than the failure on the part of
the
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Company to perform any covenant or agreement or satisfy any condition of this
Agreement by it to be performed or satisfied, the Company shall have no
liability to the Underwriters other than for obligations assumed by the Company
pursuant to Section 6.
(f) Notwithstanding any election hereunder or any termination
of this Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to:
Network 1 Financial Securities, Inc.
The Galleria
Building 2/Penthouse
2 Bridge Avenue
Red Bank, New Jersey 07701-1106
Attention: Virginia K. Sourlis, Esq.
Telephone: (800) 886-7007
Facsimile: (732) 758-6671
with copies to: Damon Testaverde
580 Oakdale Street
Staten Island, New York 10312
Telephone: (718) 317-7746
Facsimile: (718) 966-9711
and Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Robert H. Cohen, Esq.
Philip Magri, Esq.
Telephone: (212) 735-8600
Facsimile: (212) 735-8708
or if sent to the Company shall be mailed, delivered, or telexed or telegraphed
and confirmed by letter, to the Company:
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International Smart Sourcing, Inc.
320 Broad Hollow Road
Farmingdale, New York 11735
Attention: Andrew Franzone, President
Telephone: (516) 752-1950
Facsimile: (516) 752-1971
with a copy to: Koerner Silberberg & Weiner, LLP
112 Madison Avenue
New York, New York 10016
Attention: Carl Seldin Koerner, Esq.
Guido A. Panzera, Esq.
Telephone: (212) 689-4400
Facsimile: (212) 689-3077
All notices hereunder shall be effective upon receipt by the party to which it
is addressed.
13. Parties. The Representative represents that it is authorized
to act on behalf of the several Underwriters named in Schedule I hereto, and the
Company shall be entitled to act and rely on any request, notice, consent,
waiver, or agreement purportedly given on behalf of the Underwriters when the
same shall have been given by the Representative on such behalf. This Agreement
shall inure solely to the benefit of, and shall be binding upon, the
Underwriters and the Company, and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Securities or the Additional Securities), and
no other person shall have, or be construed to have, any legal or equitable
right, remedy, or claim under, in respect of, or by virtue of this Agreement or
any provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
14. Severability. Should any provision or portion of any provision of
this Agreement be invalidated for any reason, the validity of the remaining
provisions or of the other portion of the provision in question shall not be
affected thereby. This Agreement supersedes any prior letter, agreement or
understanding concerning the subject matter hereof.
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15. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
16. Counterparts. The Agreement may be executed in any number of
counterparts and each of such counterpart shall for all purposes be deemed to be
an original, and such counterparts shall together constitute but one and the
same instrument.
17. Construction. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.
18. Consent to Jurisdiction. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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,
INTERNATIONAL SMART SOURCING, INC.
By:
----------------------------------------------
Name: Andrew Franzone
Title: President and Chief Executive Officer
Accepted as of the date first above
written in New York, New York
NETWORK 1 FINANCIAL SECURITIES, INC.*
By:
--------------------------------------------
Name: William R. Hunt, Jr.
Title: President
* On behalf of itself and the other several
Underwriters named in Schedule I hereto.
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SCHEDULE I
Underwriter Stock Purchased Warrants Purchased
Network 1 Financial Securities, Inc.
--------- ----------
Total: 1,250,000 1,250,000
========= =========
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 15, 1999 relating to the financial
statements of International Smart Sourcing, Inc. and subsidiaries as of December
26, 1998 and for each of the years in the two year period then ended and of our
report dated February 15, 1999 of Compact Disc Packaging Corp. as of December
24, 1998 and for each of the years in the two year period then ended and for the
period January 31, 1995 (inception) through December 24, 1998 in the
Registration Statement on Form SB-2, Amendment No.7, and the related Prospectus
of International Smart Sourcing, Inc.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
April 21, 1999
