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EXHIBIT 1.01
eRoomSystem Technologies, Inc.
1,800,000 Shares
Common Stock
UNDERWRITING AGREEMENT
July __ , 2000
Donald & Co. Securities Inc.
As Representative of the Underwriters
named in Schedule I hereto
65 East 55th Street, 12th floor,
New York, New York 10022
Dear Sirs/Madams:
eRoomSystem Technologies, Inc., a Nevada corporation (the "Company"),
hereby confirms its agreement with Donald & Co. Securities Inc. ("Donald" or
"You") and the other underwriters named in Schedule I hereto for which you are
acting as representative, as set forth in paragraphs 1 through 14 below. You, in
your capacity as representative shall be referred to as the Representative. You
and the other underwriters shall collectively be called the "Underwriters".
1. INTRODUCTORY. Pursuant to the terms of this Underwriting Agreement (this
"Agreement"), the Company proposes to issue and sell, severally and not jointly,
to the Underwriters 1,800,000 shares of Common Stock, $0.001 par value, of the
Company ("Common Stock"). In addition, solely for the purpose of covering
over-allotments, the Company proposes to grant to Donald the option to purchase
up to an additional 270,000 shares of Common Stock
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("Additional Stock"). The Common Stock to be sold by the Company is herein
called the "Firm Stock." The Common Stock is more fully described in the
Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and amendments thereto, on Form
SB-2 (File No. 333-34882), including any related preliminary prospectus
("Preliminary Prospectus"), for the registration of the Firm Stock and the
Additional Stock under the Securities Act of 1933, as amended (the "Act"). The
Company will not, before the registration statement becomes effective (the
"Effective Date"), file any other amendment to said registration statement to
which you shall reasonably object in writing after being furnished with a copy
thereof. Copies of such registration statement and all amendments thereto, and
all forms of the related Preliminary Prospectus contained therein, previously
filed by the Company with the Commission, have heretofore been delivered to you.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, exhibits and
all other documents filed as a part thereof and all information deemed to be a
part thereof as of such time pursuant to paragraph (b) of Rule 430A of the
General Rules and Regulations of the Commission under the Act (the
"Regulations")) is herein called the "Registration Statement". The prospectus in
the form filed with the Commission pursuant to Rule 424(b) of the Regulations is
herein called the "Prospectus".
(b) Neither the Commission nor any "Blue Sky" or securities authority
of any jurisdiction has issued an order preventing or suspending the use of any
Preliminary Prospectus relating to the proposed offering of the Firm Stock and
Additional Stock or has instituted proceedings for that purpose. Each
Preliminary Prospectus, at the time of filing with the Commission, contained all
material statements which are required to be stated therein in accordance with
the Act and the Regulations, and conformed in all material respects with the
requirements of the Act and the Regulations and did not include 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, in the light of the
circumstances under which they were made, not misleading. The Registration
Statement at the time it becomes effective and the Prospectus at the time it is
filed with the Commission pursuant to Rule 424(b) and on the Closing Date (and
the Additional Closing Date, if any, determined as hereinafter provided in
Section 3) will contain all material statements which are required to be stated
therein in accordance with the Act and the Regulations, and will in all material
respects conform to the requirements of the Act and the Regulations, and the
Registration Statement and the Prospectus will not, on such dates, include 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, in light of
the circumstances under which they were made, not misleading, except that no
representations or warranties are made with respect to statements or
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omissions made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representative expressly for use in the Registration Statement or Prospectus or
any amendment or supplement thereto.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Nevada. Except for
eRoomSystem SPE, Inc., ("eRoomSPE") and as set forth on Exhibit 21.01 of the
Registration Statement, the Company has no subsidiary or subsidiaries and does
not control, directly or indirectly, any corporation, partnership, joint
venture, association or other business organization each of the Company's
subsidiaries (the "Subsidiaries") identified on Exhibit 21.01 has been duly
organized and are validly existing as a corporation in good standing under the
laws of the state of its incorporation. The Company owns, directly or
indirectly, all of the capital stock of the Subsidiaries. All such shares of
capital stock so owned are validly issued and outstanding, fully paid and
non-assessable and are owned free and clear of any liens, encumbrances or other
restrictions; provided, however, all outstanding shares of capital stock of
eRoomSystem, Inc. have been pledged in favor of Amresco Leasing Corporation, a
Nevada corporation, and all outstanding shares of capital stock of RSI BRE,
Inc., a Nevada corporation, have been pledged in favor of RSG, LLC, an Idaho
limited liability company. The Company and the Subsidiaries are duly qualified
and in good standing as foreign corporations in all jurisdictions where the
character or location of their properties (owned or leased) or the nature of
their business makes such qualification necessary, except where the failure so
to qualify would not have a material adverse effect on the business, properties,
results of operations, condition (financial or otherwise), affairs or prospects
of the Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"). The Company and the Subsidiaries have all requisite corporate power
and authority, and all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials and
bodies, to own their respective properties and conduct their respective
businesses as described in the Prospectus, and the Company has all such power,
authority, authorizations, approvals, orders, licenses, certificates and permits
to enter into this Agreement and to carry out the provisions and conditions
hereof. The Company and the Subsidiaries own, or possess adequate rights to use,
all patents, trademarks, service marks and other rights necessary for the
conduct of their business as described in the Prospectus and neither the
Company, nor the Subsidiaries nor any officer or director of the Company or of
the Subsidiaries has received any notice of conflict with the asserted rights of
others in any respect which would have a Material Adverse Effect, and neither of
them knows of any basis therefor. The Company has no subsidiary other than the
Subsidiaries.
(d) Notwithstanding the outstanding security interests evidenced by
financing statements filed pursuant to the Uniform Commercial Code the Company
and the Subsidiaries have either good and marketable title in fee simple to, or
valid and enforceable leasehold estates in, all items of real property and
personal property which are stated in the Prospectus to be owned or leased by
it, in each case free and clear of all liens, encumbrances, claims, security
interests, subleases and defects, other than those referred to in the
Registration Statement and Prospectus
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and those which do not have a Material Adverse Effect. Each of the Company and
the Subsidiaries has the right to operate all of its facilities in their present
locations and the operation of such facilities does not violate in any material
respect the provisions of any lease with respect thereto which the Company, any
of the Subsidiaries or any third party is a party.
(e) There is no litigation or governmental proceeding pending or, to
the knowledge of the Company or of the Subsidiaries, threatened against, or
involving the properties or business of, the Company or of the Subsidiaries, nor
are there any actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race and no
labor disturbance by the employees of the Company exist, which could have a
Material Adverse Effect, except as referred to in the Prospectus.
(f) All contracts, agreements, documents and other instruments
required to be filed as exhibits to the Registration Statement have been filed
with the Commission as exhibits thereto.
(g) The consolidated financial statements of the Company, including
all notes and schedules thereto included in the Registration Statement and
Prospectus present fairly the stockholders' equity and the other information
purported to be shown therein of such companies at the respective dates and for
the respective periods to which they apply; however, RSI BRE, Inc. is not
consolidated for accounting purposes and eRoomSystem SPE, Inc. was formed on May
10, 2000; and such financial statements and related schedules and notes have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of the results for such periods have been
made. The summary and selected financial data included in the Prospectus present
fairly the information shown therein at the respective dates and for the
respective periods as specified and the summary and selected financial data have
been presented on a basis consistent with the consolidated financial statements
so set forth in the Prospectus and other financial information. Except as
otherwise expressly specified in the Registration Statement or the Prospectus,
such financial statements are in accordance with the books and records of the
Company in all material respects. No other financial statements are required by
the applicable form of the Registration Statement or the Prospectus or otherwise
to be included in the Registration Statement or the Prospectus.
(h) Hansen, Barnett & Maxwell, whose reports are filed with the
Commission as a part of the Registration Statement, are independent accountants
as required by the Act and the Regulations.
(i) Except for the shares of capital stock of the Subsidiaries and a
twenty-eight (28%) percent ownership interest in the outstanding shares of
capital stock of eRoomSystem ______________ neither the Company nor the
Subsidiaries owns, directly or indirectly, any shares of stock or any other
securities of any corporation nor does the Company or the
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Subsidiaries have any equity interest in any firm, partnership, joint venture,
association or other entity, except as referred to in the Prospectus.
(j) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus, there has been no
material adverse change in the business, properties, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and the
Subsidiaries, taken as a whole, except as referred to therein; and the
outstanding debt, the property and the business of the Company and the
Subsidiaries conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(k) Except as described in the Registration Statement and Prospectus,
no default exists, and no event has occurred which with notice or lapse of time,
or both, would constitute a default, in the due performance and observance of
any term, covenant or condition of any indenture, mortgage, deed of trust, note,
bank loan or credit agreement or any other agreement or instrument to which the
Company or the Subsidiaries is a party or by which any of them or any of their
property may be bound or affected, which default would have a Material Adverse
Effect.
(l) Except as described in the Registration Statement and Prospectus,
neither the Company nor the Subsidiaries is in breach of any term or provision
of its Articles of Incorporation, By-laws or other charter documents and in
violation of any franchise, license, permit, judgment, decree, order, statute,
rule or regulation, which violation is a Material Adverse Effect. Except as
described in the Registration Statement and Prospectus, neither the Company nor
the Subsidiaries is in violation of any laws, ordinances, governmental rules or
regulations to which any of them is subject, which violation is a Material
Adverse Effect. Except as set forth in the registration statement and prospectus
neither the Company nor the Subsidiaries has failed to obtain any licenses,
permits, franchises or other governmental authorizations materially necessary to
the ownership of its property or to the conduct of its business.
(m) Neither the execution and delivery of this Agreement, the
Representative's Warrant Agreement (as defined in Section 3(h) hereof) and the
Financial Consulting Agreement (as defined in Section 5(t) hereof), the
consummation of the transactions herein or therein contemplated, nor compliance
with the terms and provisions hereof or thereof will conflict with, or result in
a breach of any of the terms, provisions or conditions of the Articles of
Incorporation, By-laws or other charter documents of the Company or of the
Subsidiaries. The execution and delivery of this Agreement, the Representative's
Warrant Agreement and the Financial Consulting Agreement, the consummation of
the transactions herein or therein contemplated, and compliance with the terms
and provisions hereof or thereof will not conflict with, or result in a breach
of, or constitute a default under any of the terms, provisions or conditions of
any agreement or instrument to which the Company or the Subsidiaries is a party
or by which any of them or any of their properties is bound, except where such
conflict, breach or default would not have a Material Adverse Effect, or violate
any franchise, license, permit, judgment, decree, order,
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statute, rule or regulation of any government, governmental authority or court
having jurisdiction over the Company or its Subsidiaries, except where such
violation would not have a Material Adverse Effect.
(n) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement, the
Representative's Warrant Agreement and the Financial Consulting Agreement. The
Representative's Warrant Agreement and the Financial Consulting Agreement have
been duly authorized, executed and delivered by the Company and constitute
legal, valid and binding agreements of the Company and are enforceable against
the Company in accordance with their respective terms except as enforceability
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally, and except insofar as the enforceability
of the indemnification and contribution terms may be limited by applicable law
or public policy.
(o) All of the issued shares of Common Stock, have been duly
authorized and validly issued and are fully paid and non-assessable and free of
preemptive rights; the Firm Stock and the Additional Stock have been duly
authorized and, when issued and delivered in accordance with this Agreement,
will be validly issued, fully paid and non-assessable and free of preemptive
rights. The Company's capital stock conforms in all material respects to all
statements in relation thereto contained in the Registration Statement and
Prospectus. Other than the shares of convertible preferred stock that will be
automatically converted into common stock upon the Closing Date the Company has
no outstanding capital stock other than the Common Stock. None of the Articles
of Incorporation, the By-laws, nor any contract or other instrument contain
provisions regarding preemptive rights; provided, however, Ash Capital, LLC
retains price protection rights with respect to its shares of Series B Preferred
Stock subject to termination immediately prior to the initial public offering.
(p) The warrants that will be issued pursuant to the terms of the
Representative's Warrant Agreement (the "Representative's Warrants") have been
duly and validly authorized by the Company and upon delivery to you against
payment therefore and otherwise in accordance with this Agreement and the
Representative's Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally.
(q) The Common Stock underlying the Representative's Warrants (the
"Representative's Warrant Stock") has been duly authorized and reserved for
issuance upon exercise of the Representative's Warrants, and, when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
non-assessable shares of Common Stock and free of pre-emptive rights.
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(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, neither the Company nor the
Subsidiaries has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money (except under the Company's
credit facility in a manner consistent with past practice), (ii) entered into
any material transaction not in the ordinary course of business, (iii) entered
into any transaction with an affiliate of the Company other than the
Subsidiaries, or (iv) declared or paid any dividend on its shares of Common
Stock.
(s) The Company has obtained as of the date hereof lock-up agreements,
satisfactory to the Representative, with respect to the Common Stock from all of
the Company's directors and executive officers who beneficially own Common Stock
of the Company or rights to obtain common stock Selling Shareholders and
shareholders who beneficially own five percent (5%) or more of the Company's
outstanding Common Stock.
(t) No consent, authorization or approval is required to be obtained
by the Company from any Federal, state or local governmental agency or body in
order to consummate the transactions contemplated herein or in the Registration
Statement, other than such consents, authorizations or approvals as have been
obtained.
(u) No person holds a right to require or participate in the
Registration Statement or have securities registered under the Act which right
has not been duly waived by the holder thereof as of the date hereof, except as
disclosed in the Registration Statement and Prospectus or that would not have a
Material Adverse Effect. The Company does not have outstanding, and at the
Closing Date and the Additional Closing Date, if any, will not have outstanding,
any options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its Common Stock or any such warrants, convertible
securities or obligations, except as referred to in the Registration Statement
and Prospectus.
(v) The Company and the Subsidiaries each has timely filed all
Federal, state, and local tax returns which are required to be filed and has
paid all taxes shown on such returns and all assessments received by it to the
extent that the same have become due, except any being contested in good faith.
(w) To the knowledge and belief of the Company's officers and
directors (such officers and directors having made reasonable investigation with
respect thereto), neither the Company, nor the Subsidiaries nor any officer,
director or employee of the Company or of the Subsidiaries has made any payment
of funds of the Company or of the Subsidiaries or purchased any property with
funds of the Company or of the Subsidiaries in a manner prohibited by law, and
no funds of the Company or of the Subsidiaries or property purchased with funds
of the Company or of the Subsidiaries has been set aside to be used for any
payment prohibited by law.
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(x) Except as set forth in the Registration Statement and Prospectus,
the Company does not know of any claims for services in the nature of a finders
fee, brokerage fee or otherwise with respect to this offering for which the
Company, the Subsidiaries or you may be responsible.
(y) The Company has obtained from such key executives as are
designated by the Representative (the "Key Employees") new or modified
employment agreements upon terms agreeable to the Company and the
Representative, including, without limitation, the term, compensation,
arrangement and restrictive covenants. The Company has obtained key man life
insurance upon the lives of the Key Employees in face amounts mutually agreeable
to the Company and the Representative.
(z) The Company's application to have its Common Stock trade on the
Nasdaq SmallCap Market has been approved and is not subject to any notice that
the shares will not be traded thereon on the Effective Date or that there are
any circumstances which constitutes a breach of maintenance requirements for the
continued listing of these securities thereon.
3. PURCHASE, SALE AND DELIVERY OF THE FIRM STOCK AND ADDITIONAL STOCK.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell, severally and not jointly, to the Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the Company, at
a purchase price of [between eight dollars ($8.00) per Share, and Ten Dollars
($10.00) per Share] the number of shares of Firm Stock set forth opposite their
respective names in Schedule I.
(b) Payment of the purchase price for, and delivery of, the Firm Stock
shall be made at your discretion by wire transfer or by certified or official
bank check in New York Clearing House funds or similar funds, payable to the
order of the Company at the offices of Donald & Co. Securities Inc., 65 East
55th Street, New York, New York, through the facilities of the Depository Trust
Company, or such other place as shall be designated by you. Such delivery and
payment shall be made at 9:00 A.M., New York time, on the third business day
following the Effective Date; provided, however, that such date may be extended
for not more than an additional five business days by the Representative or in
accordance with the provisions of Section 9(c) hereof. The hour and date of such
delivery and payment are herein called the "Closing Date".
(c) Certificates evidencing the Firm Stock shall be registered in such
name or names and in such authorized denominations as you may request in writing
at least two full business days prior to the Closing Date. The Company will
permit you to examine and package said certificates at least one full business
day prior to the Closing Date.
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(d) In addition, on the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth, the
Company grants to Donald the option to purchase all or a portion of the
Additional Stock as may be necessary to cover over-allotments at the same
purchase price per share to be paid by the Underwriters to the Company for the
Firm Stock as determined in this Section 3. Donald's option to elect to purchase
the Additional Shares may be exercised only to cover over-allotments in the sale
of shares of Firm Stock by the Underwriters. This option may be exercised at any
time or from time to time on or before the thirtieth (30th) day following the
Effective Date by written notice by Donald to the Company. Such notice shall set
forth the aggregate number of shares of Additional Stock as to which the option
at that time is being exercised and the date and time, as reasonably determined
by you, when the Additional Stock is to be delivered (such dates and times being
herein sometimes referred to as"Additional Closing Date"); provided, however,
that no Additional Closing Date shall be earlier than the Closing Date nor
earlier than the third business day after the date on which the option shall
have been exercised nor later than the eighth business day after the day on
which the option shall have been exercised.
(e) Payment of the purchase price for, and delivery of, the Additional
Stock shall be made at your discretion by wire transfer or by certified or
official bank checks in New York Clearing House funds or similar funds, payable
to the order of the Company with respect to the shares of Additional Stock at
the offices of Donald & Co. Securities Inc., 65 East 55th Street, New York, New
York, through the facilities of the Depository Trust Company or such other place
as shall be designated by you.
(f) Certificates evidencing the Additional Stock shall be registered
in such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Additional Closing Date.
The Company will permit you to examine and package said certificates for
delivery at least one full business day prior to the Additional Closing Date.
(g) The Company shall not be obligated to sell or deliver any shares
of Firm Stock or Additional Stock, as the case may be, except upon tender of
payment by the Representative for all the Firm Stock or Additional Stock, as the
case may be, agreed to be purchased from it hereunder.
(h) On the Closing Date, the Company shall issue and sell to Donald,
at a purchase price of $0.001 per Warrant, warrants to purchase 180,000 shares
of Common Stock (the "Representative's Warrants"). The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year from
the Effective Date at an initial exercise price equal to one hundred twenty
percent (120%) of the initial public offering price of the Firm Stock. The
Representative's Warrants shall be issued pursuant to the terms and provisions
of the Representative's Warrant Agreement substantially in the form of the
Representative's Warrant
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Agreement filed as an Exhibit to the Registration Statement (the
"Representative's Warrant Agreement").
4. OFFERING. You are to make a public offering of the Firm Stock as soon,
on or after the effective date of the Registration Statement, as you deem it
advisable so to do. The Firm Stock is to be initially offered to the public at
the initial public offering price set forth on the cover page of the Prospectus
(such price being herein called the "public offering price"). You may from time
to time increase or decrease the public offering price after the initial public
offering to such extent as you may determine.
5. COVENANTS OF THE COMPANY.
The Company covenants that it will:
(a) On or prior to the Effective Date complete all corporate action as
required in connection with the offering.
(b) Use its best efforts to cause the Registration Statement to become
effective and will notify you immediately, and confirm the notice in writing,
(i) when the Registration Statement, or any post-effective amendment thereto,
shall have become effective, (ii) of the issuance by the Commission of any stop
order or of the initiation or the threatening of any proceedings for that
purpose, and (iii) of the receipt of any comments by the Commission. The Company
will prepare and timely file with the Commission under Rule 424(b) of the
Regulations a prospectus containing information previously omitted on the
Effective Date in reliance of Rule 430A of the Regulations. The Company will use
its best efforts to prevent the issuance of any stop order or any order
preventing or suspending the use of the Registration Statement or Prospectus
and, if such order is issued, to obtain the lifting thereof as promptly as
possible.
(c) During the time when a prospectus is required to be delivered
under the Act, comply so far as it is able with all requirements imposed upon it
by the Act, as now and hereafter amended, and by the Regulations, as from time
to time in force, so far as necessary to permit the continuance of sales or of
dealings in the Firm Stock and the Additional Stock in accordance with the
provisions hereof and the Prospectus. If at any time when a prospectus relating
to the Firm Stock or the Additional Stock is required to be delivered under the
Act any event shall have occurred as a result of which, in the reasonable
opinion of counsel for the Company or your counsel, the Registration Statement
or Prospectus as then amended or supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or it is necessary at any time to
amend or supplement the Registration Statement or Prospectus to comply with the
Act, the Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form reasonably
satisfactory to you).
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(d) Deliver to you such number of copies of each Preliminary
Prospectus as you may reasonably request and, deliver to you two signed copies
of the Registration Statement, including exhibits, and all post-effective
amendments thereto and such number of copies of the Prospectus, the Registration
Statement and amendments and supplements thereto, if any, without exhibits, as
you may reasonably request for the purposes contemplated by the Act.
(e) Endeavor in good faith, in cooperation with you, at or prior to
the time the Registration Statement becomes effective, to qualify the Firm Stock
and the Additional Stock for offering or sale of the Firm Stock and the
Additional Stock of such jurisdictions as you may reasonably designate; provided
that no such qualification shall be required in any jurisdiction where, as a
result thereof, the Company would be subject to service of general process or
would be required to become qualified to do business as a foreign corporation
doing business in such jurisdiction. In each jurisdiction where the
qualification of the Firm Stock and Additional Stock shall be effected, the
Company will, unless you agree 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 reasonably required by the laws of such jurisdiction.
(f) Make generally available to its security holders and to the
Representative as soon as practicable, but not later than the last day of the
fifteenth full calendar month following the Effective Date, an earnings
statement (which need not be certified by independent auditors unless required
by the Act or the Regulations, but which shall satisfy the provisions of Section
ll(a) of the Act) covering a period of at least twelve months beginning after
the Effective Date.
(g) No provision.
(h) For a period of five (5) years from the effective date of the
Registration Statement, furnish you the following:
(i) as soon as practicable after they have been filed with the
Commission, two copies of each annual, quarterly and current report on
Form 10-K, Form 10-Q or Form 8-K (to the extent the Company shall be
required to file such reports pursuant to the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder
(collectively the "Exchange Act") and, as soon as practicable after
they have been sent by the Company to its security holders, two copies
of any communications sent by it to its public security holders
generally;
(ii) as soon as practicable, two copies of every press release
and every material news item and article with respect to the Company
or its affairs which was released by the Company; and
(iii) such additional non-confidential documents and information
with respect to the Company and its affairs as you may from time to
time reasonably request.
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(i) Apply the net proceeds from the offering received by the Company
in the manner set forth under "Use of Proceeds" in the Prospectus and comply
with Rule 463 under the Act.
(j) Furnish to you as early as practicable prior to the Closing Date
and Additional Closing Date, as the case may be, but no later than two full
business days prior thereto, a copy of the latest available unaudited interim
financial statements of the Company, if any, which have been reviewed by the
Company's independent auditors, as stated in their letters to be furnished
pursuant to Section 7(f) hereof.
(k) Not file any amendment or supplement to the Registration Statement
or Prospectus after the Effective Date to which you shall reasonably object in
writing after being furnished a copy thereof.
(l) If any action or proceeding shall be brought by you in order to
enforce any right or remedy under this Agreement, the Company hereby consents
to, and agrees that it will submit to, the jurisdiction of the courts of the
State of New York and of any Federal court sitting in the United States District
Court for the Southern District of New York. The Company agrees that process in
any such action or proceeding may be served in that manner provided by New York
law for service on foreign corporations.
(m) Comply with all registration, filing and reporting requirements of
the Exchange Act which may from time to time be applicable to the Company.
(n) Prior to the Effective Date obtain a listing in Standard & Poors
Corporations Manual and thereafter use its best efforts to maintain such listing
for at least five (5) years from the Effective Date.
(o) Not later than three months following the date of this Agreement,
cause to be delivered to you and to your counsel, Parker Duryee Rosoff & Haft,
four (4) bound volumes containing therein all filings, including exhibits, and
correspondence to and from the Commission, the National Association of
Securities Dealers, Inc. ("NASD") and all states or other jurisdictions
concerning the offering of the Firm Stock, underwriting documents and closing
documents, plus any other relevant material.
(p) For a period of three (3) years from the Closing Date, engage your
designee as an advisor (the "Advisor") to the Company's Board of Directors. The
Advisor shall be permitted to attend meetings of the Board and each of its
committees and receive no more or less compensation as is equal to the
entitlement of the Directors including, without limitation, all compensation
payable to Directors as members of the committees of the Board or in connection
with any other Board activities; PROVIDED, HOWEVER, that the Company may require
as a condition precedent that any such Advisor shall agree to hold in confidence
and trust and to act in a fiduciary manner with respect to all information,
including, but not limited to, trade secrets, so received during such meetings
and
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may require that such Advisor sign a confidentiality agreement with the Company;
and, PROVIDED, FURTHER, that the Company reserves the right not to provide
information and to exclude such Advisor from any meeting or portion thereof if
attendance at such meeting by such Advisor or dissemination of any information
at such meeting to such Advisor would compromise or adversely affect the
attorney-client privilege between the Company and its counsel, or would, in the
good faith judgment of the Board of Directors, result in a conflict of interest
situation. The Company shall use its reasonable efforts to promptly bring to the
attention of such Advisor any agenda item that, in the good faith judgment of
the Board of Directors, would result in such a trade secret, privileged matter
or conflict of interest and the Board of Directors may exclude such Advisor (or
alternatively, the Advisor shall be entitled to exclude himself or herself) from
any deliberation or discussion of the Board of Directors concerning such trade
secret (if the Advisor has not executed a confidentiality agreement), privileged
matter or conflict of interest matter and as a recipient in the dissemination of
any such information. If such Advisor in his or her good faith judgment believes
that an item to be discussed by the Board of Directors would result in any
conflict of interest, such Advisor shall promptly bring such conflict to the
attention of the Chairman of the Board. In no event shall any provision of this
paragraph waive any obligation of confidentiality to the Company owed by any
such Advisor or the Representative. In addition, the Advisor shall be entitled
to receive reimbursement for all reasonable costs incurred in attending such
meetings including, but not limited to, food, lodging, and transportation; such
costs to be subject to approval of the Company which will not be unreasonably
withheld.
(q) For a period of three (3) years from the Closing Date, there will
be no less than four (4) formal, "in person" or "telephonic" meetings, of the
Company's Board of Directors in each such year at which meetings the Advisor
shall be permitted to attend or participate, as the case may be in accordance
with the provisions of Section 5(p); said meetings shall be held quarterly each
year and ten (10) days' advance notice of such meetings shall be given to the
Advisor. The Advisor shall receive notice of special meetings of the Board of
Directors at the same time and manner as the members of the Board.
(r) Indemnify and hold Donald and the Advisor harmless, to the full
extent allowed by applicable laws, against any and all claims, actions, awards
and judgments arising solely out of the attendance and participation of the
Advisor at any meeting described in Section 5(p) of this Agreement. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, the Company agrees, if possible, to include
the Representative and the Advisor as an insured under such policy.
(s) During the five (5) years after the Effective Date maintain the
Company's listing on The Nasdaq SmallCap Market.
(t) On the Closing Date, enter into a one (1) year financial
consulting agreement with Donald (the "Financial Consulting Agreement") pursuant
to which the Donald will provide the Company with investment banking and
financial consulting services at a fee of $72,000, payable at
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the rate of $6,000 per month in advance of each month for the twenty-four months
subsequent to the Closing Date.
(u) Deliver directly to Donald on or prior to the Effective Date
agreements, satisfactory to it, executed by each officer and director of the
Company, whereby they shall agree that they will not, without the prior written
consent of Donald, (i) sell any of the Common Stock owned by them during the
first eighteen (18) months following the Effective Dates, (ii) offer or sell
more than ten the laws of Rule 144(e) volume limitation or ten (10) percent of
the Common Stock of the Company owned by them in any of the next two consecutive
calendar quarters following the effective date of the Registration Statement and
(iii) they will not offer or sell more than twenty five (25%) percent of the
Common Stock owned by them in ANY calendar quarter. During such periods and
thereafter, for an additional period of two years, any public sale of the
Company's securities by such stockholders will be effected through the
facilities of Donald and such seller will comply with the volume limitations of
Rule 144(e) even though Rule 144(k) may be available to the seller. Reference to
"Shares owed these persons" shall refer to shares owned by any such person on
the effective or which such person has right to acquire pursuant to agreement
convertible security or option or warrant or otherwise existing or contemplated
on such date on which such person controls or is deemed beneficial owner.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay, whether or not the transactions
contemplated hereunder are consummated, all expenses (other than fees of your
counsel, except as provided in (iv) below) in connection with (i) the
preparation, printing, filing and mailing of the Registration Statement and the
Prospectus, including the cost of all copies thereof and of the Preliminary
Prospectus and of the Prospectus and any amendments or supplements thereto
supplied to you in quantities as hereinabove stated, (ii) the issuance, transfer
and delivery of the Firm Stock and the Additional Stock, including any transfer
or other taxes payable thereon, (iii) printing of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, the Underwriters'
Questionnaire, the Power of Attorney and the certificates evidencing the Common
Stock, (iv) the qualification of the Firm Stock and the Additional Stock under
state or foreign securities or Blue Sky laws, including the costs of printing
and mailing the "Blue Sky Survey," and the fees of counsel to the Underwriters,
of which $10,000 has been paid prior to the date hereof, and disbursements in
connection therewith, (v) filing fees payable to the Commission, the NASD and
The Nasdaq SmallCap Market, (vi) arranging and holding due diligence meetings
with prospective underwriters and selected dealers, (vii) reasonable travel and
lodging incurred by the Representative and its counsel in connection with
meetings outside of New York City, (viii) tombstone advertising not exceeding
$18,000 and (ix) the preparation, production and delivery of plaques and bound
volumes.
(b) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 6, it will pay to the
Representative a non-accountable expense allowance equal to one percent (1%) of
the gross proceeds received by the Company from
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the sale of Firm Stock and Additional Stock, of which $25,000 has been paid to
date. The Company will pay the balance on the Closing Date or any Additional
Closing Date.
(c) Payment of expenses referred to in Section 6(b) and other amounts
to Representatives or on its behalf or for any other expenses shall be paid at
closing by certified or bank cashier's check or, at the election of the
Representative, by deduction from the proceeds of the offering contemplated
herein.
7. CONDITIONS OF YOUR OBLIGATIONS. The obligation of the several
Underwriters hereunder to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, shall be subject to the continuing accuracy in all
material respects of the representations and warranties of the Company 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 in all material respects of its
obligations hereunder and to the following conditions:
(a) (i) All the corporate actions should have been completed to the
satisfaction of Donald and (ii) the holders of the Firm Stock immediately after
the offering will own __% of the Company's outstanding shares on a fully diluted
basis.
(b) The Registration Statement shall have become effective not later
than 5:00 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 you and, at the Closing
Date and any Additional Closing Date, no stop order suspending the effectiveness
of the Registration Statement, as amended from time to time, shall have been
issued or proceeding therefor initiated or threatened by the Commission;
(c) At the Effective Date, the Closing Date and any Additional Closing
Date, as the case may be, you shall have received the favorable opinion of
Kummer Kaempfer Bonner & Renshaw, counsel for the Company, dated the Effective
Date, the Closing Date or the Additional Closing Date, as the case may be,
addressed to the Underwriters and in form and scope satisfactory to counsel of
the Underwriters, to the effect that:
(i) each of the Company and the Subsidiaries (A) is a corporation
duly organized and validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and (B) To
such counsel knowledge after inquiry has full corporate power and
corporate authority.
(ii) Except as disclosed in the Registration Statement and
Prospectus is in possession of all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies to own its properties and
to conduct its business as now being conducted as described in the
Prospectus, except where the failure to have such authorizations,
approvals, orders, licenses, certificates and permits would not have a
Material Adverse Effect; to such counsel's knowledge after inquiry,
neither the Company nor any
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of the Subsidiaries has received any notice of proceedings related to the
revocation or modification of any authorization, approval, order, license,
certificate, franchise, or permit issued to any of them which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect; nothing has come to the attention of such
counsel that would lead such counsel to believe that the Company and the
Subsidiaries taken as a whole are not conducting their business in all material
respects in compliance with applicable federal, state and local laws, rules and
regulations; the disclosures in the Registration Statement concerning the
effects of federal, state and local laws, rules and regulations on the Company's
and the Subsidiaries' business as currently conducted (or as proposed in the
Registration Statement or the Prospectus to be conducted) are correct in all
material respects and do not omit to state a fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made;
(iii) each of the Company and the Subsidiaries is duly qualified
as a foreign corporation and in good standing in each jurisdiction in
which its ownership or leasing of property or the conduct of its
business requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect;
(iv) the Company owns of record, directly or indirectly, all of
the capital stock of the Subsidiaries; all such shares of capital
stock so owned are validly issued and outstanding, fully paid and
non-assessable and, to the knowledge of such counsel after inquiry,
are owned free and clear of any liens, encumbrances or other claims or
restrictions whatsoever;
(v) the Company has authorized and outstanding the capital stock
as set forth in the Prospectus; all the issued shares of Common Stock
of the Company, including the Firm Stock or Additional Stock, as the
case may be, have been duly and validly authorized and issued and to,
the knowledge of such counsel after inquiry, are fully paid; all the
issued shares of Common Stock of the Company are non-assessable; none
of the issued shares of Common Stock of the Company, including the
Additional Stock, nor the Firm Stock are subject to any preemptive
rights; the Firm Stock, the Additional Stock and the other capital
stock of the Company conform as to legal matters to the description
thereof contained under the caption "Description of Stock" in the
Prospectus;
(vi) the Representative's Warrant Stock has been duly authorized
and reserved for issuance and, when issued and delivered in accordance
with the terms of the Representative's Warrant Agreement will be duly
and validly issued, fully paid and non-assessable;
(vii) the Company has conveyed to the Underwriters good and valid
title to the Firm Stock or Additional Stock, as the case may be, being
sold hereunder, free and clear of any liens, encumbrances, security
interests and claims the Firm Stock and
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Additional Stock as the case may be, shall be validly issued and
fully paid and non-assessable when issued and paid for in accordance
with the terms of this Agreement, and the certificates evidencing the
Firm Stock and the Additional Stock are in due and proper form;
(viii) this Agreement, the Representative's Warrant Agreement and
the Financial Consulting Agreement have been duly and validly
authorized executed and delivered by the Company and each is a valid
and binding agreement of the Company enforceable in accordance with
its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law (including, but not
limited to, Federal or state securities laws) or equitable principles,
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles;
(ix) to the knowledge of such counsel, there are no contracts or
other documents which are required to be filed as exhibits to the
Registration Statement, as it may then be amended or supplemented, or
required to be described in the Registration Statement or Prospectus
as it may then be amended or supplemented that are not filed or
described as required;
(x) to the knowledge of such counsel after inquiry, there are no
legal or governmental proceedings pending or, threatened against the
Company or the Subsidiaries, and no statutes or regulations applicable
to the Company or the Subsidiaries, of a character that are required
to be disclosed in the Registration Statement and Prospectus, which
have not been so disclosed and properly described therein;
(xi) the statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other
documents, or refer to statements of law or legal conclusions, are
accurate in all material respects and present fairly the information
required to be shown with respect to such contracts, agreements or
other documents;
(xii) the execution and delivery of this Agreement, the
Representative's Warrant Agreement and the Financial Consulting
Agreement, the consummation of the transactions contemplated in this
Agreement, the Representative's Warrant Agreement and the Financial
Consulting Agreement, and compliance with the terms of this Agreement,
the Representative's Warrant Agreement and the Financial Consulting
Agreement do not and will not (A) result in a breach of any of the
terms or provisions of, or constitute a default (or an event which
with notice or lapse of time or both would constitute a default or
acceleration) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any material property or assets of
the Company or the Subsidiaries pursuant to the terms of any agreement
or instrument known to such counsel and to which
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the Company or the Subsidiaries is a party or by which the Company or
the Subsidiaries may be bound or to which any of the material
properties or assets of the Company or of the Subsidiaries is subject,
(B) conflict with or result in a violation of any statute or any
order, rule or regulation applicable to the Company or the
Subsidiaries of any court or of any Federal, state or other regulatory
authority or other governmental body having jurisdiction over the
Company or the Subsidiaries (provided, however, that such counsel may
render such opinion on state law (other than Nevada) to such counsel's
knowledge or (C) result in any violation of provisions of the Articles
of Incorporation, By-laws or other charter documents of the Company or
of the Subsidiaries;
(xiii) no consent, approval, authorization or order of any court
or governmental agency or body is required in connection with the
consummation of the transactions contemplated by this Agreement, the
Representative's Warrant Agreement and the Financial Consulting
Agreement, except such as have been obtained or made or as may be
required under the Act or state securities or Blue Sky laws or the
rules of the NASD;
(xiv) (A) neither the Company nor the Subsidiaries is in
violation of any term or provision of its Articles of Incorporation,
By-laws or other charter documents; (B) to such counsel's knowledge,
except as disclosed in the Registration Statement and Prospectus
neither the Company nor any of the Subsidiaries is currently in
material breach of, or in material default (nor has an event occurred
which with notice, lapse of time or both would constitute such a
material default or acceleration) under any indenture, mortgage, deed
of trust, note, bank loan or credit agreement or (in any respect that
is material in light of the financial condition of the Company and the
Subsidiaries, taken as a whole) any other agreement or instrument,
known to such counsel after inquiry, to which the Company or the
Subsidiaries is a party or by which either of them or any of their
property may be bound or affected, or to such counsel's knowledge, in
violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, which violation would have a Material
Adverse Effect; and (C) to such counsel's knowledge, neither the
Company nor the Subsidiaries has received notice of conflict with the
asserted rights of others in respect of patents, trademarks, service
marks and rights necessary for the conduct of its business;
(xv) the Company has the right to operate all of its facilities
in their present locations and the operation of its facilities in such
locations as described in the Prospectus does not violate the
provisions of any lease with respect thereto to which the Company is a
party;
(xvi) the Registration Statement and the Prospectus and any
amendments or supplements thereto (other than the financial statements
and other financial and statistical data included therein, as to which
no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Regulations and
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nothing has come to the attention of such counsel which would lead
them to believe that the Registration Statement or the Prospectus, as
amended or supplemented, if amended or supplemented (other than the
financial statements and other financial and statistical data included
therein as to which no opinion need be rendered) 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, in light of the circumstances under which they are made, not
misleading; and
(xvii) the Registration Statement is effective under the Act, and
to the best of such counsel's knowledge, no proceedings for a stop
order are pending or threatened under the Act.
(xviii) each of the agreements executed by the Company's
stockholders; directors and officers pursuant to Section 5(u) has been
duly and validly delivered by such persons and constitutes the legal,
valid and binding obligation of each such person enforceable thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
In rendering the opinions set forth above, such counsel may rely upon
certificates of officers of the Company and of public officials as to matters of
fact. In giving the foregoing opinions, such counsel may rely on such other
counsel as it deems advisable; provided that such counsel shall state that, in
such counsel's opinion, you are justified in relying on such opinions of such
other counsel. Copies of all such opinions and certificates shall be furnished
to your counsel on the Closing Date or any Additional Closing Date, as the case
may be.
(d) On or prior to the Closing Date and each Additional Closing Date,
as the case may be, you shall have been furnished such documents, certificates
and opinions as you may reasonably require for the purpose of enabling you to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(e) Prior to the Closing Date and each Additional Closing Date, as the
case may be, (i) there shall have been no material adverse change in the
business, properties, results of operations, condition (financial or otherwise),
affairs or prospects, of the Company and the Subsidiaries from that as of the
latest date as of which such condition is set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company or the Subsidiaries,
from the latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus, other
than transactions referred to or contemplated therein or to which you have given
your written consent; (iii) neither the Company nor the Subsidiaries shall be in
default (nor shall an event have occurred which, with notice, or lapse of time
or both would constitute a default or acceleration) under any provision of, any
agreement, understanding
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or instrument relating to any indebtedness, except as set forth in the
Registration Statement and Prospectus; (iv) no material amount of the
consolidated assets of the Company and the Subsidiaries shall have been pledged
or mortgaged, except as set forth in the Registration Statement and Prospectus;
and (v) no action, suit or proceeding, at law or in equity, shall have been
pending or, to the knowledge of the Company, threatened against the Company or
the Subsidiaries, or affecting any of their properties or business before or by
any court or federal, state or other jurisdictional commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding would
materially adversely affect the business, operations, prospects or financial
condition or income of the Company and the Subsidiaries, except as set forth in
the Registration Statement and Prospectus.
(f) At the Closing Date and Additional Closing Date, as the case may
be, you shall have received a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated the Closing Date and Additional
Closing Date, as the case may be, (i) to the effect that the conditions set
forth above have been satisfied and (ii) as to the accuracy, as of the Closing
Date and each Additional Closing Date, as the case may be, of the
representations and warranties of the Company set forth in Section 2 hereof as
if such representations were made as of such date or dates.
(g) At the time this Agreement is executed and at the Closing Date and
Additional Closing Date, as the case may be, you shall have received a letter,
addressed to you in form and substance satisfactory to you in all respects
(including the non-material nature of the changes or decreases, if any, referred
in to clause (iii) below), from Hansen, Barnett & Maxwell dated as of the date
of this Agreement and as of the Closing Date and any Additional Closing Date, as
the case may be:
(i) confirming that they are independent accountants with respect
to the Company within the meaning of the Act and the applicable
published Regulations;
(ii) stating that in their opinion, the financial statements of
the Company and the Subsidiaries included in the Registration
Statement examined by them comply as to form in all material respects
with the applicable accounting requirements of the Act and the
published Regulations;
(iii) stating that, on the basis of procedures (but not an audit
in accordance with generally accepted auditing standards), which
included a reading of the latest available unaudited consolidated
interim financial statements of the Company and the Subsidiaries (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 the
Subsidiaries and committees of such boards and inquiries to certain
officers and other employees of the Company and the Subsidiaries
responsible for financial and accounting matters
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and other specified procedures and inquiries, nothing has come to
their attention that would cause them to believe that:
(A) the unaudited consolidated financial statements of the Company and
the Subsidiaries included in the Registration Statement (i) do not comply as to
form in all material respects with the applicable accounting requirements of the
Act and Regulations, or (ii) were not fairly presented in conformity with
generally accepted accounting principles on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement;
(B) at the date of the latest available interim financial statements
and at a specified date not more than five (5) days prior to the date of such
letter, there was any change in long-term debt or capital stock of the Company
and its Subsidiaries, as compared with the amounts shown in the 1999
consolidated balance sheet of the Company and its Subsidiaries, included in the
Registration Statement and Prospectus, other than as set forth in or
contemplated by the Registration Statement and Prospectus, or, if there was any
change, setting forth the amount of such change; or
(C) during the period from March 31, 2000 to a specified date not more
than five (5) days prior to the date of such letter, there was any decrease in
revenues or in operating income, net income or net income per share of the
Company and its Subsidiaries, as compared with the corresponding period in the
preceding year, other than as set forth in or contemplated by the Registration
Statement and Prospectus, or, if there was any decrease or increase,
respectively, setting forth the amount of such decrease or increase; and
(iv) they have performed certain other procedures as may be permitted
under generally acceptable auditing standards as a result of which they
determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or
statistical information derived from the general account records of the
Company) set forth in the Registration Statement and the Prospectus and
reasonably specified by the Representatives agrees with the accounting
records of the Company;
(v) based upon the procedures set forth in clauses (ii) and (iii)
above a reading of the amounts included in the Registration Statement under
the headings Summary Consolidated Financial Data and Selected Financial
Data included in the Registration Statement and Prospectus and a reading of
the financial statements from which certain of such data were derived
nothing has come to their attention that gives them reason to believe that
the Summary Consolidated Financial Data and Selected Financial Data
included in the Registration Statement and Prospectus do not comply as to
the form in all material respects with the applicable accounting
requirements of the Securities Act and the Regulations or that the
information set forth therein is not fairly stated in relation to the
financial statements included in the Registration Statement or Prospectus
from which
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certain of such data was derived and are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement and Prospectus; and
(h) All proceedings taken in connection with the sale of the Firm
Stock and the Additional Stock as herein contemplated shall have been reasonably
satisfactory in form and substance to you and your counsel.
(i) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and warranties
contained herein, the performance of covenants prior to the Closing Date and any
Additional Closing Date, as the case may be, and related matters as the
Representative may reasonably request.
(j) There shall have been duly tendered to you certificates
representing all the Firm Stock and the Additional Stock, as the case may be,
agreed to be sold by the Company on the Closing Date and the Additional Closing
Date, as the case may be.
(k) No order suspending the sale of the Firm Stock or the Additional
Stock, as the case may be, in any jurisdiction designated by you pursuant to
subsection (d) of Section 5 hereof, shall have been issued on the Closing Date
or an Additional Closing Date, as the case may be, and no proceedings for that
purpose shall have been instituted or to your knowledge or that of the Company
shall be contemplated.
(l) Any certificate signed by any duly authorized officer of the
Company in such capacity and delivered to you or your counsel shall be deemed a
representation and warranty by the Company to you as to the statements made
therein. If any condition to your obligations hereunder to be fulfilled prior to
or at the Closing Date or an Additional Closing Date, as the case may be, is not
so fulfilled, you may terminate this Agreement or, if you so elect, waive any
such conditions which have not been fulfilled or extend the time for their
fulfillment.
(m) All proceedings taken in connection with the sale of the Firm
Stock and the Additional Stock as herein contemplated shall be reasonably
satisfactory in form and substance to Donald and its counsel and the
Underwriters shall have received a favorable opinion, addressed to Donald and
dated such Closing Date, with respect to the Firm Stock, the Registration
Statement and the Prospectus, and such other related matters as may reasonably
request, and the Company shall have furnished to Parker Duryee Rosoff & Haft
such documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
(n) Donald shall have received copies of the agreements executed by
each entity or person described in Section 5(u).
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8. INDEMNIFICATION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each of the Underwriters, each of the officers and
directors of the Underwriters 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 (including, but not limited to any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever)("collectively,
"Damages") arising out of or based upon (i) the inaccuracy or breach of any
representation or warranty of the Company or the breach of any covenant made by
the Company in this Agreement or (ii) any untrue statement or alleged untrue
statement of a material fact contained (x) in any Preliminary Prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented) or (y) in any application or other document (in this Section 8,
collectively called "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 Firm Stock or the Additional Stock
under the Blue Sky or securities laws thereof or filed with the Commission or
any securities exchange, such as the Nasdaq SmallCap Market, or (iii) the
omission or alleged omission therefrom of 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 with respect to the Underwriters by or on
behalf of any Underwriter expressly for use in the Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any Application or in any communication to the Commission, as the case may
be. With respect to any Damages arising out of or based upon any untrue
statement or alleged untrue statement made in, or omission or alleged omission
from, any Preliminary Prospectus, the indemnity agreement contained in this
Section 8(a) with respect to such Preliminary Prospectus shall not inure to the
benefit of the Underwriters (or the benefit of any person controlling any
Underwriter), if the Prospectus (or the Prospectus as amended or supplemented if
the Company shall have made any amendments thereof or supplements thereto which
shall have been furnished to you prior to the time of confirmation of such sale)
does not contain such statement, alleged statement, omission or alleged
omission, a sufficient number of copies of such Prospectus were provided to the
Underwriters and a copy of such Prospectus shall not have been sent or given to
the person asserting such Damages at or prior to the written confirmation of
such sale to such person.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act for all Damages with
respect to statements or omissions, or alleged statements or omissions, if any,
made in any Preliminary Prospectus, Registration Statement or Prospectus or any
amendment or supplement thereto or any Application in reliance upon, and in
conformity with, written
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<PAGE>
information furnished to the Company with respect to the Underwriters by or on
behalf of any Underwriter for use in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any application, as the case may be.
(c) If any action is brought against an indemnified party under
subsection (a) or (b) above (the "Indemnified Party") in respect of which
indemnity may be sought against the indemnifying party under subsection (a) or
(b) above (the "Indemnifying Party"), such Indemnifying Party shall promptly
notify in writing the party or parties against whom indemnification is to be
sought of the institution of such action and the Indemnifying Parties shall
assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such Indemnified Party) and payment of expenses.
Such Indemnified Party shall have the right to employ it 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 unless the employment of such counsel shall have been
authorized in writing by the Indemnifying Parties in connection with the defense
of such action or the Indemnifying Parties shall not have employed counsel to
have charge of the defense of such action or such Indemnified Party or parties
shall have reasonably concluded that there may be defenses available to the
Indemnifying Parties which are different or additional to those available to the
Indemnifying Parties (in which case the Indemnifying Parties shall not have the
right to direct the defense of such action on behalf of the Indemnified Party or
Parties), in any of which events such fees and expenses shall be borne by the
Indemnifying Parties. Anything in this paragraph to the contrary
notwithstanding, the Indemnifying Party shall not be liable for any settlement
of any such claim or action effected without its written consent. The
Indemnifying Party agrees promptly to notify the Indemnified Party of the
commencement of any litigation or proceedings against the Indemnifying Party or
any of its officers or directors in connection with the issue and sale of the
Firm Stock and the Additional Stock or in connection with such Preliminary
Prospectus, Registration Statement or Prospectus, or any amendment or supplement
thereto, or any such Application.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an Indemnified Party in respect of
any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each Indemnifying Party shall contribute to the amount
paid or payable to such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Firm Stock and
Additional Stock. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the Indemnified
Party failed to give the notice required above in this Section 8, then each
Indemnifying Party shall contribute to such amount paid or payable by such
Indemnified Party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits
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<PAGE>
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts received by the Underwriters, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) the Underwriters shall not be required to contribute any
amount in excess of the amount by which the total price at which the Firm Stock
and Additional Stock underwritten by the Underwriters and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriters have otherwise been required to pay by reason of such untrue
statement or omission and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11 of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligations to purchase the Firm Stock hereunder, and if the number of shares of
Firm Stock with respect to which such default relates does not exceed in the
aggregate 10% of the number of shares of Firm Stock which all Underwriters have
agreed to purchase hereunder, then such Firm Stock to which the default relates
shall be purchased by the non-defaulting Underwriters in proportion to their
respective commitments hereunder.
(b) In the event that such default relates to more than 10% of the
number of shares of Firm Stock, you may in your discretion arrange for yourself
or for another party or parties to purchase such Firm Stock to which such
default relates on the terms contained herein. If within one (1) business day
after such default relating to more than 10% of the number of shares of Firm
Stock, you do not arrange for the purchase of such Firm Stock, then the Company
shall be entitled to a further period of one (1) business day within which to
procure another party or parties satisfactory to you to purchase said Firm Stock
on such terms. In the event that neither you nor the Company arrange for the
purchase of the Firm Stock to which a default relates as provided in this
Section 9, this Agreement may be terminated by you or the Company or the several
Underwriters, but the provisions of Section 6 and Section 8(a) hereof shall
survive.
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<PAGE>
Nothing herein shall relieve a defaulting Underwriter of its liability, if any,
to the other several Underwriters and to the Company for damages occasioned by
its default hereunder.
(c) In the event that the Firm Stock to which the default relates is
to be purchased by the non-defaulting Underwriters, or is to be purchased by
another party or parties as aforesaid, you or the Company shall have the right
to postpone the Closing Date for a reasonable period but not in any event
exceeding five (5) business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus which in the
opinion of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Stock.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and the Additional Closing Date, and such
representations, warranties and agreements of you and the Company, including the
indemnity and contribution agreements contained in Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of you or any controlling person, or by or on behalf of the
Company or any controlling person, and shall survive termination of this
Agreement and/or delivery of the Firm Stock and the Additional Stock to you.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 A.M., New York Time,
on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by you
of the Firm Stock, whichever is earlier. The time of the initial public
offering, for the purpose of this Section 11, shall mean the time, after the
Registration Statement becomes effective, of the release by you for publication
of the first newspaper advertisement which is subsequently published relating to
the Firm Stock or the time, after the Registration Statement becomes effective,
when the Firm Stock is first released by you for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. You or the Company
may prevent this Agreement from becoming effective without liability of any
party to any other party, except as noted below, by giving the notice indicated
below in Section 11(d) before the time this Agreement becomes effective.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or any Additional Closing Date, as the case may be,
if, after the date of this Agreement, any domestic or international event or act
or occurrence has materially disrupted or, in the exercise of your reasonable
judgment, will in the immediate future materially disrupt,
26
<PAGE>
securities markets in the United States; or trading on the New York Stock
Exchange shall have been suspended, or minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for securities shall have
been required on the New York Stock Exchange by the New York Stock Exchange or
by order of the Commission or any other governmental authority having
jurisdiction; or the United States shall have become involved in a war or major
hostilities; or a banking moratorium has been declared by a New York or Federal
authority; or the Company shall have sustained a material loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not said loss shall have been insured, will, in your
opinion, interfere materially and adversely with the conduct of the business and
operations of the Company.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, the Company shall be
notified promptly by you by telephone or telegram, confirmed by letter. If the
Company elects to prevent this Agreement from becoming effective, you shall be
notified promptly by the Company by telephone or telegram, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding, if
this Agreement shall not become effective by reason of an election of the
Company pursuant to this Section 11, or if this Agreement shall not be carried
out within the time specified herein by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied, the sole liability of the Company to you, in
addition to the obligations assumed by the Company pursuant to Section 6 hereof,
will be to reimburse you for such actual out-of-pocket expenses (including the
fees and disbursements of your counsel) as shall have been incurred in
connection with this Agreement and the proposed purchase of the Firm Stock and
Additional Stock, and upon demand the Company will pay the full amount thereof
to you. If this Agreement shall not become effective by reason of an election by
you pursuant to this Section 11 or if this Agreement shall be terminated or
otherwise not carried out within the time specified herein for any reason other
than the failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it or them to be performed or
satisfied, the Company shall have no liability to you other than for obligations
assumed by the Company pursuant to Section 6 hereof; provided, however, that you
may retain any sums heretofore paid to you by the Company as provided in Section
6(b) hereof to the extent that such sums are for your actual out-of-pocket
expenses (including the fees and disbursements of your counsel) as shall have
been incurred in connection with this Agreement and the proposed purchase of the
Firm Stock and Additional Stock.
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 8 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.
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<PAGE>
12. NOTICES. All communications hereunder, except as herein otherwise
specific provided, shall be in writing and, if sent to any Underwriter, shall be
mailed, delivered or telegraphed and confirmed to Donald & Co. Securities Inc.,
65 East 55th Street, New York, New York 10022, Attn: Stephen A. Blum, President,
with a copy to Parker Duryee Rosoff & Haft, 529 Fifth Avenue, New York, New York
10017-4608, Attn: Michael DiGiovanna; and if sent to the Company, shall be
mailed, delivered or telegraphed and confirmed to eRoomSystem Technologies,
Inc., 3770 Howard Hughes Parkway, Suite 175, Las Vegas, Nevada 89109, Attn:
Steven Sunyich, Chief Executive Officer, with a copy to Kummer Kaempfer Bonner &
Renshaw, 3800 Howard Hughes Parkway, Seventh Floor, Las Vegas, Nevada 89109
Attn: Michael Bonner, Esq.
13. PARTIES. This Agreement shall be binding upon, you, the Company, and
the controlling persons, directors and officers referred to in Section 8 hereof,
and their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
14. CONSTRUCTION. This Agreement shall be construed in accordance with the
laws of the State of New York.
If the foregoing correctly sets forth the understanding between you, the
Company and the Selling Shareholders, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
eROOMSYSTEM TECHNOLOGIES, INC.
By:
------------------------------------------
Steven L. Sunyich, Chief Executive Officer
Accepted as of the date
first above written:
DONALD & CO. SECURITIES INC.
AS REPRESENTATIVE OF THE UNDERWRITERS
NAMED IN SCHEDULE I HERETO
By:
----------------------------------
Stephen A. Blum, President
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SCHEDULE I
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES OF FIRM STOCK
<S> <C>
Donald & Co. Securities Inc. ------
Moness Crespi Hardt & Co., Inc. ------
Win Capital ------
------------------------------
TOTAL 1,800,000
</TABLE>
29
