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EXHIBIT 1.1
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AquaCell Technologies, Inc.
10410 Trademark Street
Rancho Cucamonga, CA 91730
UNDERWRITING AGREEMENT
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Grady & Hatch and Company, Inc. __________, 2000
20 Exchange Place
49th Floor
New York, NY 10005
Gentlemen:
AquaCell Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Grady & Hatch and Company, Inc. ("Grady" or the
"Representative") and to each of the other underwriters named in Schedule I
hereto (the "Underwriters"), for each of whom you are acting as Representative
1,750,000 shares of Common Stock (the "Shares") at a public offering price of
$5.00 per share.
The 1,750,000 Shares are hereinafter sometimes referred to as the "Firm
Common Stock." Upon the request of the Representative, and as provided in
Section 3 hereof, the Company will sell to the Underwriters up to a maximum of
262,500 shares of Common Stock for the purpose of covering over-allotments.
Such additional shares of Common Stock are hereinafter sometimes referred to as
the "Optional Common Stock." Both the Firm Common Stock and the Optional Common
Stock are sometimes collectively referred to herein as the "Securities." All of
the Securities which are the subject of this Agreement are more fully described
in the Prospectus of the Company described below.
In the event that the Representative does not form an underwriting group
but decides to act as the sole Underwriter, then all references to Grady herein
as Representative shall be deemed to be to it as such sole Underwriter and
Section 14 hereof shall be deemed deleted in its entirety.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative deems advisable after
the Registration Statement hereinafter referred to becomes effective. The
Company hereby confirms its agreement with the Representative and the other
Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
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outstanding capitalization when the public offering of the Securities
contemplated hereby is permitted to commence, under the Securities Act of 1933,
as amended (the "Act"), and at the Closing Date (hereinafter defined) will be as
set forth in the Prospectus (hereinafter defined).
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SECTION 2. Representations and Warranties of the Company. The Company
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hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto (No.
333-41826) with respect to the Securities, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, has
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Rules and Regulations") of the Commission
thereunder, and has been filed with the Commission under the Act. The Company,
subject to the provisions of Section 6(a) hereof, may file one or more
amendments to such Registration Statement and Prospectus. The Underwriters will
receive copies of each such amendment.
The Effective Date of the Registration Statement represents the date that
the public offering of the Securities as contemplated by this Agreement is
therefore authorized to commence. The Registration Statement and Prospectus, as
finally amended and revised immediately prior to the Effective Date, are herein
called respectively the "Registration Statement" and the "Prospectus." If,
however, a prospectus is filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations which differs from the Prospectus, the term "Prospectus"
shall also include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act (as thereafter amended or as supplemented if the
Company shall have filed with the Commission an amendment or supplement) and,
with respect to all such documents, on the Closing Date (hereinafter defined),
will in all material respects comply with the provisions of the Act and the
Rules and Regulations, and will not contain an untrue statement of a material
fact and will not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subsection (b)
shall extend to the Underwriters in respect of any statements in or omissions
from the Registration Statement and/or the Prospectus, based upon information
furnished in writing to the Company by the Underwriters specifically for use in
connection with the preparation thereof.
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
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(d) The financial statements of the Company included in the
Registration Statement and Prospectus present fairly the financial position and
results of operations and changes in financial condition of the Company at the
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved, and
are in accordance with the books and records of the Company.
(e) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set forth
in or contemplated in the Prospectus, (i) the Company has not incurred, nor will
it incur, any material liabilities or obligations, direct or contingent, nor has
it, nor will it have entered into any material transactions, in each case not in
the ordinary course of business; (ii) there has not been, and will not have
been, any material change in the Company's certificate of incorporation or in
its capital stock or funded debt; and (iii) there has not been, and will not
have been, any material adverse change in the business, net worth or properties
or condition (financial or otherwise) of the Company whether or not arising from
transactions in the ordinary course of business.
(f) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and Registration
Statement to be owned by the Company are owned by the Company by good and
marketable title free and clear of all liens and encumbrances, except those (i)
specifically referred to in the Prospectus, which do not materially adversely
affect the use or value of such assets, (ii) for current taxes not now due, or
(iii) are held by the Company by valid leases, none of which is in default.
Except as disclosed in the Prospectus and Registration Statement, the Company in
all material respects has full right and licenses, permits and governmental
authorizations required to maintain and operate its business and properties as
the same are now operated and, to its best knowledge, none of the activities or
business of the Company is in material violation of, or causes the Company to
violate any laws, ordinances and regulations applicable thereto, the violation
of which would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
(g) Except as disclosed in the Prospectus and Registration Statement,
there are no material actions, suits or proceedings at law or in equity of a
material nature pending, or to the Company's knowledge, threatened against the
Company which are not adequately covered by insurance, which might result in a
material adverse change in the condition (financial or otherwise), properties or
net worth of the Company, and there are no proceedings pending or, to the
knowledge of the Company, threatened against the Company before or by any
federal or state commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
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(h) All of the outstanding shares of Common Stock are duly authorized
and validly issued and outstanding, fully paid, non-assessable, and do not have
any and were not issued in violation of any preemptive rights. All of the Common
Stock as described in the Prospectus when paid for shall be duly authorized and
validly issued and outstanding, fully paid, non-assessable, and will not have
any and will not be issued in violation of any preemptive rights. The
Underwriters will receive good and marketable title to the Securities purchased
by them from the Company free and clear of all liens, encumbrances, claims,
security interests, restrictions, stockholders' agreements and voting trusts
whatsoever. Except as set forth in the Prospectus, there are no outstanding
shares of preferred stock and there are no outstanding options, warrants, or
other rights or commitments, providing for the issuance of any shares of any
class of capital stock of the Company, or any security convertible into, or
exchangeable for, any shares of any class of capital stock of the Company. All
of the Securities of the Company to which this Agreement relates conform to the
statements relating to them that are contained in the Registration Statement and
Prospectus.
(i) The execution and delivery by the Company of this Agreement has
been duly authorized by all necessary corporate action and it is a valid and
binding obligation of the Company, enforceable against it in accordance with its
terms except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws pertaining to creditors
rights generally.
(j) Except as disclosed in the 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 material term,
covenant or condition by the Company or any other party, of any material
indenture, mortgage, deed of trust, note or any other material agreement or
instrument to which the Company is a party or by which it or its business or its
properties may be bound or affected, except as disclosed in the Prospectus. The
Company has full power and lawful authority to authorize, issue and sell the
Firm Common Stock to be sold by it hereunder on the terms and conditions set
forth herein and in the Registration Statement and in the Prospectus. No
consent, approval, authorization or other order of any regulatory authority is
required for such authorization, issue or sale, except as may be required under
the Act or state securities laws. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated, and compliance with
the terms hereof will not conflict with, or constitute a default under any
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or materially affected; the certificate of incorporation
and any amendments thereto; the by-laws of the Company, as amended; or to the
best knowledge of the Company, any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court,
domestic or foreign, having jurisdiction over the Company or its business or
properties.
(k) No officer or director of the Company has taken, and each officer
and director has agreed that he will not take, directly or indirectly, any
action designed to stabilize or manipulate the price of the Common Stock in the
open market following
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the Closing Date or any other type of action designed to, or that may reasonably
be expected to cause or result in such stabilization or manipulation, or that
may reasonably be expected to facilitate the initial sale, or resale, of any of
the Securities which are the subject of this Agreement.
(l) The Warrants to purchase Common Stock to be issued at closing to
the Representative (the "Representative's Warrants") will be, when issued and
paid for, duly and validly authorized and executed by the Company and will
constitute valid and binding obligations of the Company, legally enforceable in
accordance with their terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
pertaining to creditors rights generally), and the Company will have duly
authorized, reserved and set aside the shares of its Common Stock issuable upon
exercise of the Representative's Warrants and such stock, when issued and paid
for upon exercise of the Representative's Warrants in accordance with the
provisions of the Representative's Warrants will be duly authorized and validly
issued, fully-paid and non-assessable.
SECTION 3. Issuance, Sale and Delivery of the Firm Common Stock, the
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Optional Common Stock and the Representative's Warrants.
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(a) Upon 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 sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the number of the Firm Common Stock set forth opposite the
respective names of the Underwriters in Schedule I hereto, plus any additional
Firm Common Stock which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 14 hereof.
The purchase price of the Firm Common Stock to be paid by the several
Underwriters shall be the initial public offering price less a ten percent
discount.
In addition, and upon the same basis, subject to the same terms and
conditions, the Company hereby grants to you as Representative an option to
purchase, but only for the purpose of covering over-allotments, upon not less
than two days' notice from you, the Optional Common Stock or any portion
thereof, at the same price per share of Common Stock as that set forth in the
preceding paragraph. All purchases of the Optional Common Stock shall be made
for the accounts of the several underwriters as nearly as practicable in
proportion to their respective underwriting obligations. The Optional Common
Stock may be exercised by the Representative at any time, and from time to time,
thereafter within a period of 45 calendar days following the Effective Date.
The time(s) and date(s) (if any) so designated for delivery and payment for the
Optional Common Stock shall be set forth in the notice to the Company. Such
dates are herein defined as the Additional Closing Date(s).
(b) Payment for the Firm Common Stock shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the
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Company, at the offices of the Representative at 20 Exchange Place, 49th Floor,
New York, NY 10005, or its clearing agent, or at such other place as shall be
agreed upon by the Representative and the Company, upon delivery of the Firm
Common Stock to the Representative for the respective accounts of the
Underwriters. In making payment to the Company, the Representative may first
deduct all sums due to it for the balance of the non-accountable expense
allowance and under the Financial Consulting Agreement (as hereinafter defined).
Such delivery and payment shall be made at 9:30 A.M., New York City Time on a
T+3 business days basis, which may be delayed by the Representative at its
option to a T+4 or T+5 business days basis (unless postponed in accordance with
the provisions of Section 14 hereof) or at such other time as shall be agreed
upon by the Representative and the Company. The time and date of such delivery
and payment are hereby defined as the Closing Date. It is understood that each
Underwriter has authorized the Representative, for the account of such
Underwriter, to accept delivery of, receipt for, and make payment of the
purchase price for the Firm Common Stock which it has agreed to purchase.
Subsequently, each Underwriter shall make payment and accept delivery of the
Firm Common Stock from the Representative through the facilities of Depository
Trust Company ("DTC"); however, the Representative may, at its option, require
payment to be made outside of the facilities of DTC as provided for in the
Agreement Among Underwriters. In the event that the Closing is not through the
facilities of DTC, you individually, and not as Representative may (but shall
not be obligated to) make payment of the purchase price for the Firm Common
Stock to be purchased by any Underwriter whose check shall not have been
received by the Closing Date, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Common Stock to the Company shall be
made at the offices of the Representative 20 Exchange Place, 49th Floor, New
York, NY 10005, or its clearing agent or at such other place as shall be
designated by the Representative, in accordance with the notice delivered to the
Company pursuant to Section 3(a). Such closing date shall be no later than five
business days from the expiration of the forty-five day option period.
(d) Certificates for the Firm Common Stock and for the Optional
Common Stock shall be registered in such name or names and in such authorized
denominations as the Representative may request in writing at least two business
days prior to the Closing Date, and the Additional Closing Date(s) (if any). The
Company shall permit the Representative to examine and package said certificates
for delivery at least one full business day prior to the Closing Date and prior
to the Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Common Stock except upon tender of payment by the
Underwriters for all of the Firm Common Stock agreed to be purchased by them
hereunder. The Representative, however, shall have the sole discretion to
determine the number of Optional Common Stock, if any, to be purchased.
(e) At the time of making payment for the Firm Common Stock, the
Company also hereby agrees to sell to the Representative and its permitted
designees, Representative's Warrants to purchase 175,000 shares of Common Stock
at any time
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during a four year period commencing one year after the Effective Date at an
aggregate purchase price of $100. The Representative's Warrants will be
exercisable at a price of $7.50 per share. From the Effective Date and until one
(1) year thereafter, such Representative's Warrants may not be sold,
transferred, assigned or hypothecated except to the Representative, co-
underwriters, selling group members and their officers or partners.
SECTION 4. Public Offering. The several Underwriters agree, subject to
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the terms and provisions of this Agreement, to offer the Common Stock to the
public as soon as practicable after the Effective Date, at the initial offering
price of $5.00 and upon the terms described in the Prospectus. The
Representative may, from time to time, decrease the public offering price, after
the initial public offering, to such extent as the Representative may determine,
however, such decreases will not affect the price payable to the Company
hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will
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furnish the Representative, without charge, two signed copies of the
Registration Statement and of each amendment thereto, including all exhibits
thereto and such amount of conformed copies of the Registration Statement and
Amendments as may be reasonably requested by the Representative for distribution
to each of the Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed copies of a
Preliminary Prospectus and of the Prospectus as the Representative may request
for the purposes contemplated by this Agreement. If, while the Prospectus is
required to be delivered under the Act or the Rules and Regulations, any event
known to the Company relating to or affecting the Company shall occur which
should be set forth in a supplement to or an amendment of the Prospectus in
order to comply with the Act (or other applicable law) or with the Rules and
Regulations, the Company will forthwith prepare, furnish and deliver to the
Representative and to each of the other Underwriters and to others whose names
and addresses are designated by the Representative, in each case at the
Company's expense, a reasonable number of copies of such supplement or
supplements to or amendment or amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected dealers, if any,
in connection with the distribution of the Securities and all dealers to whom
any of the Securities may be sold by the Underwriters, or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented, in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the Act and the applicable Rules and Regulations
and applicable State Securities Laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees
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with each Underwriter that:
(a) After the date hereof, the Company will not at any time, whether
before or after the Effective Date, file any amendment to the Registration
Statement or the Prospectus, or any supplement to the Prospectus, of which the
Representative shall
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not previously have been advised and furnished with a copy, or to which the
Representative or the Underwriters' counsel, shall have reasonably objected in
writing on the ground that it is not in compliance with the Act or the Rules and
Regulations.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as reasonably practicable and will
advise the Representative, (i) when the Registration Statement shall have become
effective and when any amendment thereto shall have become effective, and when
any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make request or suggestion for any
amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof, and (iii) of the issuance by
the Commission of an order suspending the effectiveness of the Registration
Statement or of the initiation of any proceedings for that purpose, and will use
every reasonable effort to prevent the issuance of such an order, or if such an
order shall be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representative, such amendments, or supplements to the
Registration Statement or Prospectus, in form and substance satisfactory to
counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Securities, and will use its best efforts to
cause the same to become effective as promptly as possible.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required or
desirable, in the opinion of the Underwriters' counsel; to qualify the
Securities or such part thereof as the Representative may determine, for sale
under the so-called "Blue Sky" Laws of such states as the Representative shall
designate, and to continue such qualification in effect so long as required for
the purposes of the distribution of the Securities, provided, however, that the
Company shall not be required to qualify as a foreign corporation or to file a
consent to service of process in any state in any action other than one arising
out of the offering or sale of the Securities.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the states in which the Securities may be qualified for sale, for so long as
required by applicable law, rule or regulation and will provide the
Representative with copies of all such registrations, filings and reports on a
timely basis.
(f) During the period of three years from the Effective Date, the
Company will deliver to the Underwriter a copy of each annual report of the
Company, and will deliver to the Underwriter (i) within 50 days after the end of
each of the Company's first three quarter-yearly fiscal periods, a balance sheet
of the Company as
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at the end of such quarter-yearly period, together with a statement of its
income and a statement of changes in its cash flow for such period (Form 10-
QSB), all in reasonable detail, signed by its principal financial or accounting
officer, (ii) within 105 days after the end of each fiscal year, a balance sheet
of the Company as at the end of such fiscal year, together with a statement of
its income and statement of changes in cash flow for such fiscal year (Form 10-
KSB), such balance sheet and statement of cash flow for such fiscal year to be
in complete detail and to be accompanied by a certificate or report of
independent public accountants, (who may be the regular accountants for the
Company), (iii) as soon as available a copy of every other report (financial or
other) mailed to the shareholders, and (iv) as soon as available a copy of every
report and financial statement furnished to or filed with the Commission or with
any securities exchange pursuant to requirements by or agreement with such
exchange or the Commission pursuant to the Securities Exchange Act of 1934, as
amended, or any regulations of the Commission thereunder. If the Company has one
or more active subsidiaries, the financial statements required by (i) and (ii)
above shall be furnished on a consolidated basis in respect of the Company and
its subsidiaries if required under generally accepted accounting principles. The
financial statements referred to in (ii) shall also be furnished to all of the
shareholders of the Company as soon as practicable after the 105 days referred
to therein.
(g) The Company represents that with respect to the Securities, it
will prepare and file a Registration Statement with the Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, prior to the
Effective Date with a request that such Registration Statement will become
effective on the Effective Date. The Company understands that, to register, it
must prepare and file with the Commission a General Form of Registration of
Securities (Form 8-A or Form 10). In addition, the Company agrees to qualify its
Common Stock for listing on the NASDAQ System as a Small-Cap Issue and to
utilize its best efforts to list the Securities on the Boston Stock Exchange
("BSE") on the Effective Date and will take all necessary and appropriate action
so that its Common Stock continues to be listed for trading in the NASDAQ System
and BSE for at least five years from the Effective Date provided the Company
otherwise complies with the prevailing maintenance requirements of NASDAQ System
and BSE. In addition, at such time as the Company qualifies for listing its
Common Stock on the National Market System of NASDAQ, the Company will take all
steps necessary to have its Common Stock listed on the National Market System of
NASDAQ in lieu of listing as Small-Cap Issues and BSE. For the period of five
years following the Effective Date, the Company shall comply with all periodic
reporting and proxy solicitation requirements imposed by the Commission pursuant
to the 1934 Act, and shall promptly furnish you with copies of all material
filed with the Commission pursuant to the 1934 Act or otherwise furnished to
shareholders of the Company.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11 (a) of the Act.
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(i) The Company shall, on the Effective Date, apply for listing in
Standard and Poor's Corporation Records (requesting coverage in the Daily News
Supplement) and Standard & Poor's Monthly Stock Guide and shall use its best
efforts to have the Company listed in such reports for a period of not less than
five (5) years from the Closing Date.
(j) The Company shall employ the services of Richard A. Eisner LLP or
such other auditing firm acceptable to the Representative in connection with the
preparation of the financial statements required to be included in the
Registration Statement and shall continue to appoint such auditors or such other
auditors as are reasonably acceptable to the Representative for a period of
three (3) years following the Effective Date of the Registration Statement. The
Company shall appoint U.S. Stock Transfer as transfer agent for the Securities.
(k) The Company shall furnish "Key Man" Life Insurance in the amount
of $1,000,000 on the life of James C. Witham with the Company as the beneficiary
thereof and the Company shall pay the annual premium therefor for a period of
not less than three years from the Effective Date on the Effective Date. The
Company shall employ James C. Witham pursuant to an employment agreement on
terms described in the Prospectus and filed with the Commission as an exhibit to
the Registration Statement.
(l) The Company will for a period of three years at its expense,
shall cause its regularly engaged independent certified public accountants to
review (but not audit) the Company's financial statements for each of the first
three (3) fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's Form 1O-QSB quarterly report and the
mailing of quarterly financial information to security holders.
(m) The Company agrees that it will not file a Form S-8 Registration
Statement for a period of one year from the Effective Date without the
Representative's prior written consent, which consent shall automatically be
given in the event that the Company requires all security holders who would
receive registered securities pursuant to the Form S-8 Registration Statement to
execute a one-year lock-up agreement in accordance with Section 16(d) contained
herein notwithstanding the fact that the securities may not have been owned
until after the Effective Date.
(n) The Company, at its expense, shall retain the services of its
legal counsel or Blue Sky Data Corp. or another company acceptable to the
Representative to provide the Underwriters with an after market blue sky survey
in those states which the Securities are eligible for sale. The Company shall
also pay the annual cost of providing updates to the Underwriters for a period
of five years or until the Company's Securities are listed on the New York Stock
Exchange, American Stock Exchange or NASDAQ National Market. The first such
survey shall be delivered promptly after closing and updated thereafter on no
less than a semi-annual basis.
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(o) As soon as practicable after the Closing Date, the Company will
deliver to the Representative and its counsel a total of two bound volumes of
copies of all documents relating to the public offering which is the subject of
this Agreement.
(p) The Company will at its cost for a period of three years after
the Effective Date, distribute an annual report to all stockholders setting
forth the results of operations and the financial position of the Company. The
Company will, at its cost, for a period of one year after the Effective Date
furnish the Representative at the Company's sole cost with a duplicate copy of
the daily transfer sheets prepared by the Transfer Agent and copy of the weekly
sheets prepared by Depository Trust Company and a duplicate copy of a list of
stockholders.
(q) After the Effective Date, the Company shall retain the services
of a financial public relations firm(s) reasonably satisfactory to the
Representative, and unrelated to or unassociated with the Representative. Such
firm shall be engaged no later than 30 days after the Closing of the public
offering and for a period of three years thereafter.
(r) The Company agrees that no Common or Preferred Stock with super
voting rights will be issued for a period of one year after the Effective Date
without the Representative's prior written consent.
SECTION 7. Expenses of the Company.
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(a) The Company shall be responsible for and shall bear all of its
expenses directly and necessarily incurred in connection with the proposed
financing, including: (i) the preparation, printing and filing of the
Registration Statement and amendments thereto, including NASD, SEC, NASDAQ and
BSE filing fees, preliminary and final Prospectus and the printing of the
Underwriting Agreement, the Agreement Among the Underwriters and the Selected
Dealers' Agreement, a Blue Sky Memorandum and material to be circulated to the
Underwriters by us; (ii) the issuance and delivery of certificates representing
the Securities, including original issue and transfer taxes, if any; (iii) the
qualifications of the Company's Securities (covered by the "firm commitment"
offering) under State Securities or Blue Sky Laws, including counsel fees of
Lester Morse P.C. relating thereto in the sum of Fifty Thousand Dollars
($50,000) plus disbursements relating to, but not limited to, long-distance
telephone calls, photocopying, messengers, excess postage, overnight mail and
courier services; (iv) the fees and disbursements of counsel for the Company and
the accountants for the Company; (v) costs of qualifying the Securities for
listing on NASDAQ and BSE and (vi) post closing tombstone advertisements not to
exceed $7,500. Upon the commencement of the necessary state Blue Sky filings by
our counsel, the Company shall supply him at his request, all necessary state
filing fees. In addition, the Company shall pay Lester Morse P.C. $10,000 on or
before the filing of the initial Registration Statement as an advance toward the
blue sky fees.
(b) In addition, the Company shall bear each of the following costs:
(i) investigative reports (such as Bishop's Reports) of the Company's executive
officers,
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directors and principal stockholders, as well as travel and other reasonable due
diligence expenses not to exceed $6,000 in the aggregate, including without
limitation, informational meetings and presentations in connection with the
offering; and (ii) otherwise unreimbursed postage, including mailing of
preliminary and final prospectuses incurred by or on behalf of the
Representative and the Underwriters in preparation for, or in connection with
the offering and sale and distribution of the Securities on an accountable
basis.
SECTION 8. Payment of Underwriters' Expenses.
---------------------------------
On the Closing Date, the Company will pay to you an expense allowance equal
to three (3%) percent of the total gross proceeds derived from the sale of the
Firm Common Stock, $10,000 of which has been paid in advance to the
Representative, for the fees and disbursements of counsel to the Underwriters
and for costs of otherwise unreimbursed advertising, traveling, postage,
telephone and telegraph expenses and other miscellaneous expenses incurred by or
on behalf of the Representative and the Underwriters in preparation for, or in
connection with the offering and sale and distribution of the Securities; and
you shall not be obligated to account to the Company for such disbursements and
expenses. Further, in the event that this Agreement is terminated pursuant to
Section 12 hereof, the Company will be obligated to reimburse the Representative
on an accountable basis for its reasonable out-of-pocket expenses incurred in
connection hereunder, less any amounts previously advanced. On the Closing Date
or Additional Closing Date (if any) that the Representative completes the
purchase of all or any portion of the Optional Common Stock, the Company shall
have deducted from the proceeds payable to them by the Representative, an amount
equal to a 10% discount, a 3% non-accountable expense allowance and the
financial consulting fee payable pursuant to Section 16(a) of this Agreement.
SECTION 9. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law or
otherwise, and to reimburse persons indemnified as above for any reasonable
legal or other expense (including the cost of any investigation and preparation)
reasonably incurred by them (as incurred), or any of them, in connection with
investigating, defending against or appearing as a third party witness in
connection with any claim or litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, liabilities, expenses or
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented, if amended or supplemented), or in any
"Blue Sky" application, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however, that
the indemnity agreement contained in this
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subsection (a) shall not apply to amounts paid in settlement of any such claims
or litigation if such settlement is effected without the consent of the Company,
nor shall it apply to the Underwriters or any person controlling the
Underwriters in respect of any such losses, claims, damages, expenses,
liabilities or litigation arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
if such statement or omission was made in reliance upon and in conformity with
written information furnished in writing to the Company by such Underwriter, or
on its behalf, specifically for use in connection with the preparation of the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto or any such blue sky application and further provided,
however, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, alleged untrue statement,
omission or alleged omission made in any Preliminary Prospectus but eliminated
or remedied in the Prospectus, such indemnity agreement shall not inure to the
benefit of the Underwriters (or the benefit of any person who controls such
Underwriter) if a copy of the Prospectus was not sent or given to such person
with or prior to the confirmation of the sale of such securities to such person.
(b) Each of the Underwriters severally agrees, in the same manner and
to the same extent as set forth in subsection (a) above, to indemnify and hold
harmless the Company, each of the directors and officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement, or the Prospectus (as amended or as
supplemented, if amended or supplemented), or in any "Blue Sky" application, if
such statement or omission was made in reliance upon and in conformity with
written information furnished in writing to the Company by such Underwriter, or
on its behalf, specifically for use in connection with the preparation of the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, or any such application. An Underwriter shall not be liable
for amounts paid in settlement of any such claim or litigation if such
settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than
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<PAGE>
reasonable costs of investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the
defendants in any such action include both the indemnified and the indemnifying
party and the indemnified party shall have reasonably concluded that there may
be a conflict between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that there may
be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party or parties), it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party which firm shall be
designated in writing by the indemnified party.
(d) The respective indemnity agreements between the Underwriters and
the Company contained in subsections (a) and (b) above, and the representations
and warranties of the Company set forth in Section 2 hereof or elsewhere in this
Agreement, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters or by or on behalf of
any controlling person of the Underwriters or the Company or any such officer or
director or any controlling person of the Company, and shall survive the
delivery of the Securities. Any successor of the Company, or of the
Underwriters, or of any controlling person of the Underwriters or the Company,
as the case may be, shall be entitled to the benefit of such respective
indemnity agreements.
(e) In order to provide for just and equitable contribution under the
Act in any case in which (i) any person entitled to indemnification under this
Section 9 makes claim for indemnification pursuant hereto but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and
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the Company is responsible for the remaining portion; provided, that, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Within twenty days after receipt by any party to this Agreement (or its
representative) of notice of the commencement of any action, suit or proceeding,
such party will, if a claim for contribution in respect thereof is to be made
against another party (the "contributing party"), notify the contributing party,
in writing, of the commencement thereof, but the omission so to notify the
contributing party will not relieve it from any liability which it may have to
any other party other than for contribution hereunder. In case any such action,
suit or proceeding is brought against any party, and such party so notifies a
contributing party or his or its representative of the commencement thereof
within the aforesaid twenty days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any
party seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The contribution provisions contained in
this Section 9 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
--------------------------
effective (i) at 9:30 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Securities whichever shall first occur. The time of the
initial public offering by the Underwriters of the Securities for the purposes
of this Section 10, shall mean the time, after the Registration Statement
becomes effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities, or the time, after the Registration Statement becomes effective,
when the Securities are first released by the Representative for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Representative agrees to notify the Company immediately after it shall have
taken any action, by release or otherwise, whereby this Agreement shall have
become effective. This Agreement shall, nevertheless, become effective at such
time earlier than the time specified above, after the Effective Date, as the
Representative may determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The obligations
-------------------------------------------
of the several Underwriters to purchase and pay for the Securities which the
Underwriters have agreed to purchase hereunder are subject to: the accuracy, as
of the date hereof and as of the Closing Dates of all of the representations and
warranties of the Company contained in this Agreement; the Company's compliance
with, or performance of, all of its covenants, undertakings and agreements
contained in this Agreement that are required to be complied with or performed
on or prior to each of the Closing Dates and to the following additional
conditions:
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<PAGE>
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel to the Underwriters, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein,
or is necessary to make the statements therein not misleading.
(c) Between the date hereof and the Closing Date, the Company shall not
have sustained any loss on account of fire, explosion, flood, accident, calamity
or other such cause, of such character as materially adversely affects its
business or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Except as contemplated herein or as set forth in the Registration
Statement and Prospectus, during the period subsequent to the Effective Date and
prior to the Closing Date, (A) the Company shall have conducted its business in
the usual and ordinary manner as the same was being conducted on the date of the
filing of the initial Registration Statement and (B) except in the ordinary
course of its business, the Company shall not have incurred any material
liabilities or obligations (direct or contingent), or disposed of any of its
assets, or entered into any material transaction, and (C) the Company shall not
have suffered or experienced any material adverse change in its business,
affairs or in its condition, financial or otherwise. On the Closing Date, the
capital stock and surplus accounts of the Company shall be substantially as
great as at its last financial report without considering the proceeds from the
sale of the Securities except to the extent that any decrease is disclosed in or
contemplated by the Prospectus.
(f) The authorization of the Securities, the Registration Statement,
the Prospectus and all corporate proceedings and other legal matters incident
thereto and
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<PAGE>
to this Agreement, shall be reasonably satisfactory in all respects
to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of its counsel that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus; and the Company is duly qualified to do business as
a foreign corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification.
(ii) The Offered Securities delivered on such Closing Date and all
other outstanding Shares of Common Stock have been duly authorized and validly
issued are fully paid and non-assessable and conform to the description of
thereof contained in the Prospectus, and the stockholders of the Company have no
preemptive rights with respect to the Offered Securities.
(iii) To the best of such counsel's knowledge, no consent,
approval, authorizations or order of, or filing with, any governmental agency,
or body or any court is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance or sale of the
Securities by the Company, except such as have been required under the Act and
such as may be required under state securities laws.
(iv) The Registration Statement was declared effective under the
Act and, to the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Act, and the Registration Statement and Prospectus, and each amendment
or supplement thereto as of their respective effective or issue dates, complied
as to form in all material respects with the requirements of the Act and the
Rules and Regulations, such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto as of its effective date or as
of such Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date or as of such Closing
Date, contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; the descriptions
in the Registration Statements and Prospectus of contracts and other documents
are accurate and fairly present the information required to be shown; and such
counsel does not know of any legal or governmental proceedings required to be
described in a Registration Statement or the Prospectus which are not described
as required or of any contracts or documents of a character required to be
described in a Registration
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<PAGE>
Statement or the Prospectus or to be filed as exhibits to a Registration
Statement which are not described and filed as required; it being understood
that such counsel need express no opinion as to the financial statements or
other financial data contained in the Registration Statements or the Prospectus.
(v) The Representative's Warrants to be issued to the
Representative or its permitted designees hereunder will be, when issued against
payment therefor duly and validly authorized and executed by the Company and
will constitute valid and binding obligations of the Company, legally
enforceable in accordance with their terms (except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally), and
the Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Representative's Warrants and such
stock, when issued and paid for upon exercise of the Representative's Warrants
in accordance with the provisions thereof, will be duly and validly authorized
and issued, fully-paid and non-assessable.
(vi) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company and enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors rights generally and except that
no opinion need be given with regard to the enforceability of Section 9 hereof
or the availability of equitable relief.
(vii) To the best knowledge of such counsel: (a) the Company has
full power and legal authority to sell the Securities on the terms and
conditions set forth herein and in the Registration Statement and in the
Prospectus; and (b) the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance with the
terms hereof will not conflict with, or constitute a default under, any material
indenture, mortgage, deed of trust, note or any other agreement or instrument to
which the Company is now a party or by which it or its business or its
properties may be bound or affected, the Certificate of Incorporation and any
amendments thereto, the bylaws of the Company, or any order, rule or regulation,
writ, injunction or decree of any government, governmental instrumentality, or
court, domestic or foreign, having jurisdiction over the Company or its business
or properties.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact. Such opinion shall be limited to Federal law and to the laws of the
States of Delaware and California; and such counsel may rely, as to matters of
New York law, on the opinion of counsel to the Underwriters and on the
assumption that the laws of New York are the same in all material respects as
the laws of California.
(h) The Company shall have furnished to the Representative certificates
of the President or Chairman of the Board and the Secretary of the
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Company, dated as of the Closing Date, and Additional Closing Date(s), to the
effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof are true and correct in all material respects at
and as of such Closing Date, and the Company has performed or complied with all
of its agreements, covenants and undertakings contained in this Agreement and
has performed or satisfied all the conditions contained in this Agreement on its
part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective and no stop
order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes 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 and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except changes which the
Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus and
prior to the date of such certificate (A) there has not been any material
adverse change, financial or otherwise, in the business, business prospects,
earnings, general affairs or condition (financial or otherwise), of the Company
(in each case whether or not arising in the ordinary course of business), and
(B) the Company has not incurred any liabilities, direct or contingent, or
entered into any transactions, otherwise than in the ordinary course of business
other than as referred to in the Registration Statement or Prospectus and except
changes which the Registration Statement and Prospectus indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates, additional to those specifically
mentioned herein, as the Representative may have reasonably requested, as to:
the accuracy and completeness of any statement in the Registration Statement or
the Prospectus, or in any amendment or supplement thereto; the representations
and warranties of the Company herein; the performance by the Company of its
obligations hereunder; or the fulfillment of the conditions concurrent and
precedent to the obligations of the
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Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on the Closing Date you
shall have received a letter from Richard A. Eisner & Company, LLP, addressed to
the Representative, as Representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of the Closing Date and
Additional Closing Date as the case may be (based upon information not more than
five business days prior to such Effective Date, Closing Date and Additional
Closing Date as the case may be), in form and substance reasonably satisfactory
to the Representative, to the effect that:
(i) They are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations of the Commission;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration Statement and Prospectus
and covered by their reports comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules and
Regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures, not constituting an
audit, including a review of the latest interim unaudited financial statements
of the Company on the basis specified by the American Institute of Certified
Public Accountants for a review of interim financial information, a reading of
the minutes of meetings of the boards of directors, and stockholders of the
Company, inquiries of officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention which caused them to believe:
(A) that at the date of the latest balance sheet read by
them and at a subsequent specified date not more than five business days prior
to the date of such letter, there was any change in the capital stock or
increase in long-term debt of the Company as compared with amounts shown in the
most recent balance sheet included in the Prospectus, except for changes which
the Prospectus discloses have occurred or may occur or which are described in
such letter;
(B) that at the date of the latest balance sheet read by
them and at a subsequent specified date not more than five business days prior
to the date of such letter, there were any decreases, as compared with amounts
shown in the most recent balance sheet included in the Prospectus, in total
assets, net current assets or stockholder's equity of the Company except for
decreases which the Prospectus discloses have occurred or may occur or which are
described in such letter; or
(C) that for the period from the date of the most recent
financial statements in the Registration Statement to a subsequent specified
date not more than five business days prior to the date of such letter, there
were any decreases,
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as compared with the corresponding period of the preceding year, in gross profit
or the total or per share amounts of net income of the Company except for
decreases which the Prospectus discloses have occurred or may occur or which are
described in such letter.
(iv) In addition to the audit referred to in their report
included in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Summary of Financial Data," "Capitalization", "Management",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Certain Transactions", Summary of Financial Data", "Dilution" and
"Risk Factors," as well as such other financial information as may be specified
by the Representative, and that they have compared such amounts, percentages and
financial information with the accounting records of the Company and have found
them to be in agreement.
All the opinions, letters, certificates and evidence mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel to the Representative, whose approval shall not be unreasonably
withheld, conditioned or delayed.
If any of the conditions specified in this section shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
and all obligations of the Underwriters hereunder may be terminated and canceled
by the Representative by notifying the Company of such termination and
cancellation in writing or by telegram at any time prior to, or on, the Closing
Date and any such termination and cancellation shall be without liability of any
party hereto to any other party, except with respect to the provisions of
Sections 7 and 8 hereof. The Representative may, of course, waive, in writing,
any conditions which have not been fulfilled or extend the time for their
fulfillment.
SECTION 12. Termination.
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(a) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company at any time before it becomes effective
pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company, at any time after it becomes effective, in
the event that the Company, after notice from the Representative and an
opportunity to cure, shall have failed or been unable to comply in material
respects with any of the material terms, conditions or provisions of this
Agreement on the part of the Company to be performed, complied with or fulfilled
within the respective times herein provided for, including without limitation
Section 6(g) hereof, unless compliance therewith or
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performance or satisfaction thereof shall have been expressly waived by the
Representative in writing. This Agreement may also be terminated if there is any
action, suit or proceeding, threatened or pending, at law or equity against the
Company, or by any federal, state or other commission, board or agency wherein
any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by written
or telegraphic notice to the Company at any time after it becomes effective, if
the offering of, or the sale of, or the payment for, or the delivery of, the
Securities is rendered impracticable because (i) additional material
governmental restriction, not in force and effect on the date hereof, shall have
been imposed upon trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock Exchange or trading
in securities generally on such exchange shall have been suspended or a general
banking moratorium shall have been established by Federal or New York State
authorities or (ii) a war or other national calamity shall have occurred
involving the United States or (iii) the condition of the market for securities
in general shall have materially and adversely changed, or (iv) the Company or
its business or business prospects is materially adversely affected so that it
would be impractical to proceed with, or consummate, this Agreement or the
public offering of the Securities.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided. In the event that this offering is terminated by the
Company, the Representative shall be entitled to receive reimbursement of its
out-of-pocket expenses on an accountable basis after giving credit to the
Company for any advances received toward the Representative's non-accountable
expense allowance. The Representative shall account to the Company for any
advance and shall reimburse the Company for any portion of the advance not
expended for actual out-of-pocket expenses.
SECTION 13. Finder. The Company and the Underwriters mutually represent
------
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
----------------------------
(a) If one or more Underwriters default in its or their obligations
to purchase and pay for Securities hereunder and if the aggregate amount of such
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Securities which all Underwriters so defaulting have agreed to purchase does not
exceed 10% of the aggregate number of Securities constituting the Securities,
the non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Securities set forth
opposite their names in Schedule I) the full amount of the Securities agreed to
be purchased by all such defaulting Underwriters and not so purchased, in
proportion to their respective commitments hereunder. In such event the
Representative, for the accounts of the several non-defaulting Underwriters, may
take up and pay for all or any part of such additional Securities to be
purchased by each such Underwriter under this subsection (a), and may postpone
the Closing Date to a time not exceeding seven full business days; or
(b) If one or more Underwriters (other than the Representative)
default in its or their obligations to purchase and pay for the Securities
hereunder and if the aggregate amount of such Securities which all Underwriters
so defaulting shall have agreed to purchase shall exceed 10% of the aggregate
number of Securities or if one or more Underwriters for any reason permitted
hereunder cancel its or their obligations to purchase and pay for Securities
hereunder, the non-canceling and non-defaulting Underwriters (hereinafter called
the "Remaining Underwriters") shall have the right, but shall not be obligated
to purchase such Securities in such proportion as may be agreed among them, at
the Closing Date. If the Remaining Underwriters do not purchase and pay for such
Securities at such Closing Date, the Closing Date shall be postponed for 24
hours and the remaining Underwriters shall have the right to purchase such
Securities, or to substitute another person or persons to purchase the same or
both, at such postponed Closing Date. If purchasers shall not have been found
for such Securities by such postponed Closing Date, the Closing Date shall be
postponed for a further 24 hours and the Company shall have the right to
substitute another person or persons, satisfactory to you to purchase such
Securities at such second postponed Closing Date. If the Company shall not have
found such purchasers for such Securities by such second postponed Closing Date,
then this Agreement shall automatically terminate and neither the Company, nor
the remaining Underwriters (including the Representative) shall be under any
obligation under this Agreement (except that the Company shall remain liable to
the extent provided in Paragraph 7 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 14. Nothing in this subparagraph (b) will relieve a defaulting
Underwriter from its liability, if any, to the other Underwriters for damages
occasioned by its default hereunder (and such damages shall be deemed to
include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Securities)
or obligate any Underwriter to purchase or find purchasers for any Securities in
excess of those agreed to be purchased by such Underwriter under the terms of
Sections 3 and 14 hereof.
Notwithstanding anything contained herein to the contrary, no provisions of
this Section 14 or any other section of this Underwriting Agreement are intended
to permit an Underwriter to terminate its obligation to purchase the Firm Common
Stock (as such term is defined in this Underwriting Agreement) from the Company
based upon: (i) the occurrence of non-material events affecting the Company or
the securities market or (ii) the inability to market the securities.
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SECTION 15. Registration of Resale of Common Stock underlying
-------------------------------------------------
Representative's Warrants. For purposes of this Section 15, the term
-------------------------
"underlying securities" shall refer to and include the Common Stock issuable and
issued upon exercise of the Representative's Warrants. The Company agrees that
it will, upon request by the Representative or the holders of a majority of the
Representative's Warrants and/or underlying securities within the period
commencing one year after the Effective Date, and for a period of five years
from the Effective Date, on one occasion only at the Company's sole expense,
cause the underlying securities issuable upon exercise of the Representative's
Warrants, to be the subject of a new Registration Statement, (hereinafter
referred to as the "demand Registration Statement"), so as to enable the
Representative and/or its assigns to resell publicly the underlying securities.
The Company agrees to register such securities expeditiously and, where
possible, within forty-five (45) business days after receipt of such requests.
The Company agrees to use its "commercially reasonable efforts" to cause the
post-effective amendment or new Registration Statement to become effective and
for a period of nine (9) months thereafter to reflect in Registration Statement,
financial statements which are prepared in accordance with Section 10(a)(3) of
the Act and any facts or events arising which, individually or in the aggregate,
represent a fundamental and/or material change in the information set forth in
the Registration Statement. The holders of the Representative's Warrants and
underlying securities may demand registration of the underlying securities
without exercising the Representative's Warrants and, in fact, are never
required to exercise same.
The Company understands and agrees that if, at any time within the period
commencing one year after the Effective Date and ending seven years after the
Effective Date of the Company's Registration Statement, it should file a
Registration Statement with the Commission pursuant to the Act, regardless of
whether some of the holders of the Representative's Warrants and underlying
securities shall have theretofore availed themselves of the right provided
above, the Company, at its own expense, will offer to said holders the
opportunity to register the resale of the underlying securities. This paragraph
is not applicable to a Registration Statement filed by the Company with the SEC
on Form S-8 or any other inappropriate form.
SECTION 16. Other Agreements.
----------------
(a) Consulting Agreement. On the Effective Date, the Company will
--------------------
enter into an agreement retaining the Representative as a financial consultant
pursuant to which the Representative shall receive a consulting fee in an amount
equal to two (2%) of the gross proceeds of this offering (including the Over-
Allotment Option) for services for one (1) year from the Effective Date, payable
in full in advance on the Closing Date, which shall include, but not be limited
to, advising the Company in connection with possible acquisition opportunities,
advising the Company regarding shareholder relations including the preparation
of the annual report and other releases, assisting in long-term financial
planning, advice in connection with corporate re-organizations and expansion and
capital structure, and other financial assistance.
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(b) Finder's Fee: The Company agrees that if it shall within three
------------
(3) years from the Effective Date, enter into any agreement of understanding
with any person or entity introduced by the Representative involving the
following originated by Representative (i) the sale of all or substantially all
of the assets and properties of the Company, (ii) the merger or consolidation of
the Company (other than a merger or consolidation effected for the purpose of
changing the Company's domicile) or (iii) the acquisition by the Company of the
assets or stock of another business entity, which agreement or understanding
thereafter consummated, whether or not during such three (3) year period, the
Company, upon such consummation, shall pay to the Representative an amount equal
to the following percentages of the consideration paid by the Company in
connection with such transaction:
5% of the first $1,000,000 or portion thereof, of such consideration;
4% of the second $1,000,000 or portion thereof, of such consideration;
and 3% of such consideration in excess of the first $2,000,000 of such
consideration.
The fees payable to the Representative will be in the same form of
consideration as that paid by or to the Company, as the case may be, in any such
transactions.
(c) Designation of Non-voting Advisor to the Board: The Company
----------------------------------------------
agrees that unless waived by us, that the Representative shall have the right to
designate a non-voting advisor to the Board acceptable to the Company for a
period of two (2) years after the Effective Date. Said designee shall attend
meetings of the Board and shall be entitled to receive reimbursement for all
approved reasonable costs incurred in attending such meetings, including but not
limited to, food, lodging and transportation. In the event the Company maintains
a liability insurance policy affording coverage for the act of its officers
and/or directors, it will agree, to the extent permitted under such policy, to
include each of the Representative and its designee as an insured under such
policy.
(d) Lock-up Agreement: The holders of 100% of the outstanding
-----------------
shares of capital stock (including any securities convertible into capital
stock) as of the Effective Date, unless the Representative shall otherwise
decide, shall agree not to sell, transfer, hypothecate or convey any such stock
by registration or otherwise for a period of one year from the Effective Date
without the prior written consent of the Representative or any greater period
required by NASDAQ (except that, subject to compliance with applicable
securities laws, any such officer, director or stockholder may transfer his or
her stock in a transaction not involving a public offering including to a member
of his family or in the event of death, by will or operation of law, provided
that any such transferee shall agree, as a condition to such transfer, to be
bound by the restriction set forth herein). An appropriate legend shall be
marked on the face of the stock certificates representing all of such
securities.
SECTION 17. Notice. Except as otherwise expressly provided in this
------
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt
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<PAGE>
requested, addressed to the Company at the address set forth herein on the first
page, copy to Allen Matkins Leck Gamble & Mallory LLP, 1900 Main Street, 5th
Floor, Irvine, CA 92614, Att: Gregory W. Preston, Esq.; (B) whenever notice is
required by the provisions hereof to be given to the Underwriters, such notice
shall be in writing addressed to the Representative at Grady & Hatch and
Company, Inc., copy to Steven Morse, Esq., Lester Morse P.C., Suite 420, 111
Great Neck Road, Great Neck, NY 11021. Any party may change the address for
notices to be sent by giving written notice to the other persons.
SECTION 18. Representations and Agreements to Survive Delivery. Except
--------------------------------------------------
as the context otherwise requires, all representations, warranties, covenants,
and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants, and agreements as at the date hereof and
as at the Closing Date and the Additional Closing Date(s), and all
representations, warranties, covenants, and agreements of the several
Underwriters and the Company, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any of the
Underwriters or any of their controlling persons, and shall survive any
termination of this Agreement (whensoever made) and/or delivery of the
Securities to the several Underwriters.
SECTION 19. Miscellaneous. This Agreement is made solely for the benefit
-------------
of the Underwriters and the Company and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchaser, as such, of any of the Shares.
This Agreement shall not be assignable by any party without the other
party's prior written consent. This Agreement shall be binding upon, and shall
inure to the benefit of, our respective successors and permitted assigns. The
foregoing represents the sole and entire agreement between us with respect to
the subject matter hereof and supersedes any prior agreements between us with
respect thereto. This Agreement may not be modified, amended or waived except
by a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one
and the same instrument.
If a party signs this Agreement and transmits an electronic facsimile of
the signature page to the other party, the party who receives the transmission
may rely upon the electronic facsimile as a signed original of this Agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with
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all counterparts will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
AQUACELL TECHNOLOGIES, INC.
By: ________________________________________
James C. Witham, Chief Executive Officer
CONFIRMED AND ACCEPTED, as of
the date first above written:
GRADY & HATCH AND COMPANY, INC.
By: ________________________________
(authorized officer)
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
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SCHEDULE I
----------
========================================================
Underwriter Firm Common
Stock to be
Purchased
--------------------------------------------------------
Number of
Common
Shares
--------------------------------------------------------
Grady & Hatch and Company, Inc.
Total 1,750,000
=========
SCHEDULE I
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