UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 7, 1998
HARVEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 1-4626 13-1534671
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
205 Chubb Avenue, Lyndhurst, New Jersey 07071
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (201) 842-0078
N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
Completion of Public Offering
On April 7, 1998, Harvey Electronics, Inc., (the "Company") completed a
public offering of common stock and warrants. A total of 1.2 million shares of
common stock were sold at $5.00 per share, including 175,000 shares sold by the
Company's majority shareholder, Harvey Acquisition Company, LLC ("HAC"). The
Company also sold 2,104,500 warrants (including 274,500 warrants from the
overallotment) at $0.10 per warrant. The offering was managed by The Thornwater
Company, L.P. ("Thornwater").
The Company intends to use the proceeds from the offering, approximating
$4.0 million, to open or acquire additional retail stores and for working
capital and general corporate purposes.
The Company's shares are listed on the NASDAQ SmallCap Market under the
symbols "HRVE" for the common stock and "HRVEW" for the warrants. The common
stock and warrants began trading on March 31, 1998.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired - not applicable.
(b) Financial Statements - none.
(c) Exhibits
4.4 Representative's Warrant Agreement;
4.5 Warrant Agent Agreement;
10.1 Underwriting Agreement;
10.2 Financial Advisory and Investment Banking Agreement between the
Company and The Thornwater Company, L.P.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEY ELECTRONICS, INC.
By: /s/Joseph J. Calabrese
------------------------------------
Joseph J. Calabrese
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Date: April 17, 1998
HARVEY ELECTRONICS, INC.
1,200,000 Shares of Common Stock
and
1,830,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
March 31, 1998
The Thornwater Company, L.P.
107A East 37th Street
New York, New York 10016
Gentlemen:
Harvey Electronics, Inc., a corporation organized under the laws of the
State of New York (the "Company"), and Harvey Acquisition Company, LLC, a
Delaware limited liability company ("Selling Shareholder"), severally hereby
confirm their respective agreement with The Thornwater Company, L.P.
("Thornwater"), as representative (the "Representative") of the several
underwriters listed on Schedule 1 annexed hereto (the "Underwriters"), as set
forth below.
The Company proposes to issue and sell to the Underwriters an aggregate of
(i) 1,025,000 shares of the Company's common stock, no par value (the "Common
Stock"), and (ii) 1,830,000 redeemable warrants to purchase Common Stock (the
"Firm Warrants"), and the Selling Shareholder proposes to sell to the
Underwriters 175,000 shares of Common Stock (the "Selling Shareholder Firm
Shares"). The shares of Common Stock being sold by the Company are referred to
as the "Company Firm Shares" and the Company Firm Shares and the Selling
Shareholder Firm Shares are sometimes referred to as the "Firm Shares." In
addition, for the sole purpose of covering over-allotments from the sale of the
Firm Shares and the Firm Warrants, (A) the Company proposes to grant to the
Underwriters an option to purchase an additional 274,500 redeemable warrants to
purchase Common Stock (the "Option Warrants" the "Company Option Securities")
and (B) the Selling Shareholder proposes to grant to the Underwriters an option
to purchase 180,000 shares of Common Stock (the "Selling Shareholder Option
Shares" or the "Option Shares"), all as provided in section 2(c) of this
agreement (the "Agreement"). The Firm Shares and the Option Shares are
collectively referred to herein as the "Shares." The Firm Warrants and the
Option Warrants are collectively referred to herein as the "Warrants." Any
shares of Common Stock issuable upon the exercise of any Warrants are referred
to herein as "Warrant Shares." The Firm Shares and the Firm Warrants are
collectively referred to herein as the "Firm Securities;" the Option Shares and
the Option Warrants are collectively referred to herein as the "Option
Securities;" the Selling Shareholder Firm Shares and the Selling Shareholder
Option Shares are sometimes collectively referred to as "Selling Shareholder
Securities". The Company Firm Shares and the Warrant Shares are sometimes
collectively referred to as the "Company Shares" and the Firm Securities, the
Option Securities and the Warrant Shares are collectively referred to herein as
the "Securities."
Pursuant to an agreement to be entered into among the Company, the
Underwriter and Registrar and Transfer Company (the "Warrant Agreement"), each
Warrant will be exercisable during the period commencing on the second
anniversary of the effective date of the Registration Statement (as hereinafter
defined) (the "Effective Date") and expiring on the fifth anniversary thereof,
subject to redemption by the Company (as described below), at an initial
exercise price (subject to adjustment as set forth in the Warrant Agreement) of
$5.50 per share [110% of IPO price per share]. The Warrants will be redeemable
at a price of $.10 per Warrant, commencing on the second anniversary of the
Effective Date (or earlier with the consent of the Representative) and prior to
their expiration, upon not less than 30 days prior written notice to the holders
of the Warrants, provided that the closing bid price of the Common Stock as
reported on the Nasdaq SmallCap Market if traded thereon, or if not traded
thereon, the closing sale price if listed on the Nasdaq National Market or a
national or regional securities exchange (or other reporting system that
provides last sales prices), shall have been at least $7.50 per share [150% of
IPO price per share], subject to adjustment, for 20 consecutive trading days
ending three days prior to the date on which the Company gives notice of
redemption, subject to the right of the holder to exercise such Warrants prior
to redemption.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-42121), with
respect to the Securities and the Representative's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "), and one
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriters. After the
execution of this Agreement, the Company will file with the Commission either
(i) if the registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes of registering
certain additional Securities, which registration statement shall become
effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriters copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act. If the Company
has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement
has not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit 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. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit 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 foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriters specifically for use therein.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New York, and is
duly qualified or authorized to transact business as a foreign corporation and
is in good standing in each jurisdiction where the ownership or leasing of its
property or the conduct of its business requires such qualification or
authorization.
(d) The Company has full corporate power and authority, and all necessary
material authorizations, approvals, orders, licenses, certificates and permits
of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business entity.
(f) The Company has an authorized, issued and outstanding capitalization as
set forth in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). All of the issued shares of capital stock
of the Company, including the Selling Shareholder Shares, have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. There are no outstanding options, warrants or other rights
granted by the Company to purchase shares of its Common Stock or other
securities, other than as described in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus). The Company Shares
have been duly authorized, and the Warrant Shares have been duly reserved for
issuance, by all necessary corporate action on the part of the Company and, when
the Company Firm Shares are issued and delivered to and paid for by the
Underwriter pursuant to this Agreement and the Warrant Shares are issued and
delivered to and paid for by the holders of Warrants upon exercise of the
Warrants in accordance with the terms thereof, the Firm Shares and the Warrant
Shares will be validly issued, fully paid, nonassessable and free of preemptive
rights and will conform to the description thereof in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus). No
holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Securities, and no person
is entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(g) The capital stock of the Company conforms to the description thereof
contained in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected pursuant
to an exemption from the registration requirements of the Act. Except as
previously disclosed in writing to the Representative, no compensation was paid
to or on behalf of any member of the National Association of Securities Dealers,
Inc. ("NASD"), or any affiliate or employee thereof, in connection with any such
issuance.
(i) The financial statements of the Company included in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present the financial position of the
Company as of the dates indicated and the results of operations of the Company
for the periods specified. Such financial statements have been prepared in
accordance with accounting principles generally accepted in effect in the United
States of America, consistently applied, except to the extent that certain
footnote disclosures regarding unaudited interim periods may have been omitted
in accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The financial data set forth
under the caption "Summary Financial Information" in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(j) Ernst & Young LLP, who have audited certain financial statements of the
Company and delivered their report with respect to the financial statements
included in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants with respect to the Company as required by the
Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, whether or not arising in the ordinary course of business, (ii) except
as otherwise stated therein, there have been no transactions entered into by the
Company and no commitments made by the Company that, individually or in the
aggregate, are material with respect to the Company, (iii) there has not been
any change in the capital stock or indebtedness of the Company, and (iv) there
has been no dividend or distribution of any kind declared, paid or made by the
Company in respect of any class of its capital stock.
(l) The Company has full corporate power and authority to enter into and
perform its obligations under this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement (as hereinafter defined). The execution and
delivery of this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement have been duly authorized by all necessary corporate action on
the part of the Company and this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement have each been duly executed and delivered by
the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriters of the Securities pursuant to this Agreement or the
Representative's Securities pursuant to the Representative's Warrant Agreement,
the compliance by the Company with the provisions of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement, and the consummation of
the other transactions contemplated by this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement do not (i) require the consent, approval,
authorization, registration or qualification of or with any court or
governmental or regulatory authority, except such as have been obtained or may
be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) conflict
with or result in a breach or violation of, or constitute a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which the Company is a party
or by which the Company or any of its property is bound or subject, or the
certificate of incorporation or by-laws of the Company, or any statute or any
rule, regulation, judgment, decree or order of any court or other governmental
or regulatory authority or any arbitrator applicable to the Company.
(m) No legal or governmental proceedings are pending to which the Company
is a party or to which the property of the Company is subject, and no such
proceedings have been threatened against the Company or with respect to any of
its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice or lapse of time or both would constitute such a
default.
(o) The Company currently own or possess adequate rights to use all
intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the properties and
assets reflected in the Company's financial statements or as described in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind, except those reflected in
such financial statements or as described in the Registration Statement and the
Prospectus (and such Preliminary Prospectus). Except as disclosed in the
Prospectus, the Company occupies its leased properties under valid and
enforceable leases conforming to the description thereof set forth in the
Registration Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in a
manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) The Company has obtained and delivered to the Representative the
agreements (the "Lock-up Agreements") with the officers, directors and other
security holders owning or having rights to acquire shares of Common Stock or
preferred stock to the effect that, among other things, each such person (i)
will not, commencing on the Effective Date and continuing for the period set
forth in Schedule 2, directly or indirectly, publicly sell, offer or contract to
sell or grant any option to purchase, transfer, assign or pledge, or otherwise
encumber, or dispose of any shares of Common Stock or preferred stock or any
securities convertible into or exercisable for Common Stock or preferred stock
now or hereafter owned by such person without the prior written consent of the
Representative and that the purchaser or transferee in any private sale agrees
to be bound by the Lock Up Agreement, and (ii) will comply with any additional
restriction or condition on the disposition of such Common Stock or preferred
stock which may be required to qualify the offering of the Securities in any
state in accordance with the blue sky or securities laws of such state.
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Representative's Warrant (as hereinafter defined) will conform to
the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Representative in accordance
with the Representative's Warrant Agreement, will have been duly authorized and
validly issued and will constitute valid and binding obligations of the Company
entitled to the benefits of the Representative's Warrant Agreement. The shares
of Common Stock issuable upon exercise of the Representative's Warrant and the
Warrants issuable upon exercise thereof (the "Representative's Warrant Shares")
have been duly authorized and reserved for issuance upon exercise of the
Representative's Warrant and the Warrants issuable upon exercise thereof by all
necessary corporate action on the part of the Company and, when issued and
delivered and paid for upon such exercise in accordance with the terms of the
Representative's Warrant Agreement, the Representative's Warrant, and the
Warrants issuable upon exercise thereof, respectively, will be validly issued,
fully paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is entitled to
any commission, fee or other compensation or payment for services as a finder
for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Representative.
(x) The Company has filed all federal, state, local and foreign tax returns
which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.
(y) Neither the Company nor any director, officer, agent, employee or other
person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or affiliates
(as defined in the Regulations), has taken or will take, directly or indirectly,
prior to the completion of the Offering, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Securities or the Option
Securities.
2. Purchase, Sale and Delivery of the Securities and the Underwriter's
Warrants.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each Underwriter and the Selling
Shareholder agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, and the Selling
Shareholder the number of Firm Shares as set forth opposite its name on Schedule
1 annexed hereto, at a purchase price of $4.50 per share and the Firm Warrants
at a purchase price of $.09 per Warrant.
(b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriters, against
payment by or on behalf of the Underwriters of the purchase prices therefor by
certified or official bank check or checks drawn upon or by a New York Clearing
House bank and payable in next-day funds to the order of the Company. Such
delivery of and payment for the Firm Securities shall be made at the offices of
Counsel for the Underwriters, 101 East 52nd Street, New York, New York at 9:30
A.M., New York City time on April 3, 1998, or at such other place, time or date
as the Underwriters and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
The Company will make such certificates for the Firm Securities available for
checking and packaging by the Underwriters, at such offices as may be designated
by the Representative, at least 24 hours prior to the Firm Closing Date. In lieu
of physical delivery, the closing may occur by "DTC" delivery.
(c) For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Securities as contemplated by the Prospectus,
the Company hereby grants to the Underwriter an option to purchase any or all of
the Company Option Warrants and the Selling Shareholder hereby grants the
Underwriters an option to purchase the Selling Shareholder Option Shares, which
options are exercisable by the Representative on behalf of and for the account
of the Underwriters. The purchase price to be paid for any of the Option
Securities shall be the same price per share or Warrant as the price per share
or Warrant for the Firm Securities set forth above in paragraph (a) of this
section 2. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within 45 calendar days after the Firm
Closing Date. The Underwriters shall not be under any obligation to purchase any
of the Option Securities prior to the exercise of such option. The
Representative may from time to time exercise the option granted hereby on
behalf of the Underwriters by giving notice in writing or by telephone
(confirmed in writing) to the Company and the Selling Shareholder (in the case
of the Selling Shareholder Option Shares) setting forth the aggregate number of
Option Securities as to which the Underwriters are then exercising the option
and the date and time for delivery of and payment for such Option Securities.
Any such date of delivery shall be determined by the Underwriters but shall not
be earlier than two business days or later than three business days after such
exercise of the option and, in any event, shall not be earlier than the Firm
Closing Date. The time and date set forth in such notice, or such other time on
such other date as the Representative and the Company may agree upon, is herein
called the "Option Closing Date" with respect to such Option Securities. Upon
exercise of the option as provided herein, the Company and/or the Selling
Shareholder shall become obligated to sell to the Underwriters, and, subject to
the terms and conditions herein set forth, each Underwriter shall become
obligated to purchase from the Company and the Selling Shareholder, the Option
Securities as to which the Underwriter is then exercising its option. If the
option is exercised as to all or any portion of the Option Securities,
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (b) of this section 2,
except that reference therein to the Firm Securities and the Firm Closing Date
shall be deemed, for purposes of this paragraph (c), to refer to such Option
Securities and Option Closing Date, respectively.
(d) On the Firm Closing Date, the Company will further issue and sell to
the Representative or, at the direction of the Representative, to bona fide
officers of the Underwriters, for an aggregate purchase price of $10, warrants
to purchase Common Stock and redeemable warrants to purchase Common Stock (the
"Representative's Warrant") entitling the holders thereof to purchase an
aggregate of 120,000 shares of Common Stock and/or 183,000 redeemable warrants
to purchase Common Stock for a period of four years, such period to commence on
the first anniversary of the Effective Date. The Representative's Warrant shall
be exercisable at a price equal to 160% of the initial public offering price of
the Common Stock and Warrants, respectively, and shall contain terms and
provisions more fully described herein below and as set forth more particularly
in the warrant agreement relating to the Representative's Warrant to be executed
by the Company on the Effective Date (the "Representative's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Representative's Warrant. As provided in the Representative's Warrant
Agreement, the Representative may designate that the Representative's Warrant be
issued in varying amounts directly to bona fide officers of the Underwriters. As
further provided, no sale, transfer, assignment, pledge or hypothecation of the
Representative's Warrant shall be made for a period of 12 months from the
Effective Date, except (i) by operation of law or reorganization of the Company,
or (ii) to the Underwriters and bona fide partners, officers of the Underwriters
and selling group members. The shares of Common Stock issuable upon exercise of
the Representative's Warrant and the warrants issuable upon exercise thereof are
referred to herein as the "Representative's Warrant Shares"; and the
Representative's Warrant, the warrants issuable upon exercise thereof, and the
Representative's Warrant Shares are collectively referred to herein as the
"Representative's Securities."
3. Offering by the Underwriters. The Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus
(the "Offering").
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriters shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriters or counsel to the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriters, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriters of each such
filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Underwriters,
arrange for the qualification of the Securities for offering and sale under the
blue sky or securities laws of such jurisdictions as the Underwriters may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriters thereof and, subject to section 4(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) So long as any Warrants are outstanding, the Company shall use its best
efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriters and any dealer as many copies of
each such Prospectus as the Underwriters or dealer may reasonably request. The
Company shall not call for redemption of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Underwriters of any material change in the
business, financial condition or prospects of the Company. So long as any of the
Warrants remain outstanding, the Company will timely deliver and supply to its
Warrant Agent sufficient copies of the Company's current Prospectus, as will
enable such Warrant agent to deliver a copy of such Prospectus to any Warrant or
other holder where such Prospectus delivery is by law required to be made.
(f) The Company will, without charge, provide to the Underwriters and to
counsel for the Underwriters (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriters may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriters may reasonably request and (iii) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally available to
its security holders and to the Underwriters an earnings statement of the
Company that satisfies the provisions of section 11 (a) of the Act and Rule 158
thereunder.
(h) The Company will reserve and keep available for issuance that maximum
number of authorized but unissued shares of Common Stock which are issuable upon
exercise of the Warrants and the Representative's Warrant (including the
underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the Securities
being sold by it as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, without the prior written consent of the
Representative, directly or indirectly offer, agree to sell, sell, grant any
option to purchase or otherwise dispose (or announce any offer, agreement to
sell, sales grant of any option to purchase or other disposition) of any shares
of Common Stock, preferred stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or preferred stock for a
period of 36 months after the Effective Date, except (i) the Shares and Warrants
issued pursuant to this Agreement, (ii) the Warrant Shares issuable upon
exercise of the Warrants, (iii) the Warrants, (iv) the Representative's Warrant
Shares and Warrants issuable upon the exercise of the Representative's Warrant,
and (v) shares of Common Stock issuable upon the exercise of options granted and
to be granted under the Company's Stock Option Plan as in effect as of the date
hereof. The Company also will not for a period of 36 months following the
Effective Date, without the prior written consent of the Representative, (i)
issue or sell any of its securities pursuant to Regulation S promulgated under
the Act or (ii) file a registration on Form S-8 for the sale of securities by a
person other than an employee of the Company or a subsidiary of the Company.
(k) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without prior written consent of the
Representative, issue any press release or other public announcement or hold any
press conference with respect to the Company or its activities with respect to
the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).
(l) If, at the time that the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A under
the Act, then immediately following the execution of this Agreement, the Company
will prepare, and file or transmit for filing with the Commission in accordance
with Rule 430A and Rule 424(b) under the Act, copies of the Prospectus including
the information omitted in reliance on Rule 430A, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement (including an
amended Prospectus), containing all information so omitted.
(m) The Company will cause the Securities to be included in The Nasdaq
Small Cap Market on the Effective Date and to maintain such listing thereafter.
The Company will file with The Nasdaq Small Cap Market all documents and notices
that are required by companies with securities that are traded on The Nasdaq
Small Cap Market.
(n) During the period of five years from the Firm Closing Date, the Company
will, as promptly as possible, not to exceed 135 days, after each annual fiscal
period render and distribute reports to its stockholders which will include
audited statements of its operations and changes of financial position during
such period and its audited balance sheet as of the end of such period, as to
which statements the Company's independent certified public accountants shall
have rendered an opinion and shall timely file all reports required to be filed
under the securities laws, including Form SR.
(o) During a period of three years commencing with the Firm Closing Date,
the Company will furnish to the Representative, at the Company's expense, copies
of all periodic and special reports furnished to stockholders of the Company and
of all information, documents and reports filed with the Commission.
(p) The Company has appointed Registrar and Transfer Company as transfer
agent for the Common Stock and warrant agent for the Warrants, subject to the
Closing. The Company will not change or terminate such appointment for a period
of three years from the Firm Closing Date without first obtaining the written
consent of the Representative. For a period of three years after the Effective
Date, the Company shall cause the transfer agent and warrant agent to deliver
promptly to the Underwriters a duplicate copy of the daily transfer sheets
relating to trading of the Securities. The Company shall also provide to the
Representative, on a weekly basis, copies of the DTC special securities
positions listing report.
(q) During the period of 180 days after the date of this Agreement, the
Company will not at any time, directly or indirectly, take any action designed
to or that will constitute, or that might reasonably be expected to cause or
result in, the stabilization of the price of the Common Stock or the Warrants to
facilitate the sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale of any
shares of Common Stock pursuant to Rule 144 under the Act if any such sale would
violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company will
provide the Underwriters and their designees with six bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Representative.
(t) The Company shall consult with the Representative prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriters will consult with the Company prior to the
issuance of any research report or recommendation concerning the Company's
securities. Copies of all documents that the Company or its public relations
firm intend to distribute will be provided to the Representative for review
prior to such distribution.
(u) The Company and the Underwriters will advise each other immediately in
writing as to any investigation, proceeding, order, event or other circumstance,
or any threat thereof, by or relating to the Commission or any other
governmental authority, that could impair or prevent the Offering. Except as
required by law or as otherwise mutually agreed in writing, neither the Company
nor the Underwriters will acquiesce in such circumstances and each will actively
defend any proceedings or orders in that connection.
(v) The Company will, for a period of no less than three years commencing
immediately after the Effective Date, engage one designee of the Representative
as an advisor (the "Advisor") to the Company's Board of Directors, who shall
attend meetings of the Board, receive all notices and other correspondence and
communications sent by the Company to its Board of Directors and receive
compensation equal to that of other non-officer directors; provided, that in
lieu of the Representative's right to designate the Advisor, the Representative
shall have the right during such three-year period, in its sole discretion, to
designate one person for election as a director of the Company and the Company,
and Selling Shareholder will utilize their respective best efforts (including in
the case of Selling Shareholder, voting all shares owned by it in favor thereof)
to obtain the election of such person, who shall be entitled to receive the same
compensation, expense reimbursements and other benefits as set forth above. In
addition, such Advisor shall be entitled to receive reimbursement for all costs
incurred in attending such meetings including, but not limited to, food, lodging
and transportation. The Company, during said three-year period, shall schedule
no less than four formal meetings (at least one of which shall be "in person"
and the others may be held telephonically) of its Board of Directors in each
such year at which meetings such Advisor shall be permitted to attend (in
person, for each meeting held "in person") as set forth herein; said meetings
shall be held quarterly each year and advance notice of such meetings identical
to the notice given to directors shall be given to the Advisor. The Company and
its principal stockholders shall, during such three year period, give the
Representative timely prior written notice of any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Company shall
indemnify and hold the Representative and such Advisor or director harmless
against any and all claims, actions, damages, costs and expenses, and judgments
arising solely out of the attendance and participation of such Advisor or
director at any such meeting described herein, and, if the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, it shall, if possible, include such Advisor or director as an insured
under such policy.
(w) The Company shall first submit to the Representative certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(x) The Company shall engage the Underwriters' counsel to provide the
Underwriters, at the closing of any sale of Securities hereunder and thereafter
on request, with an opinion, setting forth those states in which the Common
Stock and Warrants may be traded in non-issuer transactions under the blue sky
or securities laws of the 50 states. The Company shall pay such counsel a
one-time fee of $12,500 for such opinions at the closing of the sale of the Firm
Securities.
(y) The Company will prepare and file a registration statement with the
Commission pursuant to section 12 of the 1934 Act, and will use its best efforts
to have such registration statement declared effective by the Commission on an
accelerated basis on the day after the Effective Date. For this purpose the
Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(z) For so long as the Securities are registered under the 1934 Act, the
Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(aa) Prior to the Effective Date, the Company shall obtain key-man life
insurance in the minimum amount of $3,000,000 on Franklin Karp on such terms and
conditions as are reasonably satisfactory to the Representative, assuming such
coverage is available on commercially reasonable terms.
(bb) The Company shall retain the Representative as a financial advisors at
an annual fee of $41,220 for a 36-month period commencing on the Closing Date.
The entire fee of $123,660 shall be payable on the Closing Date.
(cc) The Company will engage a financial public relations firm reasonably
satisfactory to the Representative on or before the Firm Closing Date, and
continuously engage such firm, or a substitute firm reasonably acceptable to the
Representative, for a period of twelve (12) months following the Firm Closing
Date.
(dd) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date.
(ee) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up Agreements.
4A. Representations, Warranties and Agreements of the Selling Shareholder.
The Selling Shareholder represents and warrants to, and agrees with, the
Underwriters as follows:
(a) On the Effective Date, and at all times subsequent thereto up to and on
each Option Closing Date (i) all information with respect to Selling Shareholder
contained in the Registration Statement does not and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading, and (ii) all information with
respect to Selling Shareholder contained in the Prospectus, as amended or
supplemented, does not and will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties contained
in this subsection 4A (a) only apply to statements or omissions made in reliance
upon and in conformity with information furnished to the Company or the
Underwriters, by or on behalf of Selling Shareholder, specifically for inclusion
in Registration Statement or the Prospectus.
(b) Selling Shareholder has duly authorized, executed and delivered on
___________, 1998 the Irrevocable Power of Attorney and Custody Agreement (the
"Custody Agreement") with the Company, as custodian (the "Custodian"), and
Ruskin, Moscou, Evans & Faltischek, as attorneys-in-fact (the
"Attorneys-in-Fact"), and, such Custody Agreement constitutes the valid, legal
and binding agreement of Selling Shareholder, enforceable in accordance with its
terms; Selling Shareholder has pursuant to the Custody Agreement, duly
authorized each and all of the Attorneys-in-Fact to execute and deliver this
Agreement on behalf of Selling Shareholder, and otherwise to act, and to execute
documents and instruments, on behalf of Selling Shareholder in connection with
the transactions contemplated by this Agreement, and the Attorneys-in-Fact and
the Custodian are each duly authorized by Selling Shareholder under the Custody
Agreement to deliver the Selling Shareholder Shares to be sold by Selling
Shareholder pursuant to the Agreement, and to accept payment therefor. When
executed and delivered by one or more of the Attorneys-in-Fact on behalf of
Selling Shareholder in accordance with the Custody Agreement and this Agreement
will have been duly authorized, executed and delivered on behalf of Selling
Shareholder.
(c) No consent, approval, authorization or order of any court, government,
governmental agency or body or financial institution, domestic or foreign (other
than under the Securities Act and state securities or blue sky laws), is
required for the consummation by Selling Shareholder of the transactions
contemplated in this Agreement or the Custody Agreement, including, without
limitation, the sale of the Shares to the Underwriters, as contemplated herein
or therein (other than those that have been obtained and are in full force and
effect).
(d) The execution and delivery of this Agreement and the Custody Agreement,
and the consummation of the transactions contemplated herein and therein,
including, without limitation, the sale of the Selling Shareholder Shares by the
Underwriters, as contemplated herein or therein, will not (i) result in a breach
by Selling Shareholder of, or constitute a default by Selling Shareholder under,
any agreement or instrument or any decree, judgment or order to which Selling
Shareholder is a party or by which Selling Shareholder is bound or the
properties of Selling Shareholder are subject or (ii) violate any provision of
the certificate of organization, operating agreement, or comparable governing
documents of Selling Shareholder or any law, rule or regulation, domestic or
foreign, applicable to Selling Shareholder or to which its properties are
subject.
(e) Selling Shareholder has, and will on each Option Closing Date have,
good and marketable title to the Selling Shareholder Shares to be sold by
Selling Shareholder pursuant to this Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind, or
restriction on voting or other rights as a shareholder of any nature, other than
pursuant to this Agreement and the Custody Agreement; Selling Shareholder has
full right, power and authority to sell, transfer and deliver the Selling
Shareholder Shares, pursuant to this Agreement; upon delivery of such Selling
Shareholder Shares and payment of the purchase price therefor as contemplated in
this Agreement each Underwriter will receive good and marketable title to the
Selling Shareholder Shares purchased by it from Selling Shareholder, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind or of any restriction on transfer or voting or other
rights as a shareholder of any nature.
(f) Certificates for the Shares to be sold by Selling Shareholder pursuant
to this Agreement in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment, executed in blank, have
been placed in custody with the Custodian pursuant to the Custody Agreement for
purpose of effecting delivery, in accordance with the Custody Agreement and this
Agreement.
(g) Selling Shareholder hereby agrees that for the period of specified
below from the Effective Date (the "Lock-Up-Period"), Selling Shareholder will
not, without prior written consent of the Representative directly or indirectly,
offer, sell or grant any option to purchase, transfer or otherwise dispose of or
contract to dispose of (or announce any offer, sale, grant of any option to
purchase, or other disposition of), for value or otherwise, any shares of Common
Stock, options or warrants to purchase Common Stock, or any securities
convertible into or exchangeable for Common Stock, owned directly by such person
or with respect to which such person has the power of disposition, other than
the sale of the Shares under this Agreement. As to 25% of such Securities, the
Lock-Up Period shall be 12 months with respect to an additional 25% of such
securities, the Lock-Up Period should be 18 months and with respect to 50% of
such securities this Lock-Up Period should be 24 months.
(h) Selling Shareholder has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably expected to,
violate Regulation M under the 1934 Act, or cause or result in stabilization or
manipulation of the price of the Common Stock; and Selling Shareholder has not
distributed and will not distribute any prospectus or other offering material in
connection with the offering and sale of the Shares.
(i) Selling Shareholder is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, with all necessary
power and authority to execute, deliver and perform the Custody Agreement and
this Agreement, each of which have been duly and validly authorized by all
action required to be taken by the members and/or managers of Selling
Shareholder, and to sell and deliver the Selling Shareholder Shares to the
Underwriters in accordance with this Agreement, and upon execution and delivery
thereof by one or more of the Attorneys-in-Fact, such agreements will be duly
executed and delivered and enforceable against Selling Shareholder in accordance
with their respective terms.
5. Expenses
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, and the costs
and expenses of the Underwriters in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriters of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel for the Underwriters relating thereto (such counsel fees shall be
$35,000, of which $12,500 shall be due and payable upon the commencement of blue
sky filing, together with the related filing fees) and any fees and
disbursements of local counsel, if any, retained for such purpose, (vi) the
filing fees of the Commission and the NASD relating to the Securities, (vii) the
inclusion of the Securities on The Nasdaq SmallCap Market, the Boston Stock
Exchange and in the Standard and Poor's Corporation Descriptions Manual, (viii)
any "road shows" or other meetings with prospective investors in the Securities,
including transportation, accommodation, meal, conference room, audio-visual
presentation and similar expenses, but not including such expenses for the
Underwriters or their representatives or designees in excess of $15,000 and (ix)
the publication of "tombstone advertisements" in newspapers or other
publications selected by the Representative, and the manufacture of prospectus
memorabilia. In addition to the foregoing, the Company and the Selling
Shareholder, pro rata, shall reimburse the Representative for its expenses on
the basis of a non-accountable expense allowance in the amount of 3.00% of the
gross offering proceeds to be received by the Company and Selling Shareholder.
The expense allowance, based on the gross proceeds from the sale of the Firm
Securities, shall be deducted from the funds to be paid by the Representative in
payment for the Firm Securities, pursuant to section 2 of this Agreement, on the
Firm Closing Date. To the extent any Option Securities are sold, any remaining
non-accountable expense allowance based on the gross proceeds from the sale of
the Option Securities shall be deducted from the funds to be paid by the
Representative in payment for the Option Securities, pursuant to section 2 of
this Agreement, on the Option Closing Date. The Company and Selling Shareholder
each warrant, represent and agree that all such payments and reimbursements will
be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the offering
of the Securities contemplated hereby is terminated for any reason, the Company
agrees that, in addition to the Company paying its own expenses as described in
subparagraph (a) above, the Company shall reimburse the Representative for its
actual accountable out-of-pocket expenses (in addition to blue sky legal fees
and expenses referred to in subparagraph (a) above). Such expenses shall
include, but are not to be limited to, fees for the services and time of counsel
for the Underwriters to the extent not covered by clause (i) above, plus any
additional expenses and fees, including, but not limited to, travel expenses,
postage expenses, duplication expenses, long-distance telephone expenses, and
other expenses incurred by the Representative in connection with the proposed
offering.
6. Warrant Solicitation Fee. The Company agrees to pay any Underwriter a
fee of five percent (5%) of the aggregate exercise price of the Warrants if (i)
the market price of the Common Stock is not less than the exercise price of the
Warrants on the date of exercise; (ii) the exercise of the Warrants is solicited
by such Underwriter at such time as it is a member of the NASD and such
Underwriter is designated in writing by the holder of the Warrants as the NASD
member soliciting the exercise; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure of compensation arrangements is made
both at the time of the Offering and at the time of the exercise; and (v) the
solicitation of the Warrant exercise is not in violation of Regulation M
promulgated under the 1934 Act. The Company agrees not to solicit the exercise
of any Warrant other than through the Representative and/or other Underwriter
and will not authorize any other dealer to engage in such solicitation without
the prior written consent of the Representative which will not be unreasonably
withheld. The Warrant solicitation fee will not be paid in a non-solicited
transaction. Any request for exercise will be presumed to be unsolicited unless
the customer states in writing that a transaction was solicited and designates
in writing that the Underwriter solicited the exercise. No Warrant solicitation
by the Representative will occur for a period of 12 months after the Effective
Date.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares shall be subject, in the
Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company and the Selling Shareholder contained herein as of the
date hereof and as of the Firm Closing Date as if made on and as of the Firm
Closing Date, to the accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended, has not been
declared effective as of the time of execution hereof, the registration
statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such registration statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriters; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriters shall have received an opinion, dated the Firm Closing
Date, of Ruskin, Moscou, Evans & Faltischek, P.C., counsel to the Company, to
the effect that:
(1) the Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization and is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which its
ownership or leasing of any properties or the conduct of its business requires
such qualification, except where the failure to so qualify would not have a
materially adverse effect upon the Company;
(2) the Company has full corporate power and authority to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted, as described in the Registration Statement and the Prospectus, and
the Company has full corporate power and authority to enter into this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and to carry
out all the terms and provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding options,
warrants or other rights granted by the Company to purchase shares of its Common
Stock, preferred stock or other securities other than as described in the
Prospectus; the Company Shares have been duly authorized and the Warrant Shares
and the Representative's Warrant Shares have been duly reserved for issuance by
all necessary corporate action on the part of the Company and the Company Shares
when issued and delivered to and paid for by the Underwriters, pursuant to this
Agreement, the Warrant Shares when issued upon payment of the exercise price
specified in the Warrants, the Representative's Warrant when issued and
delivered and paid for in accordance with this Agreement and the
Representative's Warrant Agreement by the Underwriters and the Warrant Shares
when issued upon payment of the exercise price specified in the Representative's
Warrant, will be validly issued, fully paid, nonassessable and free of
preemptive rights and will conform to the description thereof in the Prospectus;
to the knowledge of such counsel, no holder of outstanding securities of the
Company is entitled as such to any preemptive or other right to subscribe for
any of the Company Shares, the Warrant Shares or the Representative's Warrant
Shares; and to the knowledge of such counsel, no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(4) the execution and delivery of this Agreement, the Warrant Agreement,
the Representative's Warrant Agreement and the Financial Advisory and Investment
Banking Agreement have been duly authorized by all necessary corporate action on
the part of the Company and this Agreement, the Warrant Agreement, the
Representative's Warrant Agreement and the Financial Advisory and Investment
Banking Agreement have been duly executed and delivered by the Company, and each
is a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement may be limited by applicable securities laws
and the public policy underlying such laws;
(5) the Representative's Warrant conform to the description thereof in the
Registration Statement and in the Prospectus and are duly authorized and upon
payment of the purchase price therefore specified in Section 2(d) of this
Agreement are validly issued and constitute valid and binding obligations of the
Company entitled to the benefits of the Representative's Warrant Agreement; and
the certificates representing the Securities are in due and proper form under
law;
(6) the statements set forth in the Prospectus under the caption
"Description of Securities" insofar as those statements purport to summarize the
terms of the capital stock and warrants of the Company, provide a fair summary
of such terms; the statements set forth in the Prospectus describing statutes
and regulations and the descriptions of the consequences to the Company under
such statutes and regulations are fair summaries of the information set forth
therein and are accurate in all material respects; the statements in the
Prospectus, insofar as those statements constitute summaries of the contracts,
instruments, leases or licenses referred to therein, constitute a fair summary
of those contracts, instruments, leases or licenses and include all material
terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement, (B) the issuance, offering
and sale by the Company to the Underwriters of the Securities pursuant to this
Agreement and the Representative's Warrant Securities pursuant to the
Representative's Warrant Agreement, nor (C) the compliance by the Company with
the other provisions of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby, (1) requires the consent, approval,
authorization, registration or qualification of or with any court or
governmental authority known to us, except such as have been obtained and such
as may be required under state blue sky or securities laws or (2) conflicts with
or results in a breach or violation of, or constitutes a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or any of its property is bound
or subject, or the certificate of incorporation or by-laws of the Company, or
any material statute or any judgment, decree, order, rule or regulation of any
court or other governmental or regulatory authority known to us applicable to
the Company.
(8) to the knowledge of such counsel, (A) no legal or governmental
proceedings are pending to which the Company is a party or to which the property
of the Company is subject except those arising on the ordinary course of
business and fully covered by insurance and (B) no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(9) the Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
local regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus, and, to the
knowledge of such counsel, there are no pending or threatened proceedings
relating to the revocation or modification of any such license, order,
authorization, approval, certificate or permit, except as disclosed in the
Registration Statement and the Prospectus;
(10) The Company is not in violation or breach of, or in default with
respect to, any term of its certificate of incorporation or by-laws, and to the
knowledge of such counsel, the Company is not in (i) violation in any material
respect of any law, statute, regulation, ordinance, rule, order, judgment or
decree of any court or any governmental or regulatory authority applicable to
it, or (ii) default in any material respect in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, deed of trust, loan agreement, note, lease or
other material agreement or instrument to which it is a party or by which it or
any of its property may be bound or subject, and no event has occurred which
with notice, lapse of time or both would constitute such a default;
(11) the Shares and Warrants have been approved for inclusion on The Nasdaq
SmallCap Market and the Boston Stock Exchange;
(12) to the knowledge of such counsel, neither the Company is not in
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
material agreement or instrument to which it is a party or by which it or any of
its property may be bound or subject, and no event has occurred which with
notice, lapse of time or both would constitute such a default;
(13) the statements in the Prospectus under the caption "Description of
Securities" in the Prospectus, insofar as such statements purport to summarize
the terms of the capital stock and warrants of the Company, provide a fair
summary of such terms; and the statements in the Prospectus, insofar as those
statements constitute matters of law or legal conclusions, or summaries of the
contracts, agreement instruments, leases or licenses referred to therein,
constitute a fair summary of those matters, legal conclusions, contracts,
agreement instruments, leases or licenses and include all material terms thereof
as applicable;
(14) the Registration Statement is effective under the Act; any required
filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto has been
issued, and no proceedings for that purpose have been instituted or threatened
or, to the best knowledge of such counsel, are contemplated by the Commission;
(15) the registration statement originally filed with respect to the
Securities and each amendment thereto and the Prospectus (in each case, other
than the financial statements and schedules and other financial and statistical
information contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable requirements of
the Act and the rules and regulations of the Commission thereunder; and
(16) the Company is not an "investment company" as defined in Section 3(a)
of the Investment Company Act and, if the Company conducts its business as set
forth in the Prospectus, it will not become an "investment company" and will not
be required to register under the Investment Company Act; and
(d) The Underwriters shall have received the opinion, dated the Firm
Closing Date, of Ruskin, Moscou, Evans & Faltischek, P.C., in its capacity as
counsel for the Selling Shareholder, to the effect set forth below:
(i) Selling Shareholder has full legal right power and authority to enter
into this Agreement and the Custody Agreement, each of which has been duly and
validly authorized by all action of members and managers of Selling Shareholder
and to sell, assign, transfer and deliver in the manner provided herein the
Selling Shareholder Shares; this Agreement has been duly executed and delivered
by Selling Shareholder; and this Agreement, assuming due authorization,
execution and delivery by each other party thereto and further assuming it is a
valid and binding agreement of each of the Underwriters, is a valid and binding
agreement of Selling Shareholder, enforceable against Selling Shareholder in
accordance with the terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors' rights generally and by general principles
of equity relating to the availability of remedies and except as rights to
indemnity and contribution may be limited by applicable securities laws and the
public policy underlying such laws);
(ii) None of the execution, delivery or performance of this Agreement, the
Power of Attorney and the Custody Agreement by Selling Shareholder and the
consummation by Selling Shareholder of the transactions herein and therein
contemplated, conflict with or result in a breach of, or default under, any
indenture, mortgage, deed of trust, voting trust agreement, shareholders
agreement, note agreement or other agreement or other instrument known to such
counsel to which Selling Shareholder is a party or by which Selling Shareholder
is bound or to which any of the property of any of the Selling Shareholder is
subject, or the charter or by-laws of any of the Selling Shareholder and nothing
has come to such counsel's attention which causes such counsel to believe that
such actions will result in any violation of any law, rule, administrative
regulation or court decree applicable to Selling Shareholder (other than state
or provincial securities or blue sky laws or regulations, as to which such
counsel need not express any opinion);
(iii) A Power of Attorney and the Custody Agreement have been duly executed
and delivered by Selling Shareholder and, assuming the due authorization,
execution and delivery of the Custody Agreement by the other parties thereto,
each constitutes the valid and binding agreement of Selling Shareholder
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by general
principles of equity relating to the availability of remedies and except rights
to indemnity or contribution may be limited by applicable securities laws and
the public policy underlying such laws;
(iv) Upon the delivery of the Selling Shareholder Shares to be sold
hereunder by the Selling Shareholder and payment therefor in accordance with the
terms of this Agreement and assuming that each of the Underwriters which has
severally purchased such Selling Shareholder acquires such Selling Shareholder
Shares without notice of any adverse claim (within the meaning of the Uniform
Commercial Code) such Underwriters will have acquired all of the rights of
Selling Shareholder to the Selling Shareholder Shares and in addition will have
acquired title to such Selling Shareholder Shares free and clear of any adverse
claim; and
Each such counsel also shall state in its opinion that it has participated
in the preparation of the Registration Statement and the Prospectus and that
nothing has come to its attention that has caused it to believe that the
Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriters, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriters, in form and substance acceptable to
the Underwriters, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriters' reliance upon such opinion is justified.
(e). A. At the time this Agreement is executed, the Representative shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Representative and Representative's counsel, from Ernst & Young LLP:
i. confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
ii. stating that it is their opinion that the financial statements of the
Company included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations thereunder and that the Representative may rely upon the opinion
of Ernst & Young LLP with respect to the financial statements included in the
Registration Statement;
iii. stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of the
Company, a reading of the latest available minutes of the stockholders and board
of directors and the various committees of the boards of directors of the
Company, consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified procedures
and inquiries (which, as to the interim financial statements included in the
Registration Statement, shall constitute a review as described in SAS No. 71,
Interim Financial Statements), nothing has come to their attention which would
lead them to believe that (A) the unaudited financial statements of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the Effective Date, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts shown
in the January 31, 1998 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from January 31, 1998 to a specified date
not more than five (5) days prior to the Effective Date, there was any decrease
(increase) in net revenues, net income (loss) or in net earnings (loss) per
common share of the Company, in each case as compared with the corresponding
period ending February 1, 1997, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease, setting forth
the amount of such decrease (increase);
iv. setting forth, at a date not later than five (5) days prior to the
Effective Date, the amount of liabilities of the Company;
v. stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
vi. statements as to such other matters incident to the transaction
contemplated hereby as the Representative may request.
B. At the Closing Date and each Option Closing Date, if any, the
Representative shall have received from Ernst & Young LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm that statements made in the letter furnished pursuant to
subsection A. of this Section 7(e), except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection A of this
Section 7(e) with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(f) The representations and warranties of the Company contained in this
Agreement shall be true and correct as if made on and as of the Firm Closing
Date; the Registration Statement shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
necessary to make the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date, shall not include any
untrue statement of a material fact or omit 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; and the Company shall have performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date.
(g) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(h) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the business, operations, condition (financial or otherwise),
earnings or prospects of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(i) The Underwriters shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (f) through (h) above.
(j) The Common Stock and Warrants shall be qualified in such jurisdictions
as the Underwriters may reasonably request pursuant to section 4(c), and each
such qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(k) The Company shall have executed and delivered to the Underwriters the
Representative's Warrant Agreement and a certificate or certificates evidencing
the Representative's Warrant, in each case in a form acceptable to the
Underwriters.
(l) The Underwriters shall have received Lock-up Agreements executed by the
persons listed on Schedule 2 annexed hereto.
(m) The Underwriters shall have received on each Closing Date a certificate
from Selling Shareholder on such Closing Date to the affect that, and the
Underwriters shall be satisfied that, the representations and warranties of
Selling Shareholder contained in this Agreement are true and correct as if made
on and as of such Closing Date, and that Selling Shareholder has complied with
all agreements and satisfied all conditions on its part to be complied with or
satisfied at or prior to such Closing Date.
(n) The Selling Shareholder shall have delivered to the Underwriters on or
prior to the date hereof a fully executed Custody Agreement. Selling Shareholder
shall also agree and consent to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of shares held by Selling
Shareholder, except in compliance with the Custody Agreement and this Agreement.
(o) On or before the Firm Closing Date, the Underwriters and counsel for
the Underwriters shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company, the Selling Shareholder, and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and counsel
for the Underwriters. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall reasonably
request.
The obligation of the Underwriters to purchase and pay for any Option
Securities shall be subject, in its discretion, to each of the foregoing
conditions to purchase the Firm Securities, except that all references to the
Firm Securities and the Firm Closing Date shall be deemed to refer to such
Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriters,
Selling Shareholder and each person, if any, who controls the Underwriters or
Selling Shareholder within the meaning of section 15 of the Act or section 20 of
the 1934 Act against any losses, claims, damages, or liabilities, joint or
several, to which the Underwriters, Selling Shareholder or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(1) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or
(2) the omission or alleged omission to state in such Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse, as incurred, the Underwriters and such
controlling person for any legal or other expenses reasonably incurred by the
Underwriters or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriters or Selling Shareholder, as the case
may be, specifically for use therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have. The Company will
not, without the prior written consent of the Underwriters, Selling Shareholder
or controlling person, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Underwriters or any person who controls the Underwriters or Selling Shareholder
within the meaning of section 15 of the Act or section 20 of the 1934 Act is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Underwriters or
Selling Shareholder and each such controlling person from all liability arising
out of such claim, action, suit or proceeding.
(b) Selling Shareholder agrees to indemnify and hold harmless the Company,
each director of the Company and each officer of the Company who signed the
Registration Statement, the Underwriters and each person, if any, who controls
the Company or the Underwriters within the meaning of section 15 of the Act or
section 20 of the 1934 Act against any losses, claims, damages, liabilities,
joint or several, to which the Company, such director or officer of the Company,
the Underwriters or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or
(2) the omission or alleged omission to state in such Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse, as incurred, the Underwriters and such
controlling person for any legal or other expenses reasonably incurred by the
Underwriters or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding,
in each case to the extent, but only to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or the
Underwriters by the Selling Shareholder specifically for use therein. This
indemnity agreement will be in addition to any liability which the Selling
Shareholder may otherwise have. The Selling Shareholder will not, without the
prior written consent of the Company and the Underwriters, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not the Company or the Underwriters or any person who
controls the Company or the Underwriters within the meaning of section 15 of the
Act or section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company, the Underwriters and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
(c) The Underwriters will indemnify and hold harmless the Company, each of
its directors, each of its officers who signed the Registration Statement,
Selling Shareholder, and each person, if any, who controls the Company or
Selling Shareholder within the meaning of section 15 of the Act or section 20 of
the Exchange Act against, any losses, claims, damages or liabilities to which
the Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, but only insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Underwriters specifically for use
therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or any such director, officer, Selling Shareholder or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which the Underwriters may
otherwise have.
(d) Promptly after receipt by an indemnified party under this section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
section 8. 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 therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of 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), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by 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 (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits 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 proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault of the parties
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 or the
Underwriters, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Securities purchased by the
Underwriters under this Agreement, less the aggregate amount of any damages that
the Underwriters has otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriters within the meaning of section 15 of the Act or section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriters, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of section 15 of the Act or section 20 of the 1934
Act, shall have the same rights to contribution as the Company.
9. Substitution of Underwriters.
If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Securities hereunder, or shall fail to take up
and pay for the number of Firm Securities set forth opposite names in Schedule 1
hereto upon tender of such Firm Securities in accordance with the terms hereof,
then:
(a) If the aggregate number of Firm Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriter shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter so defaults and the agreed number of Firm Securities
with respect to which such default or defaults occurs is more than 10% of the
total number of Firm Securities, the remaining Underwriter shall have the right
to take up and pay for the Firm Securities which the defaulting Underwriter
agreed but failed to purchase. If such remaining Underwriter does not, at the
Firm Closing Date, take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase, the time for delivery of the Firm
Securities shall be extended to the next business day to allow the remaining
Underwriter the privilege of substituting within twenty-four hours (including
nonbusiness hours) another underwriter or underwriters satisfactory to the
Company. If no such underwriter or underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the Firm
Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters to purchase the Firm Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriter or substituted Underwriters to take up
the Firm Securities of the defaulting Underwriter as provided in this section,
(i) the Company or the underwriter shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other document or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of Firm Securities to be purchased by the remaining Underwriters or
substituted Underwriters shall be taken as the basis of the underwriting
obligation for all purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriter shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 3(c) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Securities at the Option Closing Date, or
shall fail to take up and pay for the number of Option Securities, which it
became obligated to purchase at the Option Closing Date upon tender of such
Option Securities in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Units of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Securities, the Underwriters shall be entitled to
purchase the number of Option Securities for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the Firm Securities or
any Option Securities in the sole discretion of the Underwriter by notice to the
Company given prior to the Firm Closing Date or the related Option Closing Date,
respectively, in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied under Section 7 hereunder at or prior thereto or if at or
prior to the Firm Closing Date or such Option Closing Date, respectively:
(1) the Company sustains a loss by reason of explosion, fire, flood,
accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened, instituted or
pending, at law or in equity, against the Company, by any person or by any
federal, state, foreign or other governmental or regulatory commission, board or
agency wherein any unfavorable result or decision could materially adversely
affect the business, operations, condition (financial or otherwise), earnings or
prospects of the Company;
(3) trading in the Common Stock or Warrants shall have been suspended by
the Commission, the NASD or on Nasdaq, or trading in securities generally on the
New York Stock Exchange shall have been suspended or minimum or maximum prices
shall have been established on either such exchange or quotation system;
(4) a banking moratorium shall have been declared by New York or United
States authorities;
(5) there shall have been (A) an outbreak of hostilities between the United
States and any foreign power (or, in the case of any ongoing hostilities, a
material escalation thereof), (B) an outbreak of any other insurrection or armed
conflict involving the United States or (C) any other calamity or crisis or
material change in financial, political or economic conditions, having an effect
on the financial markets that, in any case referred to in this clause (5), in
the sole judgment of the Underwriter makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement;
(6) termination of this Agreement pursuant to this section 10 shall be
without liability of any party to any other party, except as provided in section
5(b) and section 8 hereof.
12. Information Supplied by the Underwriter. The statements set forth in
the first paragraph on page 42 , (as to the underwriting commitment of each
Underwriter) and the third, tenth and seventeenth paragraphs under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriter) constitute the only information
furnished by the Underwriter to the Company for the purposes of section 8(b)
hereof. The Underwriter confirms that such statements (to such extent) are
correct.
13. Notices. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Harvey Electronics, Inc.
205 Chubb Avenue
Lyndenhurst, New Jersey 07071
Attn: Franklin Karp
Fax: (201) 842-0660
To the Selling Shareholder: Harvey Acquisition Company, LLC
c/o Recca & Company, Inc.
100 Wall Street
10th Floor
New York, New York 10005
Fax: (212) 509-9795
To the Representative: The Thornwater Company, L.P.
107A East 37th Street
New York, New York 10016
Attn: Managing Director
Corporate Finance Department
Fax: (212) 696-4008
or such other address as either party hereto may at any time, or from time
to time, direct by notice given to the other party in accordance with this
section. The date of giving of any such notice shall be, in the case of clause
(i), the date of the receipt; in the case of clause (ii), five business days
after such notice or demand is sent; and, in the case of clause (iii), the
business day next following the date such notice is sent.
14. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
15. Waiver. No course of dealing or omission or delay on the part of either
party hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
16. Applicable Law. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
17. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
18. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
19. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
20. Severability. The provisions hereof are severable and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
21. Counterparts. This agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
22. Successors. This agreement shall inure to the benefit of and be binding
upon the Underwriter, the Company and their respective successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
<PAGE>
23. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
24. Grammatical Conventions. Whenever the context so requires, each pronoun
or verb used herein shall be construed in the singular or the plural sense and
each capitalized term defined herein and each pronoun used herein shall be
construed in the masculine, feminine or neuter sense.
25. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
26. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
HARVEY ELECTRONICS, INC.
By: /s/Michael Recca
---------------------------------
Name: Michael Recca
Title: Chairman
HARVEY ACQUISTION COMPANY, LLC
By: /s/Michael Recca
---------------------------------
Michael Recca
A Member
The foregoing agreement is hereby confirmed and accepted as of the date
first above written.
THE THORNWATER COMPANY, L.P.
as representative of the several underwriters listed
on Schedule l annexed hereto
By:/s/Thomas D. O'Rourke
------------------------------
Name: Thomas D. O'Rourke
Title: Chief Executive Officer
Schedule 1
<TABLE>
<CAPTION>
Underwriter Number of Shares Number of Redeemable Warrants
<S> <C> <C>
The Thornwater Company, L.P. 325,000 505,625
H.J. Meyers & Co., Inc. 400,000 600,000
J. W. Barclay & Co., Inc. 300,000 457,500
Robb Peck & McCoey Clearing Corporation
175,000 266,875
-------
Total 1,200,000 1,830,000
=========
</TABLE>
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
SHAREHOLDER LOCK UP PERIOD
<S> <C> <C>
Harvey Acquisition Company LLC 12 months as to 25%, 18 months as to an additional 25% and
24 months as to balance
Officers and directors 24 months
Preferred stock holders, including warrants and Two years or one year from conversion,
stock underlying warrants and preferred stock whichever is longer, subject to suspension if
common stock trades at or above $7.50 for 45
consecutive trading days.
Paragon Capital 24 months
InterEquity Partners 12 months
Ruskin, Moscou, Evans & Faltischek 24 months
</TABLE>
HARVEY ELECTRONICS, INC.
AND
THE THORNWATER COMPANY, L.P.
REPRESENTATIVE'S
WARRANT AGREEMENT
REPRESENTATIVE'S WARRANT AGREEMENT dated as of April 6, 1998 by and between
HARVEY ELECTRONICS, INC., (the "Company") and THE THORNWATER COMPANY, L.P.
("Representative" or "Thornwater") individually ("Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative 120,000
warrants (each a "Representative's Stock Warrant") each to purchase a share of
the Company's common stock, par value $.01 per share (the "Common Stock") and/or
183,000 warrants (each a "Representative's Underlying Warrant") each to purchase
a redeemable Common Stock purchase warrant (the "Redeemable Warrant") each
Redeemable Warrant exercisable to purchase one share of Common Stock.
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated March 31, 1998, by and between
the Representative and the Company, to act as the Representative in connection
with the Company's proposed initial public offering (the "Initial Public
Offering") of 1,200,000 shares of Common Stock and 1,830,000 redeemable warrants
(the "Offering Securities"); and
WHEREAS, the Representative's Stock Warrants and Representative's
Underlying Warrants to be issued pursuant to this Agreement (collectively,
"Representative's Warrant") will be issued on Closing Date I (as such term is
defined in the Underwriting Agreement) by the Company to the Representative in
consideration for, and as part of, the Representatives' compensation in
connection with the Representatives acting as the Representatives pursuant to
the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of Ten Dollars ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder (as defined in Section 3 below) is hereby granted the
right to purchase, at any time from March 31, 1999 until 5:00 p.m., New York
time, March 30, 2003, an aggregate of up 120,000 shares of Common Stock and/or
183,000 Redeemable Warrants, at an initial purchase price (subject to adjustment
as provided in Section 8 hereof) of $8.00 per share of Common Stock and $.16 per
Redeemable Warrant, subject to the terms and conditions of this Agreement. The
securities issuable upon exercise of the Representative's Warrant are sometimes
referred to herein as the "Representative's Securities." The Representative's
Warrant shall be identical to the redeemable warrants included in the Offering
Securities, except the purchase price for one share of Common Stock upon
exercise of the warrant provided in the Representative's Securities shall be
$8.80.
2. Warrant Certificates. The warrant certificate (the "Representative's
Warrant Certificate") to be delivered pursuant to this Agreement shall be in the
form set forth in Exhibit A attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Representative's Warrant.
(a) The Representative's Warrant is exercisable during the term set forth
in Section 1 hereof payable by certified or cashier's check or money order in
lawful money of the United States. Upon surrender of an Representative's Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price (as hereinafter defined) for the
Representative's Securities (and such other amounts, if any, arising pursuant to
Section 4 hereof) at the Company's principal office currently located at 205
Chubb Avenue, Lyndhurst, New Jersey 07071, the registered holder of an
Representative's Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the Representative's Securities so
purchased. The purchase rights represented by each Representative's Warrant
Certificate are exercisable at the option of the Holder or Holders thereof, in
whole or in part as to Representative's Securities. The Representative's Warrant
may be exercised to purchase all or any part of the Representative's Securities
represented thereby. In the case of the purchase of less than all the
Representative's Securities purchasable on the exercise of the Representative's
Warrant represented by an Representative's Warrant Certificate, the Company
shall cancel the Representative's Warrant Certificate represented thereby upon
the surrender thereof and shall execute and deliver a new Representative's
Warrant Certificate of like tenor for the balance of the Representative's
Securities purchasable thereunder.
(b) In lieu of the payment of cash upon exercise of the Representative's
Warrant as provided in Section 3(a), the Holder may exercise the
Representative's Warrant by surrendering the Warrant Certificate at the
principal office of the Company, accompanied by a notice stating (i) the
Holder's intent to effect such exercise by an exchange, (ii) whether Common
Stock, Redeemable Warrants or a combination (stating the ratio of each) are to
be issued upon the exchange, (iii) whether Representative's Stock Warrants,
Representative's Underlying Warrants or a combination (stating the ratio) are to
be surrendered in connection with the exchange, and (iv) the date on which the
Holder requests that such exchange is to occur. The Purchase Price for the
Representative's Securities to be acquired in the exchange shall be paid by the
surrender as indicated in the notice, of Representative's Stock Warrants or
Representative's Underlying Warrants, or a combination, having a "Value", as
defined below, equal to the Purchase Price. "Value" as to each Representative's
Stock Warrant shall mean the difference between the "Market Price", as
hereinafter defined, of a share of Common Stock and the then Purchase Price for
a share of Common Stock hereunder and as to each Representative's Underlying
Warrant shall mean the difference between the Market Price of the Redeemable
Warrant and the then Purchase Price of a Redeemable Warrant hereunder.
By way of example of the application of the formula, assume that the Market
Price of the Common Stock is $8.00, the Purchase Price of the Representative's
Stock Warrant is $6.00, the Market Price of a Redeemable Warrant is $2.24 and
the Purchase Price of the Representative's Underlying Warrant is $.12. On such
assumptions, the Value of a Representative's Stock Warrant is $2.00
($8.00-$6.00) and therefore for each three Representative's Stock Warrant
surrendered, the Holder could acquire one share of Common Stock in the exchange;
and the Value of a Representative's Underlying Warrant is $2.12 and for each 57
Representative's Underlying Warrants surrendered, the Holder could acquire 1,000
Redeemable Warrants. Notwithstanding the example, the Holder shall not be
limited to exchanging Representative's Stock Warrants for Common Stock or
Representative's Underlying Warrants for Redeemable Warrants.
The Warrant Exchange shall take place on the date specified in the notice
or if the date the notice is received by the Company is later than the date
specified in the notice, on the date the notice is received by the Company.
In the event the Redeemable Warrant as to which the Representative's
Warrant may be exercised is not identical to the Redeemable Warrant sold in the
Initial Public Offering, the Representative's Underlying Warrants shall not be
able to be surrendered as provided herein, but the right to exchange shall be
limited to the exchange of Representative's Stock Warrants for Common Stock or
Redeemable Warrants.
4. Issuance of Certificates. Upon the exercise of the Representative's
Warrant and payment of the Purchase Price therefor, the issuance of certificates
representing the Representative's Securities or other securities, properties or
rights underlying such Representative's Warrant, shall be made forthwith (and in
any event within five (5) business days thereafter) without further charge to
the Holder thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Representative's Warrant Certificates and the certificates representing the
Representative's Securities or other securities, property or rights (if such
property or rights are represented by certificates) shall be executed on behalf
of the Company by the manual or facsimile signature of the then present Chairman
or Vice Chairman of the Board of Directors or President or Vice President of the
Company, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Company. The Representative's Warrant Certificates shall be dated the date of
issuance thereof by the Company upon initial issuance, transfer or exchange.
5. Restriction On Transfer of Representative's Warrant. The Holder of an
Representative's Warrant Certificate (and its Permitted Transferee, as defined
below), by its acceptance thereof, covenants and agrees that the
Representative's Warrant may be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, until March 30, 1999 (one year
following the effective date of the Initial Public Offering), only to officers
and partners of the Representatives, or any Initial Public Offering selling
group member and their respective officers and partners, ("Permitted
Transferees"). Thereafter the Representative's Warrant may be transferred,
assigned, hypothecated or otherwise disposed of in compliance with applicable
law.
6. Purchase Price.
(a) Initial and Adjusted Purchase Price. Except as otherwise provided in
Section 8 hereof, the initial purchase price of the Representative's Securities
shall be $8.00 per share of Common Stock and $.16 per Redeemable Warrant. The
adjusted purchase price shall be the price which shall result from time to time
from any and all adjustments of the initial purchase price in accordance with
the provisions of Section 8 hereof.
(b) Purchase Price. The term "Purchase Price" herein shall mean the initial
purchase price or the adjusted purchase price, depending upon the context.
7. Registration Rights.
(a) Registration Under the Securities Act of 1933 as amended ("Act"). The
Representative's Warrant may have not been registered under the Act. The
Representative's Warrant Certificates may bear the following legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act"), and may not be offered for sale or
sold except pursuant to (i) an effective registration statement under the Act,
or (ii) an opinion of counsel, if such opinion and counsel shall be reasonably
satisfactory to counsel to the issuer, that an exemption from registration under
the Act is available".
(b) Demand Registration. (1) At any time commencing on the first
anniversary of and expiring on the fifth anniversary of the effective date of
the Company's Registration Statement relating to the Initial Public Offering
(the "Effective Date"), the Holders of a Majority (as hereinafter defined) in
interest of the Representative's Warrant, or the Majority in interest of the
Representative's Securities (assuming the exercise of all of the
Representative's Warrant) shall have the right, exercisable by written
notice to the Company, to have the Company prepare and file with the U.S.
Securities and Exchange Commission (the "Commission"), on one (1) occasion, a
registration statement on Form SB-2, S-1 or other appropriate form, and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale, for
a period of nine (9) months, of the Representative's Securities by such Holders
and any other Holders of the Representative's Warrant and/or the
Representative's Securities who notify the Company within fifteen (15) business
days after receipt of the notice described in Section 7(b)(2). The Holders of
the Representative's Warrant may demand registration prior to exercising the
Representative's Warrant, and may pay such exercise price from the proceeds of
such public offering
(2) The Company covenants and agrees to give written notice of any
registration request under this Section 7(b) by any Holders to all other
registered Holders of the Representative's Warrant and the Representative's
Securities within ten (10) calendar days from the date of the receipt of any
such registration request.
(3) For purposes of this Agreement, the term "Majority" in reference to the
Holders of the Representative's Warrant or Representative's Securities, shall
mean in excess of fifty percent (50%) of the then outstanding Representative's
Warrant or Representative's Securities that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(c) Piggyback Registration. (1) If, at any time within the period
commencing on the first anniversary and expiring on the sixth anniversary of the
Effective Date, the Company should file a registration statement with the
Commission under the Act (other than in connection with a merger or other
business combination transaction or pursuant to Form S-8), it will give written
notice at least twenty (20) calendar days prior to the filing of each such
registration statement to the Representative and to all other Holders of the
Representative's Warrant and/or the Representative's Securities of its intention
to do so. If an Representative or other Holders of the Representative's Warrant
and/or the Representative's Securities notify the Company within fifteen (15)
calendar days after receipt of any such notice of its or their desire to include
any Representative's Securities in such proposed registration statement, the
Company shall afford the Representative and such Holders of the Representative's
Warrant and/or Representative's Securities the opportunity to have any such
Representative's Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7(c)(1) and the provisions of
Section 7(d), the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7(c)(1) (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(2) If the managing underwriter of an offering to which the above piggyback
rights apply, in good faith and for valid business reasons, objects to such
rights, such objection shall preclude such inclusion.
(d) Covenants of the Company With Respect to Registration. In connection
with any registrations under Sections 7(b) and 7(c) hereof, the Company
covenants and agrees as follows:
(1) The Company shall use its best efforts to file a registration statement
within thirty (30) calendar days of receipt of any demand therefor pursuant to
Section 7(b); provided, however, that the Company shall not be required to
produce audited or unaudited financial statements for any period prior to the
date such financial statements are required to be filed in a report on Form 10-K
or Form 10-Q, as the case may be. The Company shall use its best efforts to have
any registration statement declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell Representative's Securities such
number of prospectuses as shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees and expenses of
Holders' counsel and any underwriting discounts or selling fees, expenses or
commissions), fees and expenses in connection with any registration statement
filed pursuant to Sections 7(b) and 7(c) hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses.
(3) The Company will use its best efforts to qualify or register the
Representative's Securities included in a registration statement for offering
and sale under the securities or blue sky laws of such states as reasonably are
requested by the Holders, provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(4) The Company shall indemnify the Holders of the Representative's
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement, but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Representative contained in Section 8 of the
Underwriting Agreement.
(5) The Holders of the Representative's Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Representative has agreed to
indemnify the Company.
(6) Nothing contained in this Agreement shall be construed as requiring the
Holders to exercise their Representative's Warrant prior to the initial filing
of any registration statement or the effectiveness thereof, provided that such
Holders have made arrangements reasonably satisfactory to the Company to pay the
exercise price from the proceeds of such offering.
(7) The Company shall furnish to each Representative for the offering, if
any, such documents as such Representative may reasonably require.
(8) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(9) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence described below and any managing
Representative copies of all correspondence between the Commission and the
Company, its counsel or auditors with respect to the registration statement and
permit each Holder and Representative to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(10) The Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Representative's Securities requested to be included in such
underwriting, provided, however that such managing underwriter shall be
reasonably acceptable to the Company, except that in connection with an offering
for which the Holders have piggyback rights, the Company shall have the sole
right to select the managing underwriter or underwriters. Such underwriting
agreement shall be satisfactory in form and substance to the Company, a Majority
of such Holders (in respect of a registration under Section 7(b) only) and such
managing underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Representative's Securities.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
8. Adjustments to Purchase Price and Number of Securities.
(a) Computation of Adjusted Purchase Price. Except as hereinafter provided,
in case the Company shall at any time after the date hereof issue or sell any
shares of Common Stock (other than the issuances referred to in Section 8(g)
hereof), including shares held in the Company's treasury, for a consideration
per share less than the "Market Price" (as defined in Section 8(a)(6) hereof)
per share of Common Stock on the date immediately prior to the issuance or sale
of such shares, or without consideration, then forthwith upon any such issuance
or sale, the Purchase Price of the Common Stock shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full cent)
determined by dividing (1) the product of (a) the Purchase Price in effect
immediately before such issuance or sale and (b) the sum of (i) the total number
of shares of Common Stock outstanding immediately prior to such issuance or
sale, and (ii) the number of shares determined by dividing (A) the aggregate
consideration, if any, received by the Company upon such sale or issuance, by
(B) the Market Price, and by (2) the total number of shares of Common Stock
outstanding immediately after such issuance or sale provided, however, that in
no event shall the Purchase Price be adjusted pursuant to this computation to an
amount in excess of the Purchase Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock, as provided by Section 8(c) hereof.
For the purposes of this Section 8, the term "Purchase Price" shall mean
the Purchase Price of the Common Stock forming a part of the Representative's
Securities set forth in Section 6 hereof, as adjusted from time to time pursuant
to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to Representatives or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by Representatives or dealers or others performing similar services, or
any expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company, and otherwise than on the exercise of
options, rights or warrants or the conversion or exchange of convertible or
exchangeable securities) of shares of Common Stock (or of other securities
deemed hereunder to involve the issuance or sale of shares of Common Stock) for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(3) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(4) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in Section 8(a)(2).
(5) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares of Common Stock issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights or warrants and upon the conversion or exchange of convertible
or exchangeable securities.
(6) As used herein in the phrase "Market Price" at any date shall be deemed
to be the last reported sale price, or, in the case no such reported sale takes
place on such day, the average of the last reported sales prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading,
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the average closing bid price as furnished by the NASD
through the NASD Automated Quotation System ("NASDAQ") or similar organization
if NASDAQ is no longer reporting such information, or if the Common Stock is not
quoted on NASDAQ, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
(b) Options, Rights, Warrant and Convertible and Exchangeable Securities.
Except in the case of the Company issuing rights to subscribe for shares of
Common Stock distributed to all the stockholders of the Company and Holders of
Representative's Warrant pursuant to Section 8(i) hereof, if the Company shall
at any time after the date hereof issue options, rights or warrants to purchase
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock (other than the issuances referred to in Section 8(g)
hereof), (i) for a consideration per share less than the Market Price (including
the issuance thereof without consideration such as by way of dividend or other
distribution), or (ii) without consideration, the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 8(a) hereof, provided that:
(1) The aggregate maximum number of shares of Common Stock issuable or that
may become issuable under such options, rights or warrants (assuming exercise in
full even if not then currently exercisable or currently exercisable in full)
shall be deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the time of
issuance, plus the consideration (determined in the same manner as consideration
received on the issue or sale of shares in accordance with the terms of the
Representative's Warrant), if any, received by the Company for such options,
rights or warrants; provided, however, that upon the expiration or other
termination of such options, rights or warrants, if any thereof shall not have
been exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this Section 8(b)(1) (and for the purposes of Section
8(a)(5) hereof) shall be reduced by such number of shares as to which options,
warrants and/or rights shall have expired or terminated unexercised, and such
number of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price which it would have been had adjustment been made on the basis of the
issuance only of shares actually issued or issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not be expired
or terminated unexercised.
(2) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities (assuming
conversion or exchange in full even if not then currently convertible or
exchangeable in full) shall be deemed to be issued and outstanding at the time
of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Common Stock in accordance with the terms of the
Representative's Warrant) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the expiration or other
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason or redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this Sectio 8(b)(2) (and for the
purpose of Section 8(a)(5) hereof) shall be reduced by such number of shares as
to which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued or
issuable upon the conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall not have expired
or terminated unexercised.
(3) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in Section 8(b)(1), or in the price
per share at which the securities referred to in Section 8(b)(2) are convertible
or exchangeable, and if a change in the Purchase Price has not occurred by
reason of the event giving rise to the change in the price per share of such
other options, rights, warrants, or convertible or exchangeable securities, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercised, the shall be deemed to have expired
or terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price in respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities.
(c) Subdivision and Combination. In case the Company shall at any time
issue any shares of Common Stock in connection with a stock dividend in shares
of Common Stock or subdivide or combine the outstanding shares of Common Stock,
the Purchase Price shall forthwith be proportionately decreased in the case of a
stock dividend or a subdivision or increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
Purchase Price pursuant to the provisions of this Section 8, the number of
Representative's Securities issuable upon the exercise of the Representative's
Warrant shall be adjusted to the nearest whole share by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of Representative's Securities issuable upon exercise of the
Representative's Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
(e) Definition of Common Stock. For the purpose of this Agreement, the term
"Common Stock" shall mean the class of stock designated as Common Stock in the
Certificate of Incorporation, of the Company as it may be amended as of the date
hereof.
(f) Reclassification, Merger or Consolidation. The Company will not merge,
reorganize or take any other action which would terminate the Representative's
Warrant without first making adequate provision for the Representative's
Warrant. In case of any reclassification or change of the outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value to no par value, or from nor par value to par value, or as a result of a
subdivision or combination), or in case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the outstanding Common Stock except a change as a result of a
subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation or
other entity of the property of the Company as an entirety or substantially as
an entirety, the Holders of each Representative's Warrant then outstanding or to
be outstanding shall have the right thereafter (until the expiration of such
Representative's Warrant) to purchase, upon exercise of such Representative's
Warrant, the kind and number of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if the Holders were the owner of the shares of Common
Stock underlying the Representative's Warrant immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Representative's Warrant and (y) the Purchase Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance, as if such Holders had exercised the
Representative's Warrant. In the event of a consolidation, merger, sale or
conveyance of property, the corporation formed by such consolidation or merger,
or acquiring such property, shall execute and deliver to the Holders a
supplemental Representative's warrant agreement to such effect. Such
supplemental Representative's warrant agreement shall provide for adjustments
which shall be identical to the adjustment provided for in this Section 8. The
provisions of this Section 8(f) shall similarly apply to successive
consolidations or mergers.
(g) No Adjustment of Purchase Price in Certain Cases. No adjustment of the
Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the Representative's Warrant or the
securities underlying the Representative's Warrant, (ii) the securities sold
pursuant to the Initial Public Offering, including the securities underlying the
Redeemable Warrant sold as part of the Initial Public Offering (including those
sold upon exercise of the Representative's over-allotment option), or (iii) the
shares issuable pursuant to the options, warrants, rights, stock purchase
agreements or convertible or exchangeable securities outstanding or in effect on
the date hereof as described in the prospectus relating to the Initial Public
Offering.
(2) If the amount of said adjustments shall aggregate less than two ($.02)
cents for one (1) share of Common Stock; provided, however, that in such case
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall
aggregate at least two ($.02) cents for one (1) share of Common Stock. In
addition, Registered Holders shall not be entitled to cash dividends paid by the
Company prior to the exercise of any Warrant or Warrants held by them.
9. Exchange and Replacement of Warrant Certificates. Each Representative's
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holders at the principal executive office of the Company, for
a new Representative's Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Representative's
Securities in such denominations as shall be designated by the Holders thereof
at the time of such surrender.
10. Loss, Theft etc. of Certificates Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Representative's Warrant Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of the Representative's Warrant
Certificates, if mutilated, the Company will make and deliver a new
Representative's Warrant Certificate of like tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock and/or
Redeemable Warrant upon the exercise of the Representative's Warrant, nor shall
it be required to issue scrip or pay cash in lieu of fractional interests;
provided, however, that if a Holder exercises all Representative's Warrant held
of record by such Holder the fractional interests shall be eliminated by
rounding any fraction to the nearest whole number of shares of Common Stock or
other securities, properties or rights. Notwithstanding the foregoing, in no
event shall the Company be required to issue scrip, cash on fractional shares of
Common Stock upon the exercise of an odd number of Redeemable Warrant, it being
the understanding that Redeemable Warrant may only be exercised in pairs.
12. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Representative's Warrant,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof and the exercise of the
Redeemable Warrant. The Company covenants and agrees that, upon exercise of
Representative's Warrant and payment of the Purchase Price therefor, all the
shares of Common Stock and other securities issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Representative's Warrant
shall be outstanding, the Company shall use its best efforts to cause the Common
Stock to be listed (subject to official notice of issuance) on all securities
exchanges on which the Common Stock issued to the public in connection herewith
may then be listed or quoted.
13. Notices to Representative's Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Representative's Warrant and their exercise, any
of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property, assets and business as an entirety shall be proposed; then, in
any one or more of said events, the Company shall give written notice of such
event at least fifteen (15) calendar days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or five days after being mailed by registered or certified mail,
return receipt requested:
If to the registered Holders of the Representative's Warrant, to the
address of such Holders as shown on the books of the Company; or
(b) If to the Company to 205 Chubb Avenue, Lyndhurst, New Jersey 07071 or
to such other address as the Company may designate by notice to the Holders,
with a courtesy copy to Paul Rubell, Esq., Ruskin, Moscow, Evans & Faltishek
P.C. 170 Old Country Road, Mineola, New York
15. Supplements and Amendments. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
Holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provision in regard to matters or questions arising hereunder
which the Company and the Representative may deem necessary or desirable and
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Representative's Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Representative, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business on
March 31, 2003. Notwithstanding the foregoing, the indemnification provisions of
Section 7 shall survive such termination until the close of business on the
expiration of any applicable statue of limitations.
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Representative's Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said state without giving effect to
the rules of said state governing the conflicts of laws
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. This Agreement may not be modified or amended
except by a writing duly signed by the Company and the Holders of a Majority in
Interest of the Representative's Securities (for this purpose, treating all then
outstanding Representative's Warrant as if they had been exercised).
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holders of the Representative's Warrant
Certificates or Representative's Securities any legal or equitable right, remedy
or claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Representative and any other Holders of
the
Representative's Warrant Certificates or Representative's Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
24. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, the Representative and their respective successors and
assigns and the Holders from time to time of the Representative's Warrant
Certificates or any of them.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HARVEY ELECTRONICS, INC.
By:/s/Michael Recca
-----------------------------
Michael Recca, Chairman
THE THORNWATER COMPANY, L.P., for
itself and as Representative of the
Several Underwriters listed
Schedule A
By:/s/Thomas D. O'Rourke
-----------------------------
Name: Thomas D. O'Rourke
Title: Chief Executive Officer
<PAGE>
Schedule A
to
Representative's Warrant Agreement
Between
Harvey Electronics, Inc.
and
The Thornwater Company, L.P.
Representative
The Thornwater Company, L.P.
Underwriters:
H.J. Meyers & Co., Inc.
J.W. Barclay & Co., Inc.
Robb Peck & McCoey Clearing Corp.
2
HARVEY ELECTRONICS, INC.
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR SALE OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING March 31, 1999 THROUGH
5:00 P.M., NEW YORK TIME ON March 30, 2003
Warrant covering 32,484 shares of Common Stock and/or 49,538 Redeemable
Warrant
No. UW-1
This Warrant Certificate certifies that The Thornwater Company L.P. or
registered assigns, is the registered holder of Warrant to purchase initially,
at any time from March 31, 1999, until 5:00 p.m., New York time on March 30,
2003 (the "Expiration Date"), up to 32,484 shares of Common Stock, $.01 par
value (the "Common Stock") of Harvey Electronics, Inc. ("Company") and/or 49,538
Redeemable Common Stock Purchase Warrants ("Redeemable Warrant") exercisable to
purchase one share of Common Stock at a purchase price of $8.00 per share and
$.16 per Redeemable Warrant (the "Purchase Price"), upon the surrender of this
Warrant Certificate and payment of the applicable Purchase Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement, dated as of April 6, 1998, by and between
the Company and The Thornwater Company, L.P. (the "Warrant Agreement"). Payment
of the Purchase Price shall be made by certified or cashier's check or money
order payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrant evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrant issued pursuant to the Warrant Agreement between the
Company and the Representative, which Warrant Agreement is hereby incorporated
by reference in and made a part of this instrument and is hereby referred to for
a description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Purchase Price and the type and/or number of the Company's securities
issuable upon the exercise of this Warrant, may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Purchase Price
and the number and/or type of securities issuable upon the exercise of the
Warrant; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferee(s) in exchange as provided herein,
without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrant evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate this 6th
day of April, 1998.
HARVEY ELECTRONICS, INC.
By:/s/Michael Recca
-------------------------------
Michael Recca, Chairman
ATTEST:
By: /s/Joseph J. Calabrese
-----------------------------
Name: Joseph J. Calabrese
Title: Secretary
3
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Warrant Certificate on
the books of Harvey Electronics, Inc., with full power of substitution.
Dated:
Signature_____________________
(Signature must conform in all respects to the name of holder as specified
on the face of the Warrant Certificate.)
[Signature guarantee] ________________________________
(Insert Social Security or Other
Identifying Number of Holders)
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of Common
Stock and/or ______Redeemable Warrant and herewith tenders in payment for such
securities a certified or cashier's check or money order payable to the order of
Harvey Electronics, Inc. in the amount of $______, all in accordance with the
terms hereof. The undersigned requests that certificates for such securities be
registered in the name of ___________________________ whose address is
_____________________ and that such certificates be delivered to
_____________________________________ whose address is
____________________________________________________________.
Dated:
Signature______________________
(Signature must conform in all respects to the name of holder as specified
on the face of the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holders)
[Signature guarantee]
AGREEMENT, dated this 6th day of April 1998 by and between HARVEY
ELECTRONICS, INC., a New York corporation (the "Company"), and REGISTRAR AND
TRANSFER COMPANY, as Warrant Agent (the "Warrant Agent").
WHEREAS, in connection with (i) the offering to the public of up to
1,380,000 shares of Common Stock, par value $.01 per share of the Company
("Common Stock"), and up to 2,104,500 redeemable warrants each warrant entitling
the holder thereof to purchase one share of Common Stock ("Redeemable Warrants";
the shares of Common Stock and Redeemable Warrants sometimes collectively
referred to as the "Securities"); (ii) the over-allotment option to purchase up
to 180,000 shares of Common Stock from the selling shareholder as to all such
shares and/or 274,500 Redeemable Warrants from the Company (the "Over-allotment
Option"); and (iii) the sale to The Thornwater Company, L.P. ("Representative"),
as representative of the several underwriters (individually "Underwriter" and
collectively "Underwriters"), its successors and assigns of a warrant (the
"Representative's Warrant") to purchase up to 120,000 shares of Common Stock
and/or 183,000 Redeemable Warrants, being identical to the Securities being sold
to the public except the price to purchase one share of common stock shall be
$8.80 (the warrants issuable upon the exercise of the Representative's Warrant
are referred to as the "Common Stock Warrants"), the Company will issue up to
1,474,500 Redeemable Warrants and may issue up to 183,000 Common Stock Warrants
(subject to increase as provided in the Representative's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Redeemable Warrants and the Common Stock Warrants
(collectively, the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing the
Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the Underwriters,
the holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. Definitions
Capitalized terms used herein and not otherwise defined shall have the
meaning given thereto in the Underwriting Agreement. As used herein, the
following terms shall have the following meanings, unless the context shall
other-wise require:
(a) "Common Stock" shall mean the common stock of the Company, par value
$.01 per share.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located on the date hereof at 10 Commerce Drive,
Cranford, New Jersey 07016.
(c) "Exercise Date" shall mean, subject to the provisions of Section 5(b)
hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder hereof with such
Registered Holder's signature guaranteed, and (ii) payment in cash or by bank or
cashier's check made payable to the Warrant Agent for the account of the
Company, of the amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean March 30, 2000, or such
earlier date as to which the Representative shall have consented, provided if
the Representative shall have consented to an earlier Initial Warrant Redemption
Date the Initial Warrant Exercise Date shall be the same as the Initial Warrant
Redemption Date.
(e) "Initial Warrant Redemption Date" shall mean March 30, 2000 or such
earlier date as to which the Representative shall have consented.
(f) "Purchase Price" shall mean, subject to modification and adjustment as
provided in Section 8, $[5.50] per share of Common Stock as to the Redeemable
Warrants or $8.80 per share of Common Stock, as to the Common Stock Warrants.
(g) "Registered Holder" shall mean the person in whose name any certificate
representing the Warrants shall be registered on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
(i) "Transfer Agent" shall mean Registrar and Transfer Company, or its
authorized successor.
(j) "Underwriting Agreement" shall mean the underwriting agreement dated as
of March 31, 1998 between the Company and Representative, relating to the
purchase for resale to the public of the Securities.
(k) "Representative's Warrant Agreement" shall mean the agreement dated as
of April 6, 1998 between the Company and Representative relating to and
governing the terms and provisions of the Representative's Warrants.
(l) "Warrant Certificate" shall mean a certificate representing each of the
Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed
as provided in Section 9 hereof prior to such date, 5:00 p.m. (Eastern time) on
March 30, 2003 or, if such date shall in the State of New York be a holiday or a
day on which banks are authorized to close, than 5:00 p.m. (Eastern time) on the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized to close.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof, subject to
modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing
1,830,000 Redeemable Warrants to purchase up to an aggregate of 1,830,000 shares
of Common Stock (subject to modification and adjustment as provided in Section
8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-allotment Option, in whole or in part as to
the Redeemable Warrants, and payment of the applicable sums, Warrant
Certificates representing up to 274,500 Redeemable Warrants to purchase up to an
aggregate of 274,500 shares of Common Stock (subject to modification and
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrant as to the Common Stock
Warrants as provided therein, and payment of the applicable exercise price,
Warrant Certificates representing 183,000 Common Stock Warrants to purchase up
to an aggregate of up to 183,000 shares of Common Stock (subject to modification
and adjustment as provided in Section 8 hereof and in the Underwriter's Warrant
Agreement), shall be executed by the Company and delivered to the Warrant Agent.
(e) From time to time, up to the Warrant Expiration Date, as the case may
be, the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. Except as provided in Section 7 hereof, no Warrant Certificates
shall be issued except (i) Warrant Certificates initially issued hereunder, (ii)
Warrant Certificates issued upon any transfer or exchange of Warrants, (iii)
Warrant Certificates issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant Certificates
issued upon exercise of the Representative's Warrants (including Common Stock
Warrants in excess of 183,000 Representative's Warrants issued as a result of
the anti-dilution provisions contained in the Underwriter's Warrant Agreement),
and (v) at the option of the Company, Warrant Certificates in such form as may
be approved by its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a)The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates). Warrant Certificates shall be
executed on behalf of the Company by its Chairman of the Board, President or any
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the warrant Certificates
shall cease to be such officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force and
effect as though the person who signed such Warrant Certificates had not ceased
to be such officer of the Company.
SECTION 4. Exercise.
(a) Warrants may be exercised commencing at any time on or after the
Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon
the terms and subject to the conditions set forth herein (including the
provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof with such Registered Holder's
signature guaranteed, together with payment in cash or by bank or cashier's
check made payable to the order of the Company, of an amount in lawful money, of
the United States of America equal to the applicable Purchase Price, has been
received in good funds by the Warrant Agent. The person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of such securities as of the close of business on the Exercise Date.
As soon as practicable on or after the Exercise Date and in any event within
five business days after such date, the Warrant Agent on behalf of the Company
shall cause to be issued to the person or persons entitled to receive the same a
Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities delivered upon such exercise and, subject to subsection
(b) below, shall cause all payments of an amount in cash or by check made
payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of Warrants after one year and one day
from the date hereof, (i) the Market Price (as hereinafter defined) of the
Company's Common Stock is equal to or greater than the Purchase Price, (ii) the
exercise of the Warrant is solicited by an Underwriter at such time as such
Underwriter is a member of the National Association of Securities Dealers, Inc.
("NASD"), (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in documents provided to the
holders of the Warrants, and (v) the solicitation of the Warrant is not in
violation of Regulation M promulgated under the Securities Exchange Act of 1934,
then the soliciting Underwriter shall be entitled to receive from the Company
upon exercise of each of the Warrants so exercised, a fee of five percent (5%)
of the aggregate price of the Warrants so exercised (the "Exercise Fee"). Within
five (5) days after the end of each month, commencing in March 1999, the Warrant
Agent will notify the Representative of each Warrant Certificate which has been
properly completed for exercise by holders of Warrants during the last month.
The Warrant Agent will provide the Representative with such information, in
connection with the exercise of each Warrant, as the Representative shall
reasonably request. The Company hereby authorizes and instructs the Warrant
Agent to deliver to the soliciting Underwriters, if known to the Warrant Agent,
or to the Representative if not so known, the Exercise Fee promptly after
receipt by the Warrant Agent from the Company of a check payable to the order of
the appropriate Underwriter in the amount of the Exercise Fee. The Warrant Agent
shall not issue the shares of Common Stock issuable upon exercise of the
Warrants until receipt and forwarding of such check, provided that no check need
be issued unless the amount thereof is at least $1,000 (including Exercise Fees
previously earned, but not paid by reason of the application of this provision).
In the event that an Exercise Fee is paid to an Underwriter with respect to a
Warrant which was not properly completed for exercise or in respect of which
such Underwriter is not entitled to an Exercise Fee, such Underwriter will
return such Exercise Fee to the Warrant Agent which shall forthwith return such
fee to the Company. The Representative and the Company may at any time after
March 30, 1999, and during business hours, examine the records of the Warrant
Agent, including its ledger of original Warrant Certificates returned to the
Warrant Agent upon exercise of warrants. Notwithstanding any provision to the
contrary, the provisions of this Section 4(b) may not be modified, amended or
deleted without the prior consent of the Representative.
(c) The Company shall not be obligated to issue any fractional share
interests or fractional warrant interests upon the exercise of any Warrant or
Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated.
(d) Anything in this Section 4 notwithstanding, no Warrant will be
exercisable unless at the time of exercise the Company has filed with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, as amended (the "Act") covering the shares of Common Stock issuable
upon exercise of such Warrant and such shares have been so registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrant.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon exercise of warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery thereof, be duly and validly issued and
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issuance thereof, and that upon
issuance such shares shall be listed on each securities exchange, if any, on
which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that, so long as any unexpired Warrants remain
outstanding, the Company will file such post-effective amendments to the
registration statement, Form SB-2, Registration No. 333-42121 (the "Registration
Statement"), filed pursuant to the Act with respect to the Warrants (or other
appropriate registration statements or post-effective amendment or supplements)
as may be necessary to permit it to deliver to each person exercising a Warrant,
a prospectus meeting the requirements of Section 10(a)(3) of the Act and
otherwise complying therewith, and will deliver such a prospectus to each such
person. To the extent that during any period it is not reasonably likely that
the Warrants will be exercised, due to market price or otherwise, the Company
need not file such a post-effective amendment during such period. The Company
will use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws; provided the Company shall not be
required to qualify to do business as a foreign corporation or file a general
consent to the services of process in any such jurisdiction. With respect to any
such securities, however, Warrants may not be exercised by, or shares of Common
Stock issued to, any Registered Holder in any state in which such exercise would
be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants or may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and, upon satisfaction of the
terms and conditions hereof, the Company shall execute and the Warrant's Agent
shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, the Company shall execute
and the Warrant Agent shall issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate number
of Warrants.
(c) With respect to any Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription or exercise form, as the
case may be, on the reverse thereof shall be duly endorsed or be accompanied by
a written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof with such Registered Holder's signature guaranteed.
(d) A service charge may be imposed by the Warrant Agent for any exchange,
registration or transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange shall
be promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company and the Warrant Agent of evidence satisfactory
to them of the ownership of and the loss, theft, destruction or mutilation of
any Warrant Certificate and (in the case of loss, theft or destruction) of
indemnity satisfactory to them, and (in case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and the Warrant Agent shall
countersign and deliver in lieu thereof a new Warrant Certificate representing
an equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable costs and expenses as the Warrant Agent may impose.
SECTION 8. Adjustment of Purchase Price and reasonable charges as the
Warrant Agent may prescribe.
(a) Except as hereinafter provided, in the event the Company shall, at any
time or from time to time after the date hereof, sell any shares of Common Stock
for a consideration per share less than the closing bid price of the Common
Stock as reported on NASDAQ, if traded on the OTC Electronic Bulletin Board or
NASDAQ Small Cap Market or the last sales price, if listed on NASDAQ National
Market or a national exchange, in either case, on the trading date next
preceding such sale (the "Market Price"), or issue any shares of Common Stock as
a stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter immediately before the date of such
sale or the record date for each Change of Shares, the Purchase Price for the
shares of Common Stock issuable upon exercise of the Warrants (whether or not
the same shall be issued and outstanding) in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent to the nearest cent) determined by dividing (1) the product of (a) the
Purchase Price in effect immediately before such Change of Shares and (b) the
sum of (i) the total number of shares of Common Stock outstanding immediately
prior to such Change of Shares, and (ii) the number of shares determined by
dividing (A) the aggregate consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination, by (B) the Market Price; by (2)
the total number of shares of Common Stock outstanding immediately after such
Change of Shares, however, that in no event shall the Purchase Price be adjusted
pursuant too this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8(h)
hereof.
(b) For the purposes of any adjustment to be made in accordance with this
Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be cash, the amount of the
cash portion of the consideration therefor deemed to have been received by the
Company shall be (i) the subscription price (before deducting any commissions or
any expenses incurred in connection therewith), if shares of Common Stock are
offered by the Company for subscription, or (ii) the public offering price
(before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company, and otherwise than on the exercise of
options, rights or warrants or the conversion or exchange of convertible or
exchangeable securities) of shares of Common Stock (or of other securities
deemed hereunder to involve the issuance or sale of shares of Common Stock) for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash deemed to have been received by the
Company shall be the value of such consideration as determined in good faith by
the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(D) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time outstanding shall
be deemed to include the aggregate maximum number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to this Section 8,
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Purchase
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Section 8(a) and as
provided below) less than the Market Price, (including the issuance of any such
securities without consideration such as by way of dividend or other
distribution), the Purchase Price for the Warrants (whether or not the same
shall be issued and outstanding) in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by making
the computation in accordance with the provisions of Section 8(a) hereof,
provided that:
(A) The aggregate maximum number of shares of Common Stock issuable or that
may become issuable under such options, rights or warrants (assuming exercise in
full even if not then currently exercisable or currently exercisable in full)
shall be deemed to be issued and outstanding at the time such options, rights or
warrants were issued, for a consideration equal to the minimum purchase price
per share provided for in such options, rights or warrants at the time of
issuance, plus the consideration, if any, received by the Company for such
options, rights or warrants; provided, however, that upon the expiration or
other termination of such options, rights or warrants, if any thereof shall not
have been exercised, the number of shares of Common Stock deemed to be issued
and outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares
as to which options, warrants and/or rights shall have expired, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Purchase Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or that
may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if not
then currently convertible or exchangeable in full) shall be deemed to be issued
and outstanding at the time of issuance of such securities, for a consideration
equal to the consideration received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the expiration or other
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the exercise price per share provided for
in any of the options, rights or warrants referred to in subsection (A) of this
section 8(c), or in the price per share or ratio at which the securities
referred to in subsection (3) of this Section 8(c) are convertible or
exchangeable and if a change in the Purchase Price has not occured by reason of
the event giving rise to the change in the price per share of such other
options, rights, warrants or convertible or exchangeable securities, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercised, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of the then outstanding shares
of Common Stock or other capital stock issuable upon exercise of the Warrants)
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a condition
of such reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Warrant
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and the Company shall forthwith file at the Corporate Office of the
Warrant Agent a statement signed by its President or a Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 8(a) and (b). The above provisions of this
Section 8(d) shall similarly apply to successive reclassifications and changes
of shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(e) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(e) hereof, continue to express the Purchase Price per share and the number of
shares purchasable thereunder as the Purchase Price per share and the number of
shares purchasable thereunder were expressed in the Warrant Certificates when
the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this Section 8,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Registered Holder at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(g) No adjustment of the Purchase Price shall be made as a result of or in
connection with (A) the issuance or sale of the Representative's Warrant or the
Securities underlying the Representative's Warrant, (B) the issuance or sale of
the securities pursuant to the Initial Public Offering, including the Option
Securities and the securities underlying the Securities, (C) the issuance or
sale of shares of Common Stock pursuant to options, warrants, stock purchase
agreements and convertible or exchangeable securities outstanding or in effect
on the date hereof, or (D) the issuance or sale of shares of Common Stock if the
amount of said adjustment shall be less than $.02 for one share of Common Stock,
provided, however, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.02 for one share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
(h) Subdivision and Combination. In case the Company shall at any time
issue any shares of Common Stock in connection with a stock dividend in shares
of Common Stock or subdivide or combine the outstanding shares of Common Stock,
the Purchase Price shall forthwith be proportionately decreased in the case of a
stock dividend or a subdivision or increased in the case combination.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may, on
thirty (30) days prior written notice redeem all the Redeemable Warrants at $.10
per Redeemable Warrant, provided, however, that before any such call for
redemption of Warrants can take place, the (A) average closing bid price for the
Common Stock in the over-the-counter market as reported by the NASD Automated
Quotation System or (B) the average closing sale price on the primary exchange
on which the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, shall have for twenty (20) consecutive trading days ending
on the 3rd day prior to the notice of redemption exceeded 150% of the public
offering price of the shares of Common Stock (initially $7.50 per share of
Common Stock) (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof). All Redeemable Warrants must be
redeemed if any are redeemed.
(b) In the event the Company exercises its right to redeem all of the
Redeemable Warrants, it shall give or cause to be given notice to the Registered
Holders of the Redeemable Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, within 30 calendar days of
the aforementioned twenty (20) consecutive trading days and not later than the
twentieth (20th) day before the date fixed for redemption, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. At the time of the
mailing to the Registered Holders of the Warrants of the notice of redemption,
the Company shall deliver or cause to be delivered to the Representative a
similar notice telephonically and confirmed in writing together with a list of
the Registered Holders (including their respective addresses and number of
Warrants beneficially owned) to whom such notice of redemption has been or will
be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, (iii) the place where the Warrant Certificate
shall be delivered and the redemption price shall be paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial capacity
for the Company and the Representative, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed to make
any representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same, it shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board of Directors, Vice-Chairman or Secretary (unless other
evidence in respect thereof is herein specifically prescribed). The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order
or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company doing business in New
York, New York. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date
of exercise any Warrant Certificate received by it upon such exercise, marked to
indicate its cancellation thereof in accordance with Section 6(e) hereof.
SECTION 12. Modification of Agreement
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement without the approval of any holders of
Warrants (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of warrant certificates; or
(iii) which may be required by law; provided, however, that this Agreement shall
not otherwise be modified, supplemented or altered in any respect except with
the consent in writing of the Registered Holders representing not less than 50%
of the Warrants then outstanding; provided, further, that no change in the
number of the securities purchasable upon the exercise of any Warrant, or the
Purchase Price therefor, shall be, made without the consent in writing of the
Registered Holder of the Warrant Certificate, other than such changes as are
specifically permitted or prescribed by this Agreement as originally executed.
In addition, this Agreement may not be modified, amended or supplemented without
the prior written consent of the Representative, other than (i) to cure any
ambiguity or to correct any provision which is inconsistent or which is a
manifest mistake or error; (ii) to make any such change that is necessary or
desirable and which shall not adversely affect the interests of the
Representative; or (iii) except as may be required by-law.
SECTION 13. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or five days
after mailed first-class postage prepaid, or upon receipt when sent by
facsimile, with confirmation received, if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company at 205 Chubb Avenue
Lyndhurst, New Jersey 07071, Attention: Chairman, or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to The Thornwater Company, L.P.,
107A East 37th Street, New York, New York 10016, Attention: President, or at
such other addresses as may have been furnished to the Company and the Warrant
Agent in writing. SECTION 14. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws.
SECTION 15. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representative is, and shall
at all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder. In the event of any conflict relating to the Representative's
Warrant between the terms hereof and the terms of the Underwriter's Warrant
Agreement, the terms of the Underwriter's Warrant Agreement shall prevail.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HARVEY ELECTRONICS, INC.
By: /s/Michael Recca
---------------------------
Michael Recca, Chairman
[SEAL]
REGISTRAR AND TRANSFER COMPANY
By:
[SEAL]
<PAGE>
Exhibit A
No. HEW________ VOID AFTER 5:00 P M on March 30, 2003
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
HARVEY ELECTRONICS, INC.
NO. _______ CUSIP:
THIS CERTIFIES THAT, FOR VALUE RECEIVED _____________________ or registered
assigns (the "Registered Holder") is the owner of the number of Redeemable
Warrants (the "Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and non-assessable share of Common Stock, $.01 par value, of Harvey
Electronics, Inc., a New York corporation (the "Company"), at any time from
March 30, 2000 and prior to the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of Registrar
and Transfer Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.50 per share, subject to adjustment (the "Purchase
Price"), in lawful-money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated April 6, 1998,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on March
30, 2003. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that, if required by the Act, and unless during any period it is not
reasonably likely that the Warrants will be exercised, it will file a
registration statement under the Act, use its best efforts to cause the same to
become effective, keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration or
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing after March 30, 2000 provided that (i) the
average closing bid price for the Common Stock in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, or (ii) the average closing sale price on the primary exchange on which
the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, or (iii) the average closing sale price on NASDAQ, if the
Common Stock is quoted on NASDAQ, shall have for twenty (20) consecutive trading
days ending on the third (3rd) day prior to the Notice of Redemption, as defined
below, exceeded 150% of the public offering price of the shares of Common Stock
Price (initially $7.50 per share) (subject to adjustment in the event of any
stock splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the twentieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.10 per Warrant upon surrender of
this Certificate.
Under certain circumstances, The Thornwater Company, L.P., its successors
and assigns shall be entitled to receive an aggregate of five percent (5%) of
the Purchase Price of the Warrants represented hereby.
Prior to due presentment for registration or transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant-represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not, valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: __________, 1998
HARVEY ELECTRONICS, INC.
By:/s/Michael Recca
-------------------------------------
SEAL Name: Michael Recca
Title: Chairman
By:/s/Michael Recca
-------------------------------------
Name: Joseph J. Calabrese
Title: Secretary
COUNTERSIGNED:
REGISTRAR AND TRANSFER COMPANY as Warrant Agent
By: ________________________
Authorized Officer
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
______________ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
=======================================
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(please print or type name and address)
and be delivered to:
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(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by
The Thornwater Company, L.P. [ ]
2. The exercise of this Warrant was solicited by
------------------. [ ]
3. If the exercise of this Warrant was not solicited, please check the
following box. [ ]
X____________________________ Dated: _____________, 199__
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Address
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Social Security or Taxpayer
Identification Number
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Signature Guaranteed
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<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ______________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
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--------------------------------------
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(please print or type name and address)
_______________________________________________________ of the Warrants
represented by this Warrant Certificate, and hereby irrevocably constitutes and
appoints ------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company,
with full power of substitution in the premises.
Dated: ___________________, 199____
X______________________
Signature Guaranteed
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THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST
BE MEDALLION GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM
OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE, WHO IS A MEMBER OF THE
MEDALLION PROGRAM.
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the 6th day of April 1998 by
and between The Thornwater Company, L.P. ("Consultant"), and Harvey Electronics,
Inc., a New York corporation (the "Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Consultant for the term specified in
Paragraph 2 hereof to render consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and conditions
set forth herein.
2. Term: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective for a three (3) year period commencing April 6,
1998 and ending on April 5, 2001.
3. Duties of Consultant: During the term of this Agreement, Consultant
shall seek out Transactions (as hereinafter defined) on behalf of the Company
and shall furnish advice to the Company in connection with any such
Transactions.
4. Compensation: In consideration for the services rendered by Consultant
to the Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 5 hereof), the Company shall compensate Consultant as
follows:
(a) The Company shall pay Consultant a fee of $3,435 per month for the term
of this Agreement. The aggregate sum of $123,660 shall be due and payable upon
the execution of this Agreement.
(b) In the event that any Transaction occurs during the term of this
Agreement or, to the extent provided in paragraph 4(d) hereof, one year
thereafter, the Company shall pay fees to Consultant as follows:
<PAGE>
<TABLE>
<CAPTION>
Consideration Fee
<S> <C> <C>
$0 to $ 500,000 Minimum Fee of $25,000
$500,000 to $5,000,000 5% of Consideration
$5,000,000 or more $250,000 plus 1% of the Consideration in excess of $5,000,000
</TABLE>
For the purposes of this Agreement, "Consideration" shall mean the total
market value on the day of the closing of stock, cash, assets and all other
property (real or personal) exchanged or received, directly or indirectly by the
Company or any of its security holders in connection with any Transaction. Any
co-broker retained by Consultant shall be paid by Consultant.
(c) For the purposes of the Agreement, a "Transaction" shall mean (i) any
transaction originated by Consultant, other than in the ordinary course of trade
or business of the Company, whereby, directly or indirectly, control of the
Company or any of its businesses , is transferred for Consideration, or (ii) any
transaction originated by Consultant whereby the Company acquires any other
company or the assets of any other company or a controlling interest in any
other company (an "Acquisition").
In the event Consultant originates a line of credit with a lender or a
corporate partner, the Company and Consultant will mutually agree on a
satisfactory fee and the terms of payment of such fee. In the event Consultant,
at the Company's request, introduces the Company to a joint venture partner or
customer and sales develop as a result of the introduction, the Company agrees
to pay a fee of five percent (5%) of total sales generated directly from this
introduction during the first two years following the date of the first sale.
Total sales shall mean gross receipts less any applicable refunds, returns,
allowances, credits, taxes and shipping charges and monies paid by the Company
by way of settlement or judgment arising out of claims made by or threatened
against the Company. Commission payments shall be paid on the 15th day of each
third month following the receipt of customers' payments. In the event any
adjustments are made to the total sales after the commission has been paid, the
Company shall be entitled to an appropriate refund or credit against future
payments under this Agreement.
(d) All fees to be paid pursuant to this Agreement, except as otherwise
specified, are due and payable to Consultant in cash or company check at the
closing or closings of any Transaction specified in Paragraph 4. In the event
that this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, Consultant shall be
entitled to a full fee as provided under Paragraphs 4 and 5 hereof, for any
Transaction for which the discussions were initiated during the term of this
Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement. Nothing herein shall impose any
obligation on the part of the Company to enter into any Transaction.
5. Expenses of Consultant: In addition to the fees payable hereunder and
regardless of whether any Transaction set forth in Paragraph 4 hereof is
proposed or consummated, the Company shall reimburse Consultant for the
reasonable fees and disbursements of Consultant's counsel and Consultant's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by Consultant pursuant to this Agreement and at the request
of the Company, including without limitation, hotels, food and associated
expenses and long-distance telephone calls, except that all expenses exceeding
$500 must be pre-approved in writing by the Company.
6. Liability of Consultant: The Company acknowledges that all opinions and
advice (written or oral) given by Consultant to the Company in connection with
Consultant's engagement hereunder are intended solely for the benefit and use of
the Company in considering the Transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to make
use of or rely upon the advice of Consultant to be given hereunder, and no such
opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Consultant, or use
Consultant's name in any annual reports or any other reports or releases of the
Company without Consultant's prior written consent which consent shall not be
unreasonably withheld.
The Company acknowledges that Consultant makes no commitment whatsoever as
to making a market in the Company's securities or to recommending or advising
its clients to purchase the Company's securities. Research reports or corporate
finance reports that may be prepared by Consultant will, when and if prepared,
be done solely on the merits or judgment of analysis of Consultant or any senior
corporate finance personnel of Consultant.
7. Consultant's Services to Others: The Company acknowledges that
Consultant and its affiliates are in the business of providing financial
services and consulting advice to others. Nothing herein contained shall be
construed to limit or restrict Consultant in conducting such business with
respect to others, or in rendering such advice to others, except that Consultant
will not provide services to others when such services, in the Company's
reasonable discretion may materially and adversely affect the Company.
8. Company Information:
(a) The Company recognizes and confirms that, in advising the Company and
in fulfilling its engagement hereunder, Consultant will use and rely on data,
material and other information furnished to Consultant by the Company. The
Company acknowledges and agrees that in performing its services under this
Agreement, Consultant may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same.
(b) Except as contemplated by the terms hereof or as required by applicable
law, Consultant shall keep confidential all non-public information provided to
it by the Company, and shall not disclose such information to any third party
without the Company's prior written consent, other than such of its employees
and advisors as Consultant reasonably determines to have a need to know.
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<PAGE>
9. Indemnification:
(a) The Company shall indemnify and hold Consultant harmless against any
and all liabilities, claims, lawsuits, including any and all awards and/or
judgments to which it may become subject under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"Act") or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs, expenses,
awards and/or judgments) arise out of or are in connection with the services
rendered by Consultant or any transactions in connection with this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of acts or omissions of Consultant. In addition, the
Company shall also indemnify and hold Consultant harmless against any and all
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
Consultant shall give the Company prompt notice of any such liability,
claim or lawsuit which Consultant contends is the subject matter of the
Company's indemnification and the Company thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise and dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
Consultant shall indemnify and hold the Company harmless against any and
all liabilities, claims and lawsuits, including any and all awards and/or
judgments to which it may become subject under the 1933 Act, the Act or any
other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact required to be stated or necessary to make the
statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
Consultant for inclusion in any registration statement or prospectus or any
amendment or supplement thereto or in connection with any Transaction to which
this Agreement applies or which otherwise arises. In addition, Consultant shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Company shall give Consultant prompt notice of any such liability,
claim or lawsuit which the Company contends is the subject matter of
Consultant's indemnification and Consultant thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise or dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
(b) 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
Paragraph 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 Paragraph 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
Paragraph 9, then, and in each such case, the Company and Consultant shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after any contribution from others) in such proportion taking
into consideration the relative benefits received by each party from the
transactions undertaken in connection with this Agreement (taking into account
the portion of the proceeds realized by each), the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was assessed, the opportunity to correct and prevent any statement or omission
and other equitable considerations appropriate under the circumstances; and
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 fifteen (15) 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 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 notifies
a Contributing Party or his or its representative of the commencement thereof
within the aforesaid fifteen (15) 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 the Contributing Party, which consent shall not be unreasonably
withheld. The indemnification provisions contained in this Paragraph 9 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
10. Consultant an Independent Contractor: Consultant shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. The parties hereto expressly understand and
agree that Consultant shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
11. Miscellaneous:
(a) This Agreement between the Company and Consultant constitutes the
entire agreement and understanding of the parties hereto, and supersedes any and
all previous agreements and understandings, whether oral or written, between the
parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall be in
writing and shall be deemed sufficiently given if hand-delivered (i) five
calendar days after being sent postage prepaid by registered mail, return
receipt requested, or (ii) one business day after being sent by facsimile with
confirmatory notice by U.S. mail, to the respective parties as set forth below,
or to such other address as either party may notify the other in writing:
If to the Company, to: Harvey Electronics, Inc.
205 Chubb Avenue
Lyndhurst, New Jersey 07071
Att: Chairman
Telecopy No.: 201-842-0660
With a courtesy copy to: Paul Rubell, Esq.
Moscou, Ruskin et al
170 Old Country Road
Mineola, New York 11501-4366
Telecopy No.: 516-663-6643
If to Consultant, to: The Thornwater Company, L.P.
107A East 37th Street
New York, New York 10016
Att: Managing Director
Telecopy No.: (212) 696-4008
with a courtesy copy to: Jay M. Kaplowitz, Esq.
Gersten, Savage, Kaplowitz
& Fredericks, LLP
101 East 52nd Street
New York, New York 10022
Telecopy No.: (212) 980-5192
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal representatives and
assigns.
(d) This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, without giving effect to its conflict of law
principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
THE THORNWATER COMPANY, L.P.
By:/s/Thomas O'Rourke
------------------------------
Name: Thomas O'Rourke
Title: Managing Director
HARVEY ELECTRONICS, INC.
By:/s/Franklin C. Karp
------------------------------
Franklin C. Karp, President
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